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The financial sector and the future of capitalism

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  • Pomfret, Richard

Abstract

Financial sector innovation and development since the 1970s contributed to global prosperity, but increased the probability of bank failures. The post-2007 financial crisis was one of many crises with idiosyncratic catalysts but common underlying causes. Public policies, such as deposit insurance, with moral hazard implications increased the likelihood of crises, and cheap money exacerbated the situation by encouraging highly leveraged investments. The policy challenge is to address moral hazard without repressing the financial sector. This is not the end of capitalism, but a reminder of the difficulty in policing the financial sector which is at the heart of capitalist economies.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 34 (2010)
Issue (Month): 1 (March)
Pages: 22-37

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Handle: RePEc:eee:ecosys:v:34:y:2010:i:1:p:22-37

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Keywords: Financial development Moral hazard;

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References

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  1. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August.
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  11. Natalia T Tamirisa & Deniz O Igan, 2008. "Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe," Comparative Economic Studies, Palgrave Macmillan, vol. 50(4), pages 599-619, December.
  12. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises: A New Database," IMF Working Papers 08/224, International Monetary Fund.
  13. James R Barth & Gerard Caprio & Ross Levine, 2008. "Bank Regulations are Changing: For Better or Worse?," Comparative Economic Studies, Palgrave Macmillan, vol. 50(4), pages 537-563, December.
  14. Barth, James R. & Caprio, Gerard, Jr. & Levine, Ross, 2008. "Bank regulations are changing : for better or worse ?," Policy Research Working Paper Series 4646, The World Bank.
  15. Barry Eichengreen, 2008. "Origins and Responses to the Current Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(4), pages 6-11, December.
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Citations

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Cited by:
  1. Radu Vranceanu & Damien Besancenot, 2010. "Banks' risk race: A signaling explanation," Post-Print hal-00554719, HAL.
  2. Richard Pomfret, 2012. "The Post-2007 Crises and Europe's Place in the Global Economy," CASE Network Studies and Analyses 439, CASE-Center for Social and Economic Research.
  3. repec:hal:wpaper:halshs-00424214 is not listed on IDEAS
  4. Richard Pomfret, 2011. "Global Crises, Fiscal Imbalances and Global Instability: Interests and Reactions of Asian Economies," School of Economics Working Papers 2011-33, University of Adelaide, School of Economics.

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