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21. Three Narratives about the Financial Crisis

Author:
Peter J. Wallison
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The most important lesson we can learn from the financial crisis is what caused it. Even though the Dodd-Frank Act (DFA) has been signed into law, this is still an important question. If we do not attribute the crisis to the right cause, we could well stumble into another crisis in the future; and if the DFA was directed at the wrong cause, we should consider its repeal. There are several competing narratives. One of them will eventually be accepted, and will determine how the great financial crisis of 2008 is interpreted, and thus how it affects public policy in the future.
Topic:
Financial Crisis

22. Friedman and Samuelson on the Business Cycle

Author:
J. Daniel Hammond
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Chicago School economists have come in for criticism since the financial crisis and so-called Great Recession began in 2007. Commentators have blamed recent problems on a laissez-faire faith in the efficacy of markets and simple rules for business-cycle policy—ideas associated with economics as taught and practiced at the University of Chicago. Events over the past four years, we are told, demonstrate the need for a restoration of Keynesian thinking about business cycles and activist government policies to keep markets from failing. However, there is another aspect of Chicago School economics that is commonly overlooked. This is the conviction that economists' understanding of the business cycle is meager in light of the knowledge necessary for activist countercyclical policy to be effective. From this comes the Chicago School concern that economists and policymakers not attempt to do something beyond their capability. Overreaching can make the problems worse.
Topic:
Economics and Financial Crisis
Political Geography:
Chicago

23. Herbert Hoover: Father of the New Deal

Author:
Steven Horwitz
Publication Date:
09-2011
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation-all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington ... we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."
Topic:
Economics, Markets, Political Economy, Financial Crisis, and Governance
Political Geography:
United States and Washington

24. The New "Supercommittee": An "Optimistic" View

Author:
Jared Lobdell
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
An October New York Times story remarked that “with just five weeks until its deadline, a secretive Congressional committee seeking ways to cut the federal deficit is far from a consensus, and party leaders may need to step in if they want to ensure agreement, say people involved in the panel's work.” We have this “supercommittee” of twelve members of Congress, ostensibly for the purpose of cutting a minimum $1.2 trillion from our deficit, chosen by four appointers, none agreeing with any other on exactly what ought to be done, representing mostly diametrically opposing wings of two parties with irreconcilable differences.
Topic:
Debt, Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
United States

25. Fannie, Freddie, and the Subprime Mortgage Market

Author:
Mark A. Calabria
Publication Date:
03-2011
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
The recent financial crisis was characterized by losses in nearly every type of investment vehicle. Yet no product has attracted as much attention as the subprime mortgage.
Topic:
Economics, Government, Markets, and Financial Crisis
Political Geography:
United States

26. Lawless Policy: TARP as Congressional Failure

Author:
John Samples
Publication Date:
02-2010
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The U.S. Constitution vests all the “legislative powers” it grants in Congress. The Supreme Court allows Congress to delegate some authority to executive officials provided an “intelligible principle” guides such transfers. Congress quickly wrote and enacted the Emergency Economic Stabilization Act of 2008 in response to a financial crisis. The law authorized the secretary of the Treasury to spend up to $700 billion purchasing troubled mortgage assets or any financial instrument in order to attain 13 different goals. Most of these goals lacked any concrete meaning, and Congress did not establish any priorities among them. As a result, Congress lost control of the implementation of the law and unconstitutionally delegated its powers to the Treasury secretary. Congress also failed in the case of EESA to meet its constitutional obligations to deliberate, to check the other branches of government, or to be accountable to the American people. The implementation of EESA showed Congress to be largely irrelevant to policymaking by the Treasury secretary. These failures of Congress indicate that the current Supreme Court doctrine validating delegation of legislative powers should be revised to protect the rule of law and separation of powers.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
United States and America

27. Short Sales Bans: Shooting the Messenger?

Author:
Laurence Copeland
Publication Date:
09-2010
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
In response to the recent financial crisis, many governments chose to ban or restrict short sales, hoping to mitigate the impact of the stock market downturn. Stock markets function as a continuous election, held to determine the allocation of resources with buyers voting for and sellers voting against investment in particular stocks. Banning short selling is akin to disenfranchising the "no" voter, thereby creating a distortion in the resource allocation process. Ban-induced price distortions damage the integrity of stock prices among investors and potentially cause stocks to expand beyond what is optimal for the firms and the economy.
Topic:
Economics, Markets, Global Recession, and Financial Crisis
Political Geography:
Washington

28. Role of the IMF in the Global Financial Crisis

Author:
Miranda Xafa
Publication Date:
09-2010
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
More than two years on, the impact of the financial crisis that erupted in August 2007 is still being felt as the global economy emerges from the Great Recession. The crisis intensified dramatically after the bankruptcy of Lehman and the rescue of insurance giant AIG in September 2008, which narrowly avoided a near-simultaneous failure of multiple counterparties. The International Monetary Fund's early forecast of the severity of the resulting economic downturn (IMF 2008a) helped mobilize concerted official action to address quickly and forcefully these extraordinary economic and financial events by providing fiscal stimulus to sustain growth, as well as capital injections and guarantees to ease the credit crunch. Following the emergency summit of G20 leaders in Washington in November 2008, support packages for banks were put together in a hurry in the United States, Europe, and elsewhere to prevent the dis- orderly failure of systemically important institutions and to restore confidence in the financial system.
Topic:
Financial Crisis
Political Geography:
United States and Middle East

29. Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking

Author:
Gerald P. O'Driscoll Jr.
Publication Date:
09-2010
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Chapter 1 of the book is titled “It's a Horrible Mess,” and in it Laurence Kotlikoff, a professor of economics at Boston University, reminds the reader of the breadth, depth, and horror of the global financial crisis. It is a cure for the dispassionate observer of events, an indictment that would send all but those with ice water in their veins to sign up for the Tea Party Express. The book is a particularly well-written account of the crisis that begins in housing finance, spreads throughout the financial system, and then throughout the real economy. The crisis hit in tsunami-like waves beginning in 2007 and continued into 2009.
Topic:
Financial Crisis

30. In Fed We Trust: Ben Bernanke's War on the Great Panic

Author:
William Poole
Publication Date:
02-2010
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
David Wessel is a fine journalist; In Fed We Trust is a fine book. It belongs on the shelf of every student of the 2007–09 financial crisis. It is, as well, a good read for recreational observers of the economic scene. Wessel focuses on Fed Chairman Ben S. Bernanke, but he discusses the role of all the other key players as well. The biographical information on Bernanke is interesting, as are Wessel's comments on the policy approaches and personalities of the other policymakers.
Topic:
War and Financial Crisis