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Financial Crisis Resolution – The State As A Lender Of Last Resort?

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  • Charles B. Blankart
  • Erik R. Fasten

Abstract

What is the theoretical basis for spending billions of dollars to fight the financial and economic crisis? Neither the model of an omnipotent state nor that of a welfare‐maximising state seems appropriate. We propose a model of a contractual state resulting from an exchange of protection against systemic risks against regulation of the banking sector. During the years of globalisation governments have neglected to install institutions to reduce systematic risks and currently pay the price for their laxity. We evaluate what can be undertaken in both the short and long run and how far a framework can be enforced internationally.

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  • Charles B. Blankart & Erik R. Fasten, 2009. "Financial Crisis Resolution – The State As A Lender Of Last Resort?," Economic Affairs, Wiley Blackwell, vol. 29(3), pages 47-52, September.
    • Handle: RePEc:bla:ecaffa:v:29:y:2009:i:3:p:47-52
    DOI: 10.1111/j.1468-0270.2009.01918.x
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    References listed on IDEAS

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    1. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    2. Miron, Jeffrey A., 2009. "Bailout or Bankruptcy?," Scholarly Articles 11380185, Harvard University Department of Economics.
    3. Zsófia Arvai & Karl Driessen & Ínci Ötker-Robe, 2009. "Regional Financial Interlinkages and Financial Contagion within Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 522-540, December.
    4. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
    5. Jeffrey A. Miron, 2009. "Bailout or Bankruptcy?," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 1-17, Winter.
    6. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Louise Parsons, 2013. "Developments in central banking after the GFC: central banks, the state, globalisation and the GFC," Chapters, in: John Farrar & David G. Mayes (ed.), Globalisation, the Global Financial Crisis and the State, chapter 10, pages 218-242, Edward Elgar Publishing.

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