The Economics of Financial Crises

Module description

**Please note that there is a term 2 version of this module (BEE3051a) available to students in the 2018/19 academic year**

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
Module code:BEE3051
Module level:3
Academic year:2020/1
Module lecturers:
  • Dr Gary Abrahams - Convenor
Module credit:15
ECTS value:






Duration of module: Duration (weeks) - term 1:


Module aims

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 obligation’s, 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 ActivitiesGuided independent studyPlacement / study abroad

Details of learning activities and teaching methods

CategoryHours of study timeDescription
Lectures363 hours of lecturers every week for the term
Tutorials44 tutorials of 1 hour each, one in weeks 3, 6, 9 and 12

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Practice Essay QuestionStudents 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.1-7Students 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)

CourseworkWritten examsPractical exams

Details of summative assessment

Form of assessment% of creditSize of the assessment (eg length / duration)ILOs assessedFeedback 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.1002 hours1-7Verbal by appointment

Details of re-assessment (where required by referral or deferral)

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
ExamOpen Book Exam; students are required to answer 2 of the 4 questions asked (2 hours)1-7August/September assessment period

Re-assessment notes

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.

Syllabus plan

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.

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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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