The Economics of Financial Crises
This model explores the causes of the recent financial crisis and in particular the lesson which can be learnt. You will gain an understanding of the mechanistic causes of financial crises and in particular the processes of securitisation, Collateralized Debt Obligation (CDOs) and Credit Default Swaps (CDS) and at the end you will have a good understanding of both the narrow and wider causes of the 2007/8 financial crisis. You will be taken through a series of case studies, including the collapse of Northern Rock Bank in the UK. These case studies will provide you with some context and understanding of some of the governance failures which occurred around the crisis. You will be exposed to a series of guest lecturers from practitioners who worked in senior positions during the financial crisis. These practitioners will recount their experiences during the financial crisis and will give you additional perspectives on the crisis. The course draws on the personal experiences of the lecturer who worked right at a leading investment bank on a debt trading floor in the lead up to the crisis.
Full module specification
|Module title:||The Economics of Financial Crises|
|Duration of module:||
Duration (weeks) - term 1: |
The overall aims of the course are to provide you with a good understanding of the broad causes of the latest financial crisis but in particular to focus on what are the lessons that can be learnt so that they might not be repeated. In particular the course will expose you to the teachings of behavioural economics as it can be applied to the financial crisis and will give you a much better understanding of not only why the crisis occurred but what can be done to prevent it from happening again in the future.
ILO: Module-specific skills
- 1. critically review and discuss seminal papers and books written on the financial crisis
- 2. demonstrate understanding of the technical innovations around the financial crisis including how collateralized debt obligations, mortgage backed securities, credit default swaps and repos work and how they impacted the financial crisis
- 3. explain the concept of financial leverage and deleverage and how this impacted the financial crisis
- 4. critically review and analyse the role that the various actors (rating agencies, bankers, regulators) played in the financial crisis
ILO: Discipline-specific skills
- 5. critically evaluate and formulate a well-founded answer to a specific topical research related question
ILO: Personal and key skills
- 6. deliver coherent arguments in written work
- 7. demonstrate analytical and critical thinking skills
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Lectures||36||3 hours of lecturers every week for the term|
|Tutorials||4||4 tutorials of 1 hour each, one in weeks 3, 6, 9 and 12|
|Guided Independent Study||110||Reading of text books, academic articles, viewing selected documentaries and preparing for tutorials|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Essay Question||Students will be given a practice essay to hand in, which will be marked and feedback provided. The essay will not count towards their final mark.||1-7||Students will be given written feedback on the essay|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Term class assignment||20||Book review limited to 750 words||1-7||Verbal by appointment|
|Exam||80||2 Hours||1-7||Verbal by appointment|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Exam (80%) & Term Class Assignment (20%)||Exam (100%)||1-7||August/September assessment period|
The syllabus plan is incorporated in the descriptor above. In summary the 12 weeks of the course will cover
- A detailed analysis of the causes of the 2007/8 financial crisis and an explanation of how collateralised debt obligation s, mortgage backed securities, credit default swaps and repo work and the role that such financial innovation played in the crisis itself.
- An analysis of case studies around the crisis such as the collapse of, Northern Rock, Lehman Brothers,
- How Financial leverage is achieved including an explanation of how investors can “short” and the consequences of both leverage and subsequent deleverage had on the financial markets.
- Guest lectures from the industry. These change on a year by year basis but normally three to four guest lecturers are invited to give a speech about their specific experiences around the crisis and the lessons which they think can and should be learnt.
Indicative learning resources - Basic reading
The recommended text books are:
How Markets Fail John Cassidy – Princeton University Press - 2010
The Sub-Prime Solution Robert Shiller - Princeton University Press - 2008
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Indicative learning resources - Other resources
Other resources: A wide range of books and articles will be provided to students in addition to relevant audio visual and documentaries.
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