Proposals for Effectively Regulating the U.S. Financial System to Avoid Yet Another Meltdown
AbstractIt is now clear that we are in the midst of the worst financial crisis since the Great Depression. This crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s. This evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises. Governments respond to crises with bailouts that allow new expansions to begin. As a result, financial markets have become ever large and financial crises have become more threatening to society, which forces governments to enact ever larger bailouts. This process culminated in the current global financial crisis, which is so deep rooted that even unprecedented interventions by affected governments have thus far failed to contain it. In this paper we first analyze a series of structural flaws in the current financial system that helped bring on the current crisis, and then propose a nine point regulation policy, informed by our analysis, designed to end this destructive dynamic. We believe that if enacted and vigorously enforced, the policy could sharply reduce financial instability and minimize the problems caused by future financial cycles. JEL Categories:
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2008-15.
Date of creation: Oct 2008
Date of revision:
Other versions of this item:
- James Crotty & Gerald Epstein, 2008. "Proposals for Effectively Regulating the U.S. Financial System to Avoid Yet Another Meltdown," Working Papers wp181, Political Economy Research Institute, University of Massachusetts at Amherst.
- NEP-ALL-2008-10-21 (All new papers)
- NEP-FDG-2008-10-21 (Financial Development & Growth)
- NEP-REG-2008-10-21 (Regulation)
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