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Not What They Had in Mind: A History of Policies that Produced the Financial Crisis of 2008

50 Pages Posted: 18 Sep 2009  

Arnold Kling

George Mason University

Date Written: September 15, 2009

Abstract

This paper looks at the roots of the current crisis through an analytical framework of bad bets, excessive leverage, domino effects, and 21st-century bank runs. The paper shows that broad policy areas-including housing policy, capital regulations for banks, industry structure and competition, autonomous financial innovation, and monetary policy-affected elements of this framework to varying, but important, degrees. While considering alternative points of view concerning the causes of the financial crisis, the paper concludes that bank capital regulations were the most important causal factor in the crisis and that the policy “solutions” to previous financial and economic crises sowed the seeds for this current crisis.

Keywords: financial crisis, Basel Accords, risk-based capital, capital regulations

JEL Classification: G21, G28, N20

Suggested Citation

Kling, Arnold, Not What They Had in Mind: A History of Policies that Produced the Financial Crisis of 2008 (September 15, 2009). Available at SSRN: https://ssrn.com/abstract=1474430 or http://dx.doi.org/10.2139/ssrn.1474430

Arnold Kling (Contact Author)

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

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