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Financial Crises, Safety Nets and Regulation

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  • Fratianni Michele

Abstract

The historical record shows that financial crises are far from being a rare a phenomenon; they occur often enough to be considered part of the workings of finance capitalism. While there is no single hypothesis that can best explain all crises, the implications of the credit boom-and-bust hypothesis, supplemented with asymmetric information, are consistent with the onset and development of many crises, including the current subprime crisis. Governments have reacted to crises by erecting a vast and growing safety net. In turn, to minimize their risk exposure, they have also put in place expansive systems of regulation and supervision. The unwinding of the current crisis will mark a big enlargement of the safety net and moral hazard, as well as a predictable flurry of policy proposals aimed at closing past regulatory loopholes. The maintained hypothesis is that regulatory and market failures are inexorably intertwined.

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Bibliographic Info

Article provided by Società editrice il Mulino in its journal Rivista italiana degli economisti.

Volume (Year): (2008)
Issue (Month): 2 ()
Pages: 169-208

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Handle: RePEc:mul:jqat1f:doi:10.1427/29581:y:2008:i:2:p:169-208

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Cited by:
  1. Michele Fratianni & Francesco Marchionne, 2009. "Rescuing Banks from the Effects of the Financial Crisis," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 30, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  2. Michele Fratianni & Francesco Marchionne, 2009. "The Role of Banks in the Subprime Financial Crisis," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 23, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  3. Michele Fratianni & Francesco Marchionne, 2010. "Banks’ Great Bailout of 2008-2009," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2010-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 26, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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