Monetary Policy in Terms of Global Financial Crisis

The issue of crises and financial shocks is one of the primary concerns of scientists and politicians in the last century. But almost all attempts to predict crises and shocks fail. Underestimation of consequences is another important problem. Damage from shock always seem small relatively to the aftermath. According to Blanchard (2009, “The crisis: Basic Mechanisms and Appropriate policies”) the estimated losses in United States subprime market in October 2007 were around 250 billion dollars but cumulative world output loss was around 4700 billion dollars with cumulative loss in the stock market of 26400 billion dollars (100 times the losses in subprime market). In my paper I want to explain the theory that lies behind these facts and emphasize the importance of securitization in the Global financial crisis of 2008-2009. My work is based on the model of Andrei Vishny and Robert W. Shleifer.