ABSTRACT
In the fall of 2008, the international financial system finds itself in severe crisis and the global economy appears to be on the brink of recession. The financial turmoil had its origin in the US subprime mortgage sector more than a year earlier. Following a lending boom and years of rapid property price increases, home prices stalled in 2006 and were falling nationwide by 2007, heralding serious troubles for borrowers and lenders alike. Equity markets reacted unfavorably with a selloff in late February 2007 in response to a heightening of mortgage delinquencies. Calm quickly returned though and global equity markets reached new highs in the spring of that year. Many observers feared at the time that the US economy might be slowing, but hopes were high that the global economy might be able to “decouple” from its former growth engine.
