fall of 2008 lost asset values and so were undercapitalized—the decline in asset value lowers the value 4 For example, see Ludvigson, Steindel and Lettau (2002). 11 EFTA00611664 of equity, so the ratio of equity capital to debt is now too low. In this story, banks could not raise new capital, they

al consumption and spending decisions will vary significantly with age and family circumstances. 123 EFTA00625251 Indeed an interesting paper by Lettau and Ludvigson [Lettau & Ludvigson 2001] suggests that there is a constant rebalancing of asset wealth to ensure long-term consumption, and that this