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Financial Crises, Safety Nets and Regulation

44 Pages Posted: 20 Oct 2008 Last revised: 12 May 2014

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

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Date Written: October 19, 2008

Abstract

The historical record shows that financial crises are far from being a rare a phenomenon; they occur often enough to be considered part of the workings of finance capitalism. While there is no single hypothesis that can best explain all crises, the implications of the credit boom-and-bust hypothesis, supplemented with asymmetric information, are consistent with the onset and development of many crises, including the current subprime crisis. Governments have reacted to crises by erecting a vast and growing safety net. In turn, to minimize their risk exposure, they have also put in place expansive systems of regulation and supervision. The unwinding of the current crisis will mark a big enlargement of the safety net and moral hazard, as well as a predictable flurry of policy proposals aimed at closing past regulatory loopholes. The maintained hypothesis is that regulatory and market failures are inexorably intertwined.

Suggested Citation

Fratianni, Michele U., Financial Crises, Safety Nets and Regulation (October 19, 2008). Available at SSRN: https://ssrn.com/abstract=1286903 or http://dx.doi.org/10.2139/ssrn.1286903

Michele Fratianni (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

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