The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?

The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008-2009 US financial crisis and to suggest appropriate recommendations for reform. The approach is to examine the underlying incentives that led to the crisis and to provide supporting data t...

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Main Author:	Tarr, David G.
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Financial Crises G010 General Financial Markets: Government Policy and Regulation G180 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financial Institutions and Services: Government Policy and Regulation G280
Online Access:	http://hdl.handle.net/10986/4976

id	okr-10986-4976
recordtype	oai_dc
spelling	okr-10986-49762021-04-23T14:02:20Z The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons? Tarr, David G. Financial Crises G010 General Financial Markets: Government Policy and Regulation G180 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financial Institutions and Services: Government Policy and Regulation G280 The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008-2009 US financial crisis and to suggest appropriate recommendations for reform. The approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses. 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 using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid-1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and 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. 2012-03-30T07:30:39Z 2012-03-30T07:30:39Z 2010 Journal Article Journal of Financial Economic Policy 17576385 http://hdl.handle.net/10986/4976 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article United States
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Financial Crises G010 General Financial Markets: Government Policy and Regulation G180 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financial Institutions and Services: Government Policy and Regulation G280
spellingShingle	Financial Crises G010 General Financial Markets: Government Policy and Regulation G180 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financial Institutions and Services: Government Policy and Regulation G280 Tarr, David G. The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?
geographic_facet	United States
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008-2009 US financial crisis and to suggest appropriate recommendations for reform. The approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses. 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 using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid-1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and 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.
format	Journal Article
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: What Are the Lessons?
title_short	The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?
title_full	The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?
title_fullStr	The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?
title_full_unstemmed	The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?
title_sort	political, regulatory, and market failures that caused the us financial crisis: what are the lessons?
publishDate	2012
url	http://hdl.handle.net/10986/4976
_version_	1764393464158486528

The Political, Regulatory, and Market Failures That Caused the US Financial Crisis: What Are the Lessons?

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