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Systemic Failure in US Capital Markets: Lessons Not Learned

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  • Susanne Trimbath

Abstract

Existing intellectual frameworks for the financial stability that leads to prosperity could have prevented the systemic failure that led to the 2008 collapse of global capital markets. This analytical article demonstrates the point by applying two well known frameworks to financial regulation in the US. This approach provides a characterization of the relationship between financial infrastructure and financial market stability that is well aligned with existing theory about stable financial systems. The author finds that the United States failed to provide a systemically prudent framework in any of the primary policy areas identified by Barth et al. (2004) through their analysis of World Bank surveys. Further, US financial regulators failed to fulfill the key tasks identified by Eatwell (2001) in a comprehensive examination of the regulatory factors that contribute to financial stability. The author concludes that economically efficient specialization in financial services would release economic gains from comparative advantage.

Suggested Citation

  • Susanne Trimbath, 2016. "Systemic Failure in US Capital Markets: Lessons Not Learned," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 2(1), pages 47-62, January.
    • Handle: RePEc:ate:journl:ajbev2i1-4
    DOI: =10.30958/ajbe.2-1-4
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    References listed on IDEAS

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    1. Bank for International Settlements, 2011. "Global liquidity - concept, measurement and policy implications," CGFS Papers, Bank for International Settlements, number 45, december.
    2. Susanne Trimbath, 2011. "Trade Settlement Failures in US Bond Markets," The IUP Journal of Financial Economics, IUP Publications, vol. 0(1), pages 53-78, March.
    3. John M. Griffin & Dragon Yongjun Tang, 2012. "Did Subjectivity Play a Role in CDO Credit Ratings?," Journal of Finance, American Finance Association, vol. 67(4), pages 1293-1328, August.
    4. James R. Barth & Gerard Caprio & Ross Levine, 2013. "Bank regulation and supervision in 180 countries from 1999 to 2011," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 5(2), pages 111-219, May.
    5. John Eatwell & Lance Taylor, 1998. "International Capital Markets and the Future of Economic Policy," SCEPA working paper series. 1998-14, Schwartz Center for Economic Policy Analysis (SCEPA), The New School, revised Sep 1998.
    6. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    7. Allen, Franklin & Carletti, Elena, 2013. "New theories to underpin financial reform," Journal of Financial Stability, Elsevier, vol. 9(2), pages 242-249.
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