Cornelia Woll
- Published in print:
- 2014
- Published Online:
- August 2016
- ISBN:
- 9780801452352
- eISBN:
- 9780801471155
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801452352.003.0004
- Subject:
- Political Science, Political Economy
This chapter presents two perspectives in the theoretical discussion of bank bailouts. The moral hazard perspective theorizes the disadvantages of government support by demonstrating that the ...
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This chapter presents two perspectives in the theoretical discussion of bank bailouts. The moral hazard perspective theorizes the disadvantages of government support by demonstrating that the possibility of future bailouts leads banks to behave in a less cautious manner. It relies on the imaginary of a competitive setting, where market discipline is the most effective tool to shape the behavior of individual firms. On the other hand, the too-big-to-fail perspective considers that firms are never entirely disconnected from one another and thus cannot behave as isolated units. It argues that finance is marked by systemic features, and market discipline is incapable of dealing with systemic risk. Regulatory interventions, including bailouts, respond to this need to deal with the industry as a collective entity. The chapter then discusses how this theoretical discussion translated into practical consideration.Less
This chapter presents two perspectives in the theoretical discussion of bank bailouts. The moral hazard perspective theorizes the disadvantages of government support by demonstrating that the possibility of future bailouts leads banks to behave in a less cautious manner. It relies on the imaginary of a competitive setting, where market discipline is the most effective tool to shape the behavior of individual firms. On the other hand, the too-big-to-fail perspective considers that firms are never entirely disconnected from one another and thus cannot behave as isolated units. It argues that finance is marked by systemic features, and market discipline is incapable of dealing with systemic risk. Regulatory interventions, including bailouts, respond to this need to deal with the industry as a collective entity. The chapter then discusses how this theoretical discussion translated into practical consideration.
Cornelia Woll
- Published in print:
- 2014
- Published Online:
- August 2016
- ISBN:
- 9780801452352
- eISBN:
- 9780801471155
- Item type:
- book
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801452352.001.0001
- Subject:
- Political Science, Political Economy
Bank bailouts in the aftermath of the collapse of Lehman Brothers and the onset of the Great Recession brought into sharp relief the power that the global financial sector holds over national ...
More
Bank bailouts in the aftermath of the collapse of Lehman Brothers and the onset of the Great Recession brought into sharp relief the power that the global financial sector holds over national politics, and provoked widespread public outrage. This book details the varying relationships between financial institutions and national governments by comparing national bank rescue schemes in the United States and Europe. It starts with a broad overview of bank bailouts in more than twenty countries. It then examines three pairs of countries where similar outcomes might be expected: the United States and United Kingdom, France and Germany, Ireland and Denmark. The book finds substantial variation within these pairs. In some cases the financial sector is intimately involved in the design of bailout packages; elsewhere it chooses to remain at arm's length. Such differences are often ascribed to one of two conditions: either the state is strong and can impose terms, or the state is weak and corrupted by industry lobbying. The book presents a third option, where the inaction of the financial sector critically shapes the design of bailout packages in favor of the industry. It demonstrates that financial institutions were most powerful in those settings where they could avoid a joint response and force national policymakers to deal with banks on a piecemeal basis. The power to remain collectively inactive has had important consequences for bailout arrangements and ultimately affected how the public and private sectors have shared the cost burden of these massive policy decisions.Less
Bank bailouts in the aftermath of the collapse of Lehman Brothers and the onset of the Great Recession brought into sharp relief the power that the global financial sector holds over national politics, and provoked widespread public outrage. This book details the varying relationships between financial institutions and national governments by comparing national bank rescue schemes in the United States and Europe. It starts with a broad overview of bank bailouts in more than twenty countries. It then examines three pairs of countries where similar outcomes might be expected: the United States and United Kingdom, France and Germany, Ireland and Denmark. The book finds substantial variation within these pairs. In some cases the financial sector is intimately involved in the design of bailout packages; elsewhere it chooses to remain at arm's length. Such differences are often ascribed to one of two conditions: either the state is strong and can impose terms, or the state is weak and corrupted by industry lobbying. The book presents a third option, where the inaction of the financial sector critically shapes the design of bailout packages in favor of the industry. It demonstrates that financial institutions were most powerful in those settings where they could avoid a joint response and force national policymakers to deal with banks on a piecemeal basis. The power to remain collectively inactive has had important consequences for bailout arrangements and ultimately affected how the public and private sectors have shared the cost burden of these massive policy decisions.
Cornelia Woll
- Published in print:
- 2014
- Published Online:
- August 2016
- ISBN:
- 9780801452352
- eISBN:
- 9780801471155
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801452352.003.0001
- Subject:
- Political Science, Political Economy
This introductory chapter provides an overview of bank bailouts. In all countries who experienced ecnomic crisis in 2008, the political decisions to rescue the banking sector were heavily criticized. ...
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This introductory chapter provides an overview of bank bailouts. In all countries who experienced ecnomic crisis in 2008, the political decisions to rescue the banking sector were heavily criticized. In many of the public, popular, and scholarly accounts of bank bailouts, the political influence of the financial industry is singled out as a major culprit for seemingly biased decisions. What was the nature of the power finance wielded over the fate of the economy and the crisis management in 2008, which affected the lives of so many? Three main approaches to answering this question exist in early analyses of the crisis in the popular and the academic literature. The first focuses on lobbying and the privileged interactions between the financial industry and public authorities. The second examines institutional constraints as fundamental conditions for public intervention. The third focuses on the symbiotic relationship between finance and the state, and highlights how meaning structures had shaped government action, or in this case, contributed to complacency.Less
This introductory chapter provides an overview of bank bailouts. In all countries who experienced ecnomic crisis in 2008, the political decisions to rescue the banking sector were heavily criticized. In many of the public, popular, and scholarly accounts of bank bailouts, the political influence of the financial industry is singled out as a major culprit for seemingly biased decisions. What was the nature of the power finance wielded over the fate of the economy and the crisis management in 2008, which affected the lives of so many? Three main approaches to answering this question exist in early analyses of the crisis in the popular and the academic literature. The first focuses on lobbying and the privileged interactions between the financial industry and public authorities. The second examines institutional constraints as fundamental conditions for public intervention. The third focuses on the symbiotic relationship between finance and the state, and highlights how meaning structures had shaped government action, or in this case, contributed to complacency.
Paul Langley
- Published in print:
- 2014
- Published Online:
- January 2015
- ISBN:
- 9780199683789
- eISBN:
- 9780191763366
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199683789.003.0005
- Subject:
- Business and Management, Finance, Accounting, and Banking
This chapter analyses how the global financial crisis was governed as a problem of banking solvency from October 2008. It covers the key interventions designed to bail out and recapitalize banking in ...
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This chapter analyses how the global financial crisis was governed as a problem of banking solvency from October 2008. It covers the key interventions designed to bail out and recapitalize banking in the UK and US, most notably the Bank Recapitalization Fund (BRF), Capital Purchase Program (CPP), and bank debt guarantees. It reflects upon the broader drive to recapitalize resilient banks under the revised Basel III standard, and shows how the crisis was rendered as a problem of solvency through the relational arrangement of the metrics, measures, and materialities of the balance sheet with a crisis discourse on the economics of banking. It also explains how the solution of recapitalization—and not nationalization—was arrived at by combining fiscal techniques, strategies to restore an atmosphere of confidence in banking, and a discourse that represented banking as essential to the security of the population at large.Less
This chapter analyses how the global financial crisis was governed as a problem of banking solvency from October 2008. It covers the key interventions designed to bail out and recapitalize banking in the UK and US, most notably the Bank Recapitalization Fund (BRF), Capital Purchase Program (CPP), and bank debt guarantees. It reflects upon the broader drive to recapitalize resilient banks under the revised Basel III standard, and shows how the crisis was rendered as a problem of solvency through the relational arrangement of the metrics, measures, and materialities of the balance sheet with a crisis discourse on the economics of banking. It also explains how the solution of recapitalization—and not nationalization—was arrived at by combining fiscal techniques, strategies to restore an atmosphere of confidence in banking, and a discourse that represented banking as essential to the security of the population at large.
Cornelia Woll
- Published in print:
- 2014
- Published Online:
- August 2016
- ISBN:
- 9780801452352
- eISBN:
- 9780801471155
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801452352.003.0008
- Subject:
- Political Science, Political Economy
This concluding chapter argues that the power of the financial sector prior to the 2008 economic crisis depended in great part on structural aspects such as the role and size of the financial sector, ...
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This concluding chapter argues that the power of the financial sector prior to the 2008 economic crisis depended in great part on structural aspects such as the role and size of the financial sector, and distinct systems of meaning enshrined in regulatory approaches in the years leading up to the banking crisis of 2008 was the result. Within these settings, however, the power of the financial industry can be evaluated by the extent of their collective contribution to their own rescue. Indeed, the collective action of the financial sector was one of the most central concerns of governments negotiating with ailing banks during the crisis. The rest of the chapter examines how business–government relations affect bank support schemes and discusses the moral hazard consequences of the bank bailouts in the long run.Less
This concluding chapter argues that the power of the financial sector prior to the 2008 economic crisis depended in great part on structural aspects such as the role and size of the financial sector, and distinct systems of meaning enshrined in regulatory approaches in the years leading up to the banking crisis of 2008 was the result. Within these settings, however, the power of the financial industry can be evaluated by the extent of their collective contribution to their own rescue. Indeed, the collective action of the financial sector was one of the most central concerns of governments negotiating with ailing banks during the crisis. The rest of the chapter examines how business–government relations affect bank support schemes and discusses the moral hazard consequences of the bank bailouts in the long run.
Joseph Stiglitz and Aaron Edlin (eds)
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231160155
- eISBN:
- 9780231504324
- Item type:
- book
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231160155.001.0001
- Subject:
- Economics and Finance, Public and Welfare
The Economists’ Voice: Top Economists Take On Today’s Problems featured a core collection of accessible, timely essays on the challenges facing today’s global markets and financial institutions. This ...
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The Economists’ Voice: Top Economists Take On Today’s Problems featured a core collection of accessible, timely essays on the challenges facing today’s global markets and financial institutions. This book is the next installment in this series, gathering together the strongest essays published in The Economist’s Voice, a nonpartisan online journal, so that students and general readers can gain a deeper understanding of the financial developments shaping their world. The chapters tackle the plain economics and architecture of health care reform, its implications for society and the future of the health insurance industry, and the value of the health insurance subsidies and exchanges built into the law. The book considers the effects of financial regulatory reform, the possibilities for ratings reform, and the issue of limiting bankers’ pay. An objective examination of the financial crisis and bank bailouts results in two chapters on investment banking regulation after Bear Stearns and the positives and negatives of the Paulson/Bernanke bailout. The chapters weigh the merits of future rescues and suggest alternative strategies for addressing the next financial crisis. A final section examines a unique array of topics: the stability of pension security bonds; the value of a carbon tax, especially in fostering economic and environmental sustainability; the counterintuitive perils of net neutrality; the unforeseen consequences of government debt; the meaning of the Google book search settlement; and the unexploited possibilities for profit in NFL overtime games.Less
The Economists’ Voice: Top Economists Take On Today’s Problems featured a core collection of accessible, timely essays on the challenges facing today’s global markets and financial institutions. This book is the next installment in this series, gathering together the strongest essays published in The Economist’s Voice, a nonpartisan online journal, so that students and general readers can gain a deeper understanding of the financial developments shaping their world. The chapters tackle the plain economics and architecture of health care reform, its implications for society and the future of the health insurance industry, and the value of the health insurance subsidies and exchanges built into the law. The book considers the effects of financial regulatory reform, the possibilities for ratings reform, and the issue of limiting bankers’ pay. An objective examination of the financial crisis and bank bailouts results in two chapters on investment banking regulation after Bear Stearns and the positives and negatives of the Paulson/Bernanke bailout. The chapters weigh the merits of future rescues and suggest alternative strategies for addressing the next financial crisis. A final section examines a unique array of topics: the stability of pension security bonds; the value of a carbon tax, especially in fostering economic and environmental sustainability; the counterintuitive perils of net neutrality; the unforeseen consequences of government debt; the meaning of the Google book search settlement; and the unexploited possibilities for profit in NFL overtime games.
Katharina Pistor, Guo Li, and Zhou Chun
- Published in print:
- 2015
- Published Online:
- November 2015
- ISBN:
- 9780190250256
- eISBN:
- 9780190250287
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190250256.003.0014
- Subject:
- Law, Comparative Law
Contemporary financial systems are rule-bound systems that operate on a continuum between the state and the market. They are therefore best characterized as hybrid rather than purely public or ...
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Contemporary financial systems are rule-bound systems that operate on a continuum between the state and the market. They are therefore best characterized as hybrid rather than purely public or private. The global financial crisis has revealed this for Western market economies, where banks were bailed out and financial instruments that found no other buyers were put on the balance sheets of central banks, and thus effectively socialized. For China, few would doubt that the country’s financial system is not purely private; neither, however, is it purely state-oriented, as in a socialist mono-banking system. This chapter traces the country’s development from state-controlled to hybridized finance over the past two decades and draws parallels to the U.S. and European experiences. It finds that China and the West, which not so long ago found themselves at opposite ends of the state-market continuum in finance, have both hybridized their financial systems.Less
Contemporary financial systems are rule-bound systems that operate on a continuum between the state and the market. They are therefore best characterized as hybrid rather than purely public or private. The global financial crisis has revealed this for Western market economies, where banks were bailed out and financial instruments that found no other buyers were put on the balance sheets of central banks, and thus effectively socialized. For China, few would doubt that the country’s financial system is not purely private; neither, however, is it purely state-oriented, as in a socialist mono-banking system. This chapter traces the country’s development from state-controlled to hybridized finance over the past two decades and draws parallels to the U.S. and European experiences. It finds that China and the West, which not so long ago found themselves at opposite ends of the state-market continuum in finance, have both hybridized their financial systems.
Gary Murphy
- Published in print:
- 2014
- Published Online:
- January 2015
- ISBN:
- 9781781380277
- eISBN:
- 9781781381564
- Item type:
- chapter
- Publisher:
- Liverpool University Press
- DOI:
- 10.5949/liverpool/9781781380277.003.0010
- Subject:
- History, British and Irish Modern History
This chapter examines the role that lobbyists play in the political communication process and argues that lobbying is central to our understanding of Ireland’s building boom and the bank guarantee ...
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This chapter examines the role that lobbyists play in the political communication process and argues that lobbying is central to our understanding of Ireland’s building boom and the bank guarantee that followed. The dramatic rise and fall of the Celtic Tiger indicated that Ireland’s economic miracle of the 2000s was built on rather shaky foundations. But these were foundations that had been built under the urgings of lobbyists. In 2008 the government bailed out the private banking sector and lobbyists were again a crucial part of this decision. The chapter concludes by assessing whether lobbying as a form of political communication has resulted in a politics that is dominated by a small elite that has access to the avenues and levers of power within the Irish body politic.Less
This chapter examines the role that lobbyists play in the political communication process and argues that lobbying is central to our understanding of Ireland’s building boom and the bank guarantee that followed. The dramatic rise and fall of the Celtic Tiger indicated that Ireland’s economic miracle of the 2000s was built on rather shaky foundations. But these were foundations that had been built under the urgings of lobbyists. In 2008 the government bailed out the private banking sector and lobbyists were again a crucial part of this decision. The chapter concludes by assessing whether lobbying as a form of political communication has resulted in a politics that is dominated by a small elite that has access to the avenues and levers of power within the Irish body politic.
Mark Byrne
- Published in print:
- 2014
- Published Online:
- January 2015
- ISBN:
- 9781781380277
- eISBN:
- 9781781381564
- Item type:
- chapter
- Publisher:
- Liverpool University Press
- DOI:
- 10.5949/liverpool/9781781380277.003.0007
- Subject:
- History, British and Irish Modern History
This chapter examines, through interviews with journalists turned spin-doctors, the concept of political communication through the pejorative filter of spin. It considers the origins, connotations, ...
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This chapter examines, through interviews with journalists turned spin-doctors, the concept of political communication through the pejorative filter of spin. It considers the origins, connotations, and applications of spin in the context of the complex and inter-dependent relationship between media and politics and contends that the concept and effects of spin – positive and negative – are exaggerated. Specifically it argues that spin is an exercise shared, expected and required by both politics and the media and that it is driven by a complex set of rules to which both sides are ultimately and increasingly bound. It also finds that that the notion of spin as a pejorative function of the modern political environment is overstated.Less
This chapter examines, through interviews with journalists turned spin-doctors, the concept of political communication through the pejorative filter of spin. It considers the origins, connotations, and applications of spin in the context of the complex and inter-dependent relationship between media and politics and contends that the concept and effects of spin – positive and negative – are exaggerated. Specifically it argues that spin is an exercise shared, expected and required by both politics and the media and that it is driven by a complex set of rules to which both sides are ultimately and increasingly bound. It also finds that that the notion of spin as a pejorative function of the modern political environment is overstated.
