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A Tale of Two Crises: The 2008 Mortgage Meltdown and the 2020 COVID-19 Crisis
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The causes and consequences of the 2008 mortgage meltdown and 2020 COVID-19
crisis are quite different: the 2008 mortgage meltdown reflected infection of the
financial system due to excess leverage and poor-quality mortgage loans, and the
recent crisis reflects a substantial global economic shock to contain the viral
outbreak of the coronavirus. Yet the financial and medical systems share many
elements, such as opacity and interconnectedness as well as adequate buffers and
reserves. We examine these themes as well as asset pricing, moral hazard (though
it was at the root of the crisis only in the Great Recession), the consequences
for government as a systemic actor, economic concentration, and capital market
regulation in the two crises. In both crises, interventions in financial markets
and disruptions in the housing market played important, but differing, roles. The
recent crisis elucidates open questions about the foundation of financial
economics and risk sharing. (JEL G1, G2, G3, E4, E5, B2) Received: June 6, 2020;
editorial decision: August 25, 2020; Editor: Jeffrey Pontiff.