All economists should be conversant with "what happened?" during the financial crisis of 2007-09. We select and summarize sixteen documents, including academic papers and reports from regulatory and international agencies. This reading list covers the key facts and mechanisms in the build-up of...

This paper surveys the role of the Federal Reserve within the financial regulatory system, with particular attention to the interaction of the Fed's role as both a supervisor and a lender-of-last-resort. The institutional design of the Federal Reserve System was aimed at preventing banking...

We document that the percentage of all U.S. assets that are "safe" has remained stable at about 33 percent since 1952. This stable ratio is a rare example of calm in a rapidly changing financial world. Over the same time period, the ratio of U.S. assets to GDP has increased by a factor of 2.5,...

An examination of U.S. banking history shows that economically efficient private bank money requires that information-revealing securities markets for bank liabilities be closed. That is, banks are optimally opaque, which is why they are regulated and examined. I show this by examining the...

Short-term collateralized debt, private money, is efficient if agents are willing to lend without producing costly information about the collateral backing the debt. When the economy relies on such informationally insensitive debt, firms with low quality collateral can borrow, generating a...

Short-term collateralized debt, such as demand deposits and money market instruments - private money, is efficient if agents are willing to lend without producing costly information about the collateral backing the debt. When the economy relies on such informationally-insensitive debt, firms...

Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires that information about the backing assets - loans - not be revealed, so that bank money does not fluctuate in value, reducing the efficiency of trade. This need for opacity...

Economic growth involves metamorphosis of the financial system. Forms of banks and bank money change. These changes, if not addressed, leave the banking system vulnerable to crisis. There is no greater challenge in economics than to understand and prevent financial crises. The financial crisis...

Why did the failure of Lehman Brothers make the financial crisis dramatically worse? The financial crisis was a process of a build-up of risk during the crisis prior to the Lehman failure. Market participants tried to preserve an option or exit by shortening maturities - the "flight from...

The amount of information produced about firms' productivities and about the quality of collateral backing their loans varies over time. These information dynamics determine the evolution of credit, output and productivity, which feeds back into incentives to produce information. We characterize...