The Political Economy of the Subprime Crisis: Why Subprime Was So Attractive to Its Creators

Abstract

Examination of the origins of the 2008 subprime crisis reveals that what occurred was no accident. All the major parties responsible for the crisis appear to have gained something from what transpired, at least in the short-run. Moreover, it seems to have been as much, if not more, a failure of government and its agencies inclusive of regulators as much as any failure of capitalism. Finally, the apparently arbitrary, if not self-interested, bank bailouts seem to indicate that governments are likely to directing bank policy for some time.

Keywords: Subprime crisis, Government bailouts, Vested interests, Regulatory failure

JEL Classification: G28, G32, G33, G34, G38, H81