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 the hedge fund LTCM, the specific causes of the financial meltdown in both Ireland and Iceland, and the Bernie Madoff Ponzi Scheme. 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. demonstrate understanding of 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|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Practice Essay Question||Students will be given two past paper questions to answer and hand in for review by the start of week 10. Each past paper questions is 1 hour.||1-7||Students will be given written feedback on the essay including an indication of the mark range, and the opportunity to meet with the lecturer to discuss.|
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|
|Open book exam, students are allowed to take any two textbooks into the exam (no loose notes or files). Electronic versions will not be permitted.||100||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||Open Book Exam; students are required to answer 2 of the 4 questions asked (2 hours)||1-7||August/September assessment period|
Open book exam, students are allowed to take any two textbooks into the exam (no loose notes or files). Electronic versions will not be permitted.
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 collateralized 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 hedge fund LTCM, the Northern Rock, Lehman Brothers, Anglo Irish Bank and the Icelandic Banking system and the Bernie Madoff Ponzi scheme.
- 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.
- A discussion on behavioural ethics, the concepts of ethical fading and cognitive dissonance and the role that both normative and informative influences played in explaining the crisis itself and the unethical processes which were associated with the crisis.
- 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
Basic reading: The recommended text books are How Markets Fail by John Cassidy (ISBN 978-0-141-03651-9) and The sub-prime solution by Robert Shiller (ISBN 978-0-691-13929-6). Both books plus a number of other recommended textbooks are available in the library.
Module has an active ELE page?
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.
Last revision date