How not to solve a crisis

23 Mar 2009

For more than a year, financial markets have been in turmoil. Banks have been refusing to lend to one another. Companies and individuals have found it increasingly difficult to borrow money. Investors and pension holders have seen the value of their assets collapse, and government intervention has been largely counterproductive, making matters worse and turning a financial crisis into an economic catastrophe. As the bailouts continue and calls for more regulation are heard around the world, Stacey and Morris review the origins of the crisis and consider which policies might better address the underlying problems.

They recommend reducing the regulatory burdens that contributed to the crisis. ‘If financial markets were governed by simple, clear rules, there would be less incentive for regulatory arbitrage and more incentive to generate innovations that create genuine benefits for people.’

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