Policy Responses during the Depth of the 2007-09 Financial Crisis: Instrument Innovations, Executive Reconfigurations, and Legacies for U.S. Governance

Abstract:     
This study analyzes policy responses during the depth of the 2007-09 Financial Crisis by focusing on instrument innovations, executive-branch reconfigurations, and legacies for U.S. governance. The period September 2008 - March 2009 encompassed that part of the long-festering financial crisis severe enough to leave troubling legacies for the conduct of economic policies. Executive discretion in economic governance hurriedly expanded and centralized to address the depth of the crisis. The U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation acting in tandem, freely exercised emergency authority to prop up the financial system. This paper shows these interventions to have short-run benefits and long-run costs for market efficiency and stability.

Number of Pages in PDF File: 64

Keywords: Financial Crisis, TARP, FDIC Guarantees, Federal Reserve Loans, Credit Market Stabilization

JEL Classification: G21,G18, E58

working papers series