Previous research showed that credit growth is a robust predictor of financial fragility.
We test the model using the 2007-2009 collapse of the CMBS market as a natural experiment, when banks funded both collateral types.
Our results show that properties likely to have been securitized were less likely to default or be renegotiated, consistent with the model.
In fact, changes in top income shares outperform credit as crises predictors.
Moreover, financial recessions that are preceded by strong increases in income inequality or low productivity growth are also associated with deeper and slower recoveries.
We model commercial mortgage-backed securities (CMBS) as the less informed source of credit.