The World Credit Crisis: Understanding It, and What To Do
Melbourne Institute Working Paper No. 25/08
Date: December 2008
This paper expounds a story in four stages to explain the world credit crisis, namely: (1) too much credit - an international perspective, (2) too much risk - reaction to low real interest rate, (3) the fatal flaw - the new complex financial instruments, and (4) the panic- bank lending dries up. The paper also discusses the relationship of this crisis to the often-expected crisis of the global imbalances, and it outlines various policy implications.