The political, regulatory and market failures that caused the US financial crisis
This paper discusses the key regulatory, market and political failures that led to the 2008-2009 United States financial crisis. While Congress was fixing the Savings and Loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was appealing to narrow constituencies. In the mid-1990s, to encourage home ownership, the Administration changedenforcement of the Community Reinvestment Act, effectively requiring banks to lower bank mortgage standards to underserved areas. Crucially, the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest. The author explains that financial deregulation of the past three decades is unrelated to the financial crisis, and makes several recommendations for regulatory reform.
|Date of creation:||01 May 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rong Fan & Joseph Haubrich & Peter Ritchken & James Thomson, 2003.
"Getting the Most Out of a Mandatory Subordinated Debt Requirement,"
Journal of Financial Services Research,
Springer, vol. 24(2), pages 149-179, October.
- Rong Fan & Joseph G. Haubrich & Peter Ritchken & James B. Thomson, 2002. "Getting the most out of a mandatory subordinated debt requirement," Working Paper 0214, Federal Reserve Bank of Cleveland.
- Rong Fan & Joseph G. Haubrich & Peter Ritchken & James B. Thomson, 2003. "Getting the most out of mandatory subordinated debt requirement," Proceedings 848, Federal Reserve Bank of Chicago.
- Efraim Benmelech & Jennifer Dlugosz, 2009.
"The Alchemy of CDO Credit Ratings,"
NBER Working Papers
14878, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1993.
"Protection for Sale,"
CEPR Discussion Papers
827, C.E.P.R. Discussion Papers.
- Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
- Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
- Jaffee Dwight M. & Perlow Mark, 2008. "Investment Banking Regulation After Bear Stearns," The Economists' Voice, De Gruyter, vol. 5(5), pages 1-5, September.
- Efraim Benmelech & Jennifer Dlugosz, 2010.
"The Credit Rating Crisis,"
in: NBER Macroeconomics Annual 2009, Volume 24, pages 161-207
National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
- Neil Bhutta, 2008. "Giving credit where credit is due? the Community Reinvestment Act and mortgage lending in lower-income neighborhoods," Finance and Economics Discussion Series 2008-61, Board of Governors of the Federal Reserve System (U.S.).
- Steven C. Bourassa & Ming Yin, 2006. "Housing Tenure Choice in Australia and the United States: Impacts of Alternative Subsidy Policies," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 303-328, 06.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:5324. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.