Explaining the 2008 financial crisis with a System Dynamics model

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2016-11-01
Language
en
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Abstract
In this thesis, the effects of a write-off of mortgages will be shown for a banking system. Literature shows that certain causes for the financial crisis of 2008 were being named. One of those causes will be explored in a System Dynamics model. This reason is the sudden write-off of mortgages. It will be explored what magnitude of write-off will cause a bank, and subsequently other banks and the system to fail, as well as make investors lose their money. This write-off will be tested in the scenario of a run on Retail Mortgage Backed Securities (RMBS) notes and in normal circumstances. It will be shown that a sudden write off of mortgages could cause a bank to fail, but not the system. It will also be shown that in the scenario of RMBS notes run, the bank and consequently the system will fail if not for the actions of governments and central banks. Thus, it will be shown that the banking system would have failed in 2008 were it not for the interventions of governments and central banks.
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Faculteit der Managementwetenschappen