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Designing the Market: Institutions and Reform in Japan and Other Advanced Industrial Countries
Steven Vogel, University of California, Berkeley
Grant details: https://securegrants.neh.gov/publicquery/main.aspx?f=1&gn=FO-50098-09
“A Socio-Economic Perspective on the Financial Crisis" (Article)
Title: “A Socio-Economic Perspective on the Financial Crisis"
Author: Steven Vogel
Abstract: While it is impossible to assign weights to the multitude of factors that have contributed to the crisis, flawed conceptual frameworks have played a substantial role. For all the overwhelming complexity of the crisis, some fairly pedestrian policy errors were at the heart of the storm. The U.S. financial authorities made the basic mistake that lies at the heart of most recent financial crises: they liberalized financial markets in the sense of giving market actors greater freedom to take risks without strengthening supervision to monitor this activity effectively and to contain the risk to the broader financial system. In addition, they presumed that the most sophisticated investors, large financial institutions, should be allowed considerable freedom to take these risks because they were professionals with deep pockets, and because this activity would enhance the efficiency of financial markets overall. They engaged in piecemeal deregulation, removing restrictions in one area of financial activity without fully considering the impact on other markets. And they overestimated the capability of private sector actors – from rating agencies to self-regulatory organizations – to regulate in the public interest. In short, they committed basic errors of market design.
Primary URL: http://ser.oxfordjournals.org/content/8/3.toc
Periodical Title: Socio-Economic Review