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Is Reregulation of the Financial System an Oxymoron?

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  • Jan Kregel

Abstract

The extension of the subprime mortgage crisis to a global financial meltdown led to calls for fundamental reregulation of the United States financial system. However, that reregulation has been slow in implementation and the proposals under discussion are far from fundamental. One explanation for this delay is the fact that many of the difficulties stemmed not from lack of regulation but from a failure to fully implement existing regulations. At the same time, the crisis evolved in stages, interspersed by what appeared to be the system’s return to normalcy. This evolution can be defined in terms of three stages (regulation and supervision, securitization, and a run on investment banks), each stage associated with a particular failure of regulatory supervision. It thus became possible to argue at each stage that all that was necessary was the appropriate application of existing regulations, and that nothing more needed to be done. This scenario progressed until the collapse of Lehman Brothers brought about a full-scale recession and attention turned to support of the real economy and employment, leaving the need for fundamental financial regulation in the background.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_585.

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Date of creation: Feb 2010
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Handle: RePEc:lev:wrkpap:wp_585

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Keywords: Financial Regulation; Financial Crisis; Subprime Crisis; Mortgage Affiliate Regulation;

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Cited by:
  1. Hatgioannides, John & Karanassou, Marika, 2011. "Warrant Economics, Call-Put Policy Options and the Fallacies of Economic Theory," IZA Discussion Papers 6251, Institute for the Study of Labor (IZA).
  2. Corneil, Bruce L. & McNamara, Sue, 2010. "Lessons and consequences of the evolving 2007-? Credit Crunch," MPRA Paper 35912, University Library of Munich, Germany.

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