ABSTRACT

If credit and leverage matter in bubbles, they played major roles in the most recent bubble which popped in the Panic of 2007–2008. Financial institution credit and leverage fueled the real estate and securities bubbles in the United States and Europe. These factors also made the crashes in both continents more severe and the ensuing financial crises more destructive, economically and socially. Following historical pattern, these latest debt bubbles proved far more dangerous than equity bubbles, not least because they became intertwined with a banking boom, bust, and crisis.