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How We Got to the Credit Crisis

Working paper #631
Peter Linneman

The current capital market credit crisis was perpetrated by a confluence of factors, including a potent period of fear winning over greed; a near collapse of due diligence in the credit markets (a.k.a., more money than brains); a mismatch of short-term capital and long-term liabilities (and subsequent margin calls); and a critical error made by the Fed in setting monetary policy. As a result, credit markets will gradually rebalance over the next twelve months, as greed re-harnesses fear. However, the overall U.S. economy will continue to thrive in 2008, due in large part to government spending.

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