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 no...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100527154732 http://hdl.handle.net/10986/3810 |
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okr-10986-3810 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCESS TO CREDIT ACCOUNTING ACCOUNTING STANDARDS AFFORDABLE HOUSING ASSET MANAGER ASSET MANAGERS ASYMMETRIC INFORMATION BACKED SECURITIES BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK HOLDING BANK LENDING BANK POLICY BANK SUPERVISION BANKING REGULATION BANKING SUPERVISION BANKING SYSTEM BANKRUPTCIES BANKRUPTCY BARRIER TO HOMEOWNERSHIP BASIS POINTS BOND BONDHOLDERS BORROWER BORROWING BROKERS CAPITAL MARKET CAPITAL MARKETS CAPITAL REQUIREMENTS CASH FLOW CASH FLOWS CLEARING CORPORATION COLLATERAL COLLATERAL POOLS COLLECTIVE ACTION COMMERCIAL BANKS COMMERCIAL LOANS COMMERCIAL MORTGAGE COMMUNITY LENDING COMMUNITY REINVESTMENT CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER EXPENDITURES CONSUMER LOANS CONVENTIONAL MORTGAGES CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT HISTORY CREDIT MARKETS CREDIT NEEDS CREDIT OFFICER CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CURRENCY DEBT DEBT INSTRUMENT DEBT OBLIGATIONS DEBTS DEDUCTIBLE DEFAULT RATE DEFAULTS DEFICITS DEPOSIT DEVELOPING COUNTRIES DOWN PAYMENT DOWN PAYMENTS EFFICIENT MARKET EXCHANGE COMMISSION FAIR VALUE FAIR VALUES FAMILIES FEDERAL BUDGET FEDERAL DEPOSIT INSURANCE FEDERAL HOUSING FEDERAL HOUSING ENTERPRISES FEDERAL INCOME TAX FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKET PARTICIPANTS FINANCIAL MARKETS FINANCIAL OBLIGATIONS FINANCIAL REGULATORS FINANCIAL SAFETY FINANCIAL SERVICES FINANCIAL SYSTEM FIRST TIME HOME BUYERS FIXED RATE FRAUD FREE LOANS GLOBAL BANKING GLOBALIZATION GOVERNMENT GUARANTEES GOVERNMENT POLICIES HOLDINGS HOME BUYERS HOME EQUITY HOME EQUITY LOAN HOME MORTGAGE HOME MORTGAGES HOME OWNERSHIP HOMEOWNER HOMEOWNERS HOMEOWNERSHIP HOUSEHOLDS HOUSING FINANCE ILLIQUID MARKETS IMPLICIT GOVERNMENT GUARANTEE IMPLICIT GOVERNMENT GUARANTEES INCOME TAX INCOME TAXES INSTRUMENT INSURANCE COMPANIES INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDERS LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEMS LOAN LOAN GUARANTEES LOAN PERFORMANCE LOW INTEREST RATE LOW INTEREST RATES LOW-INCOME FAMILIES MARK TO MARKET MARK TO MARKET ACCOUNTING MARKET FAILURE MARKET FAILURES MARKET MAKER MARKET PARTICIPANTS MARKET PRICE MARKET STABILITY MARKET VALUE MARKET VALUES MINIMUM CAPITAL REQUIREMENTS MONETARY FUND MONETARY POLICY MONEY MANAGERS MONEY SUPPLY MORAL HAZARD MORTGAGE MORTGAGE BROKERS MORTGAGE INDUSTRY MORTGAGE INTEREST MORTGAGE INTEREST RATES MORTGAGE MARKET MORTGAGE RATES MUTUAL FUND MUTUAL FUNDS NO CREDIT HISTORY ORIGINAL CONTRACTS PENSION PENSION FUNDS POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POTENTIAL INVESTORS PRICE STABILITY PRINCIPAL-AGENT PROBLEM PRIVATE BANKS PRIVATE ENTERPRISES PRIVATE FINANCIAL INSTITUTIONS PRIVATE FINANCIAL MARKET PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION PUBLIC FUNDS PUBLIC POLICY RATE OF RETURN RATES OF INTEREST REGULATORY STANDARDS REINVESTMENT RESERVES RESIDENTIAL MORTGAGES RETURN RETURNS RISKY ASSETS RISKY LOANS RISKY SECURITIES SAFETY NET SAVINGS SAVINGS ACCOUNTS SECONDARY MARKET SECONDARY MARKETS SOLVENCY SOURCE OF INCOME SUBORDINATED BONDS SUBORDINATED DEBT SUPERVISORY AUTHORITY SUPERVISORY POWER SUPERVISORY POWERS TAX TAX CREDIT TAX POLICIES TAX RETURNS TRADING TRANCHE TRANCHES TREASURY UNDERLYING MORTGAGE URBAN AREAS URBAN DEVELOPMENT VALUATION |
| spellingShingle |
ACCESS TO CREDIT ACCOUNTING ACCOUNTING STANDARDS AFFORDABLE HOUSING ASSET MANAGER ASSET MANAGERS ASYMMETRIC INFORMATION BACKED SECURITIES BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK HOLDING BANK LENDING BANK POLICY BANK SUPERVISION BANKING REGULATION BANKING SUPERVISION BANKING SYSTEM BANKRUPTCIES BANKRUPTCY BARRIER TO HOMEOWNERSHIP BASIS POINTS BOND BONDHOLDERS BORROWER BORROWING BROKERS CAPITAL MARKET CAPITAL MARKETS CAPITAL REQUIREMENTS CASH FLOW CASH FLOWS CLEARING CORPORATION COLLATERAL COLLATERAL POOLS COLLECTIVE ACTION COMMERCIAL BANKS COMMERCIAL LOANS COMMERCIAL MORTGAGE COMMUNITY LENDING COMMUNITY REINVESTMENT CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER EXPENDITURES CONSUMER LOANS CONVENTIONAL MORTGAGES CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT HISTORY CREDIT MARKETS CREDIT NEEDS CREDIT OFFICER CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CURRENCY DEBT DEBT INSTRUMENT DEBT OBLIGATIONS DEBTS DEDUCTIBLE DEFAULT RATE DEFAULTS DEFICITS DEPOSIT DEVELOPING COUNTRIES DOWN PAYMENT DOWN PAYMENTS EFFICIENT MARKET EXCHANGE COMMISSION FAIR VALUE FAIR VALUES FAMILIES FEDERAL BUDGET FEDERAL DEPOSIT INSURANCE FEDERAL HOUSING FEDERAL HOUSING ENTERPRISES FEDERAL INCOME TAX FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKET PARTICIPANTS FINANCIAL MARKETS FINANCIAL OBLIGATIONS FINANCIAL REGULATORS FINANCIAL SAFETY FINANCIAL SERVICES FINANCIAL SYSTEM FIRST TIME HOME BUYERS FIXED RATE FRAUD FREE LOANS GLOBAL BANKING GLOBALIZATION GOVERNMENT GUARANTEES GOVERNMENT POLICIES HOLDINGS HOME BUYERS HOME EQUITY HOME EQUITY LOAN HOME MORTGAGE HOME MORTGAGES HOME OWNERSHIP HOMEOWNER HOMEOWNERS HOMEOWNERSHIP HOUSEHOLDS HOUSING FINANCE ILLIQUID MARKETS IMPLICIT GOVERNMENT GUARANTEE IMPLICIT GOVERNMENT GUARANTEES INCOME TAX INCOME TAXES INSTRUMENT INSURANCE COMPANIES INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDERS LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEMS LOAN LOAN GUARANTEES LOAN PERFORMANCE LOW INTEREST RATE LOW INTEREST RATES LOW-INCOME FAMILIES MARK TO MARKET MARK TO MARKET ACCOUNTING MARKET FAILURE MARKET FAILURES MARKET MAKER MARKET PARTICIPANTS MARKET PRICE MARKET STABILITY MARKET VALUE MARKET VALUES MINIMUM CAPITAL REQUIREMENTS MONETARY FUND MONETARY POLICY MONEY MANAGERS MONEY SUPPLY MORAL HAZARD MORTGAGE MORTGAGE BROKERS MORTGAGE INDUSTRY MORTGAGE INTEREST MORTGAGE INTEREST RATES MORTGAGE MARKET MORTGAGE RATES MUTUAL FUND MUTUAL FUNDS NO CREDIT HISTORY ORIGINAL CONTRACTS PENSION PENSION FUNDS POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POTENTIAL INVESTORS PRICE STABILITY PRINCIPAL-AGENT PROBLEM PRIVATE BANKS PRIVATE ENTERPRISES PRIVATE FINANCIAL INSTITUTIONS PRIVATE FINANCIAL MARKET PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION PUBLIC FUNDS PUBLIC POLICY RATE OF RETURN RATES OF INTEREST REGULATORY STANDARDS REINVESTMENT RESERVES RESIDENTIAL MORTGAGES RETURN RETURNS RISKY ASSETS RISKY LOANS RISKY SECURITIES SAFETY NET SAVINGS SAVINGS ACCOUNTS SECONDARY MARKET SECONDARY MARKETS SOLVENCY SOURCE OF INCOME SUBORDINATED BONDS SUBORDINATED DEBT SUPERVISORY AUTHORITY SUPERVISORY POWER SUPERVISORY POWERS TAX TAX CREDIT TAX POLICIES TAX RETURNS TRADING TRANCHE TRANCHES TREASURY UNDERLYING MORTGAGE URBAN AREAS URBAN DEVELOPMENT VALUATION Tarr, David G. The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| geographic_facet |
North America United States |
| relation |
Policy Research working paper ; no. WPS 5324 |
| description |
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 changed enforcement 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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Tarr, David G. |
| author_facet |
Tarr, David G. |
| author_sort |
Tarr, David G. |
| title |
The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| title_short |
The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| title_full |
The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| title_fullStr |
The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| title_full_unstemmed |
The Political, Regulatory and Market Failures That Caused the US Financial Crisis |
| title_sort |
political, regulatory and market failures that caused the us financial crisis |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100527154732 http://hdl.handle.net/10986/3810 |
| _version_ |
1764388463260467200 |
| spelling |
okr-10986-38102021-04-23T14:02:12Z The Political, Regulatory and Market Failures That Caused the US Financial Crisis Tarr, David G. ACCESS TO CREDIT ACCOUNTING ACCOUNTING STANDARDS AFFORDABLE HOUSING ASSET MANAGER ASSET MANAGERS ASYMMETRIC INFORMATION BACKED SECURITIES BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK HOLDING BANK LENDING BANK POLICY BANK SUPERVISION BANKING REGULATION BANKING SUPERVISION BANKING SYSTEM BANKRUPTCIES BANKRUPTCY BARRIER TO HOMEOWNERSHIP BASIS POINTS BOND BONDHOLDERS BORROWER BORROWING BROKERS CAPITAL MARKET CAPITAL MARKETS CAPITAL REQUIREMENTS CASH FLOW CASH FLOWS CLEARING CORPORATION COLLATERAL COLLATERAL POOLS COLLECTIVE ACTION COMMERCIAL BANKS COMMERCIAL LOANS COMMERCIAL MORTGAGE COMMUNITY LENDING COMMUNITY REINVESTMENT CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER EXPENDITURES CONSUMER LOANS CONVENTIONAL MORTGAGES CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT HISTORY CREDIT MARKETS CREDIT NEEDS CREDIT OFFICER CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CURRENCY DEBT DEBT INSTRUMENT DEBT OBLIGATIONS DEBTS DEDUCTIBLE DEFAULT RATE DEFAULTS DEFICITS DEPOSIT DEVELOPING COUNTRIES DOWN PAYMENT DOWN PAYMENTS EFFICIENT MARKET EXCHANGE COMMISSION FAIR VALUE FAIR VALUES FAMILIES FEDERAL BUDGET FEDERAL DEPOSIT INSURANCE FEDERAL HOUSING FEDERAL HOUSING ENTERPRISES FEDERAL INCOME TAX FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEREGULATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENT FINANCIAL INSTRUMENTS FINANCIAL MARKET FINANCIAL MARKET PARTICIPANTS FINANCIAL MARKETS FINANCIAL OBLIGATIONS FINANCIAL REGULATORS FINANCIAL SAFETY FINANCIAL SERVICES FINANCIAL SYSTEM FIRST TIME HOME BUYERS FIXED RATE FRAUD FREE LOANS GLOBAL BANKING GLOBALIZATION GOVERNMENT GUARANTEES GOVERNMENT POLICIES HOLDINGS HOME BUYERS HOME EQUITY HOME EQUITY LOAN HOME MORTGAGE HOME MORTGAGES HOME OWNERSHIP HOMEOWNER HOMEOWNERS HOMEOWNERSHIP HOUSEHOLDS HOUSING FINANCE ILLIQUID MARKETS IMPLICIT GOVERNMENT GUARANTEE IMPLICIT GOVERNMENT GUARANTEES INCOME TAX INCOME TAXES INSTRUMENT INSURANCE COMPANIES INSURANCE CORPORATION INTEREST PAYMENTS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL FINANCE INVESTING INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDERS LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEMS LOAN LOAN GUARANTEES LOAN PERFORMANCE LOW INTEREST RATE LOW INTEREST RATES LOW-INCOME FAMILIES MARK TO MARKET MARK TO MARKET ACCOUNTING MARKET FAILURE MARKET FAILURES MARKET MAKER MARKET PARTICIPANTS MARKET PRICE MARKET STABILITY MARKET VALUE MARKET VALUES MINIMUM CAPITAL REQUIREMENTS MONETARY FUND MONETARY POLICY MONEY MANAGERS MONEY SUPPLY MORAL HAZARD MORTGAGE MORTGAGE BROKERS MORTGAGE INDUSTRY MORTGAGE INTEREST MORTGAGE INTEREST RATES MORTGAGE MARKET MORTGAGE RATES MUTUAL FUND MUTUAL FUNDS NO CREDIT HISTORY ORIGINAL CONTRACTS PENSION PENSION FUNDS POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POTENTIAL INVESTORS PRICE STABILITY PRINCIPAL-AGENT PROBLEM PRIVATE BANKS PRIVATE ENTERPRISES PRIVATE FINANCIAL INSTITUTIONS PRIVATE FINANCIAL MARKET PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION PUBLIC FUNDS PUBLIC POLICY RATE OF RETURN RATES OF INTEREST REGULATORY STANDARDS REINVESTMENT RESERVES RESIDENTIAL MORTGAGES RETURN RETURNS RISKY ASSETS RISKY LOANS RISKY SECURITIES SAFETY NET SAVINGS SAVINGS ACCOUNTS SECONDARY MARKET SECONDARY MARKETS SOLVENCY SOURCE OF INCOME SUBORDINATED BONDS SUBORDINATED DEBT SUPERVISORY AUTHORITY SUPERVISORY POWER SUPERVISORY POWERS TAX TAX CREDIT TAX POLICIES TAX RETURNS TRADING TRANCHE TRANCHES TREASURY UNDERLYING MORTGAGE URBAN AREAS URBAN DEVELOPMENT VALUATION 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 changed enforcement 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. 2012-03-19T18:40:13Z 2012-03-19T18:40:13Z 2010-05-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100527154732 http://hdl.handle.net/10986/3810 English Policy Research working paper ; no. WPS 5324 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper North America United States |