Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
A Year of Living Dangerously: The Management of the Financial Crisis in 2008
Journal of Economic Perspectives
vol. 25,
no. 1, Winter 2011
(pp. 71–90)
(Complimentary)
Abstract
There are many reasons to regret the decision of U.S. financial authorities to insert the government into the resolution of the investment bank Bear Stearns in March 2008. The Federal Reserve's use of its discount window built up false hope of future rescues. Paying off the uninsured creditors of Bear Stearns overcompensated them at the time and invited speculative attacks on the equity of similarly situated firms. I will argue that the market seizure after Lehman Brothers' decision to seek the protection of bankruptcy was an echo of the prior official decision to protect Bear Stearns.Citation
Reinhart, Vincent. 2011. "A Year of Living Dangerously: The Management of the Financial Crisis in 2008." Journal of Economic Perspectives, 25 (1): 71–90. DOI: 10.1257/jep.25.1.71JEL Classification
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- G33 Bankruptcy; Liquidation
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