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It's That 'Vision' Thing: Why the Bailouts Aren't Working, and Why a New Financial System Is Needed

Listed author(s):
  • Jan Kregel

The Federal Reserve's response to the current financial crisis has been praised because it introduced a zero interest rate policy more rapidly than the Bank of Japan (during the Japanese crisis of the 1990s) and embraced massive "quantitative easing." However, despite vast capital injections, the banking system is not lending in support of the private sector. Senior Scholar Jan Kregel compares the current situation with the Great Depression, and finds an absence of New Deal measures and institutions in the current rescue packages. The lessons of the Great Depression suggest that any successful policy requires fundamental structural reform, an understanding of how the financial system failed, and the introduction of a new financial structure (in a short space of time) that is designed to correct these failures. The current crisis could have been avoided if increased household consumption had been financed through wage increases, says Kregel, and if financial institutions had used their earnings to augment bank capital rather than bonuses.

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File URL: http://www.levyinstitute.org/pubs/ppb_100.pdf
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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_100.

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Date of creation: Apr 2009
Handle: RePEc:lev:levppb:ppb_100
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Epstein, Gerald & Ferguson, Thomas, 1984. "Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932," The Journal of Economic History, Cambridge University Press, vol. 44(04), pages 957-983, December.
  2. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 37(1), pages 3-23, April.
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