Publication
The Korean Journal of Economic Studies
Financial Crisis in the U.S.: Pursuit of Liquidity and Increasing Financial Fragility
Bokhyun ChoYear 2009Vol. 57No. 1
Abstract
The financial crisis in the U.S. differs from the other financial crises whichhave developed in many countries. The U.S. financial crisis occurred in thecountry that have the most developed financial market and the most effectivesupervision authorities, and rooted in the increasing risk in capital marketrather than in the increasing in bank lending. The U.S. financial crisis,therefore, may be explained differently from the existing financial crisistheories.This paper argues that the U.S. financial crisis arises from thestrengthening of the nature of finance, that is the pursuit of financial liquidityand profitability, and the institutional development, which can support thepursuit of financial nature, not from the moral hazard of financial institutions.The pursuit of liquidity in financial sector has developed the securitization inthe capital market and it has boosted the lending boom. These resulted in theexcess expansion in the trading of capital market and the lending boom in thesubprime mortgage market.