Deciphering the 2007-08 Liquidity and Credit Crunch

∗My views were shaped by conversations with Viral Acharya, Franklin Allen, Patrick Bolton, Smita Brunnermeier, Sylvain Champonnois, Ing-Haw Cheng, Doug Diamond, Joel Hasbrouck, John Kambhu, Augustin Landier, David Lando, Jamie McAndrews, Konstantin Milbradt, Filippos Papakonstantinou, Raghu Rajan, Ricardo Reis, Andrei Shleifer, Jeremy Stein, James Vickery, Glen Weyl, and Wei Xiong. My co-authors on related work, Lasse Pedersen, Tobias Adrian, Martin Oehmke, Stefan Nagel, Arvind Krishnamurthy, Hyun Shin, and Moto Yogo deserve special mention. Rachel Goodwin and Martin Schmalz provided excellent research assistance. I am grateful for financial support from the Alfred P. Sloan Foundation. †Department of Economics, Bendheim Center for Finance, 26 Prospect Avenue, Princeton University, Princeton, NJ 08544, e-mail: markus@princeton.edu, http://www.princeton.edu/∼markus.

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