The roots of the 2008 financial crisis are often traced back to the collapse of the housing bubble. The factors that precipitated the crisis, and propagated its effects on firms and consumers to produce an economic contraction, are still the subject of ongoing debate among academics, policy...

We consider a moral hazard setup wherein leveraged firms have incentivesto take on excessive risks and are thus rationed when they attempt toroll over debt. Firms can sell assets to alleviate rationing. Liquidatedassets are purchased by non-rationed firms but their borrowing capacityis also...