After the Crisis: Institutional Innovation and the Alternative Futures of American Finance
Columbia University - Center for Law and Economic Studies
December 1, 2010
Columbia Law and Economics Working Paper No. 386
The worldwide financial and economic crisis of 2007-2009 and the subsequent slump in much of the world provide an opportunity to rethink the nature of finance and its relation to the real economy. Because any reshaping of this relation requires a revision of institutional arrangements established in law, it provides an opportunity for legal analysis to contribute to the project of institutional innovation.
This piece addresses the role of finance in the crisis, in the economic downturn that followed it, and in the ongoing debates about how finance should now be regulated. It deals with these issues and events in the American center of the crisis. The reinterpretation of American experiences and prospects in this area exemplifies a more general approach both to finance and to comparative law.
A major element in the American genealogy of the crisis was the partial hollowing out of institutional arrangements, especially with regard to banks and to the mortgage market, that were established during the New Deal period. To redress present problems it is no longer enough to re-regulate finance in the New Deal spirit. It is necessary to innovate in the arrangements governing the relation of finance to the real economy.
The innovations should be oriented to two goals: to place finance more effectively at the service of the real economy in general and of production in particular and to contribute to a broadening of economic opportunity – socially inclusive economic growth. At every point along the way, both for the understanding of what has happened and for the proposal of alternatives, legal detail is crucial. The piece seeks to exemplify a practice of national and comparative legal analysis useful to the execution of this task.
KEYWORDS: Financial crisis, contagion, financial regulation and reform, Dodd-Frank, resolution authority, institutions, institutional change, globalization, development, comparative law, law and finance, structural transformation.
Number of Pages in PDF File: 63
Date posted: December 6, 2010 ; Last revised: January 5, 2013