Was The Credit Crisis Just Like An Old Fashioned Bank Run?

That is what Steven Landsburg suggests at his blog with What Really Went Wrong. He discusses a book by Gary Gorton titled Slapped By the Invisible Hand: The Panic of 2007. The basic idea is that when mutual funds like Fidelity loaned money to investment houses like Bear Stearns, they started to wonder about the collateral they were given. It is not clear but it seems like the collateral was mortgage backed bonds. Once Fidelity and others questioned the value of those bonds (which is not surprising since we built too many houses), they demanded more collateral from Bear Stearns. But, of course, they could not give everyone more collateral and they went under. Everyone started withdrawing their money. Just like a bank run.

The part about mortgage backed bonds seems similar to what the AEI reported. I had a post on this calledAEI Paper On The Credit Crisis. They suggested that regulations steered banks into hold mortgage backed bonds that were given ratings that were unrealistically high. So they held assets that were more risky than they thought.