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How Financial Oversight Failed & What it May Portend for the Future of Regulation

  • Richard Herring

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    This paper analyzes the role that well-intentioned policies contributed to the crisis and increased its severity. It also examines the principal-agent problems in the public sector that enabled many of the principal-agent problems in the private sector often blamed for the crisis. The legacy of the crisis is a massive series of bailouts by public authorities in Europe and the United States that risked the equivalent of nearly one-fifth of world GDP in taxpayer funds. This moral hazard will lead to deeper and more frequent crises unless countered by a new approach to regulation that places greater emphasis on market discipline by creditors and counterparties. Copyright International Atlantic Economic Society 2010

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    File URL: http://hdl.handle.net/10.1007/s11293-010-9237-z
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    Article provided by Springer & International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 38 (2010)
    Issue (Month): 3 (September)
    Pages: 265-282

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    Handle: RePEc:kap:atlecj:v:38:y:2010:i:3:p:265-282
    DOI: 10.1007/s11293-010-9237-z
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    1. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46.
    2. Edward J. Kane, 1981. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation," NBER Working Papers 0638, National Bureau of Economic Research, Inc.
    3. Edward Kane, 2010. "The Importance of Monitoring and Mitigating the Safety-Net Consequences of Regulation-Induced Innovation," Review of Social Economy, Taylor & Francis Journals, vol. 68(2), pages 145-161.
    4. Richard J. Herring & Edward J. Kane, 2009. "Financial Economists Roundtable Statement on Reforming the Role of the Rating "Agencies" in the Securitization Process," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(1), pages 28-33.
    5. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    7. Jose A. Lopez, 1999. "Using CAMELS ratings to monitor bank conditions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun.
    8. Edward J. Kane, 2009. "Unmet Duties in Managing Financial Safety Nets," NFI Policy Briefs 2009-PB-06a, Indiana State University, Scott College of Business, Networks Financial Institute, revised Apr 2010.
    9. Herring, Richard J., 2010. "Wind-Down Plans As an Alternative to Bailouts: The Cross-Border Challenges," Working Papers 10-08, University of Pennsylvania, Wharton School, Weiss Center.
    10. Kane, Edward J., 1980. "Politics and Fed policymaking : The more things change the more they remain the same," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 199-211, April.
    11. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 55-69, February.
    12. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Banking Crises: An Equal Opportunity Menace," NBER Working Papers 14587, National Bureau of Economic Research, Inc.
    13. Richard Herring & Edward J. Kane, 2010. "Rating "Agencies": How Regulation Might Help," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(1), pages 14-23, 04.
    14. Edward J. Kane, 1984. "Technological and Regulatory Forces in the Developing Fusion of Financial-Services Competition," NBER Working Papers 1320, National Bureau of Economic Research, Inc.
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