The Economics of Money, Banking and Financial Markets 4th Edition by Frederic Mishkin

Exercise 2

One of the classic features of the global financial crisis was the failure of high-profile investment banks and financial firms such as Lehman Brothers, Bear Steams, and AIG. These firms experienced sharp contractions in the values of their balance sheets due to risky asset holdings. Comment on how this would affect the economy as it relates to the balance sheet channel.