Giovanni Piersanti
- Published in print:
- 2012
- Published Online:
- September 2012
- ISBN:
- 9780199653126
- eISBN:
- 9780191741210
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199653126.003.0005
- Subject:
- Economics and Finance, Macro- and Monetary Economics
In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the ...
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In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the economy associated with exchange rate based stabilization plan can be linked to currency crisis. How expected changes in future government's policies can affect the timing of attacks. How a run on central bank's foreign reserves can emerge in a context of consistent and flexible policy rules. How policymakers can elude speculative attacks by introducing uncertainty into the speculators' decisions. That the domestic currency often stays overvalued for a long period. That large discrete devaluations occur after the peg is abandoned. That the domestic interest rates tend to rise in the run up to the crisis. That speculative runs often occur in a multi-period context giving rise to alternating phases of “tranquillity” and “distress”. That asset price dynamics plays a critical role in triggering a full-blown financial crisis.Less
In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the economy associated with exchange rate based stabilization plan can be linked to currency crisis. How expected changes in future government's policies can affect the timing of attacks. How a run on central bank's foreign reserves can emerge in a context of consistent and flexible policy rules. How policymakers can elude speculative attacks by introducing uncertainty into the speculators' decisions. That the domestic currency often stays overvalued for a long period. That large discrete devaluations occur after the peg is abandoned. That the domestic interest rates tend to rise in the run up to the crisis. That speculative runs often occur in a multi-period context giving rise to alternating phases of “tranquillity” and “distress”. That asset price dynamics plays a critical role in triggering a full-blown financial crisis.
Benjamin C. Waterhouse
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691149165
- eISBN:
- 9781400848171
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691149165.003.0007
- Subject:
- History, American History: early to 18th Century
This chapter explores how the debate over the Chrysler bailout within the business community highlighted persistent tensions over what “free market” solutions really should look like, as well as ...
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This chapter explores how the debate over the Chrysler bailout within the business community highlighted persistent tensions over what “free market” solutions really should look like, as well as business's ongoing policy struggle with the liberal regulatory state. By the end of the 1970s, industrial lobbyists led by major employers' associations had notched a number of significant political victories and established themselves as powerful players in national policymaking. Organized business groups played key roles in stopping the forward tide of liberal reform legislation and spreading a market-oriented, antiregulatory vision throughout American political culture. For many lobbyists and executives, however, such achievements represented only a starting point toward loftier goals: the severe rollback of environmental, consumer, and workplace regulations and the comprehensive overhaul of the regulatory apparatus.Less
This chapter explores how the debate over the Chrysler bailout within the business community highlighted persistent tensions over what “free market” solutions really should look like, as well as business's ongoing policy struggle with the liberal regulatory state. By the end of the 1970s, industrial lobbyists led by major employers' associations had notched a number of significant political victories and established themselves as powerful players in national policymaking. Organized business groups played key roles in stopping the forward tide of liberal reform legislation and spreading a market-oriented, antiregulatory vision throughout American political culture. For many lobbyists and executives, however, such achievements represented only a starting point toward loftier goals: the severe rollback of environmental, consumer, and workplace regulations and the comprehensive overhaul of the regulatory apparatus.
Kim Oosterlinck
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780300190915
- eISBN:
- 9780300220933
- Item type:
- book
- Publisher:
- Yale University Press
- DOI:
- 10.12987/yale/9780300190915.001.0001
- Subject:
- Biology, Ecology
This is a book about hope and international finance. The repudiation of Russia’s debt by the Bolsheviks in 1918 affected French investors for several generations. The reason for this was the sheer ...
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This is a book about hope and international finance. The repudiation of Russia’s debt by the Bolsheviks in 1918 affected French investors for several generations. The reason for this was the sheer volume of money lent by institutional investors and private citizens alike. This book focuses on the reasons which prompted French investors to hope they would eventually be repaid. In this financial context, hope was reflected in the fluctuations of Russian bond prices. Indeed, in view of the extreme nature of the repudiation, the prices of Russian sovereign debt experienced only a modest decline. As a matter of fact, they actually increased after the repudiation, and their yields were well below those observed nowadays when sovereign debts are repudiated. Far from being a sign of irrational behaviour, this trend can be attributed to expectations that one or more extreme events could occur. Governments have four key incentives to repay their debts: fear of a loss of reputation and consequent exclusion from capital markets; fear of armed intervention; trade sanctions; and seizure of collateral. In the Russian case, investors remained hopeful for the aforementioned reasons but they also hoped that a third-party government would stand in for the Russian government and fulfil its obligations. This book assesses the relative weight of each of these reasons to hope and shows why investors refused to view their repudiated bonds as valueless.Less
This is a book about hope and international finance. The repudiation of Russia’s debt by the Bolsheviks in 1918 affected French investors for several generations. The reason for this was the sheer volume of money lent by institutional investors and private citizens alike. This book focuses on the reasons which prompted French investors to hope they would eventually be repaid. In this financial context, hope was reflected in the fluctuations of Russian bond prices. Indeed, in view of the extreme nature of the repudiation, the prices of Russian sovereign debt experienced only a modest decline. As a matter of fact, they actually increased after the repudiation, and their yields were well below those observed nowadays when sovereign debts are repudiated. Far from being a sign of irrational behaviour, this trend can be attributed to expectations that one or more extreme events could occur. Governments have four key incentives to repay their debts: fear of a loss of reputation and consequent exclusion from capital markets; fear of armed intervention; trade sanctions; and seizure of collateral. In the Russian case, investors remained hopeful for the aforementioned reasons but they also hoped that a third-party government would stand in for the Russian government and fulfil its obligations. This book assesses the relative weight of each of these reasons to hope and shows why investors refused to view their repudiated bonds as valueless.
Jerome Roos
- Published in print:
- 2019
- Published Online:
- May 2019
- ISBN:
- 9780691180106
- eISBN:
- 9780691184937
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691180106.003.0014
- Subject:
- Business and Management, Public Management
This chapter considers why the International Monetary Fund (IMF) did it not prevent Argentina's record default of 2001. It suggests that the IMF was both unable and unwilling to stop it. While the ...
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This chapter considers why the International Monetary Fund (IMF) did it not prevent Argentina's record default of 2001. It suggests that the IMF was both unable and unwilling to stop it. While the second enforcement mechanism of conditional IMF lending was initially fully operative, helping to enforce Argentina's compliance in the first years of the crisis, the outcome of the megaswap greatly reduced the risk of an Argentine default to the international financial system. Combined with mounting domestic opposition in the United States to further international bailout loans, this greatly weakened the IMF's capacity to impose fiscal discipline on Argentina, eventually leading the Fund to pull the plug on its own bailout program, causing the second enforcement mechanism to break down altogether. The chapter recounts the process through which this breakdown occurred.Less
This chapter considers why the International Monetary Fund (IMF) did it not prevent Argentina's record default of 2001. It suggests that the IMF was both unable and unwilling to stop it. While the second enforcement mechanism of conditional IMF lending was initially fully operative, helping to enforce Argentina's compliance in the first years of the crisis, the outcome of the megaswap greatly reduced the risk of an Argentine default to the international financial system. Combined with mounting domestic opposition in the United States to further international bailout loans, this greatly weakened the IMF's capacity to impose fiscal discipline on Argentina, eventually leading the Fund to pull the plug on its own bailout program, causing the second enforcement mechanism to break down altogether. The chapter recounts the process through which this breakdown occurred.
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 ...
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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.
Lynette H. Ong
- Published in print:
- 2012
- Published Online:
- August 2016
- ISBN:
- 9780801450624
- eISBN:
- 9780801465956
- Item type:
- book
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801450624.001.0001
- Subject:
- Political Science, Asian Politics
The official banking institutions for rural China are rural credit cooperatives (RCCs). Although these co-ops are mandated to support agricultural development among farm households, since 1980 half ...
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The official banking institutions for rural China are rural credit cooperatives (RCCs). Although these co-ops are mandated to support agricultural development among farm households, since 1980 half of RCC loans have gone to small and medium-sized industrial enterprises located in, and managed by, townships and villages. These township and village enterprises have experienced highly uneven levels of success, and by the end of the 1990s, half of all RCC loans were in or close to default, forcing China's central bank to bail out RCCs. This book examines the bias in RCC lending patterns, focusing on why the mobilization of rural savings has contributed to successful industrial development in some locales but not in others. Interweaving insightful and theoretically informed discussions of rural credit, development, governance, and bank bailouts, the book identifies various sources for China's uneven development. In the highly decentralized fiscal environment of the People's Republic, successful industrialization has significant implications for rural governance. Local governments depend on revenue from industrial output to provide public goods and services; unsuccessful enterprises starve local governments of revenue and result in radical cutbacks in services. High peasant burdens, land takings without adequate compensation by local governments, and other poor governance practices tend to be associated with unsuccessful industrialization. In light of the recent liberalization of the rural credit sector in China, the book makes a significant contribution to debates within political science, economic development, and international banking.Less
The official banking institutions for rural China are rural credit cooperatives (RCCs). Although these co-ops are mandated to support agricultural development among farm households, since 1980 half of RCC loans have gone to small and medium-sized industrial enterprises located in, and managed by, townships and villages. These township and village enterprises have experienced highly uneven levels of success, and by the end of the 1990s, half of all RCC loans were in or close to default, forcing China's central bank to bail out RCCs. This book examines the bias in RCC lending patterns, focusing on why the mobilization of rural savings has contributed to successful industrial development in some locales but not in others. Interweaving insightful and theoretically informed discussions of rural credit, development, governance, and bank bailouts, the book identifies various sources for China's uneven development. In the highly decentralized fiscal environment of the People's Republic, successful industrialization has significant implications for rural governance. Local governments depend on revenue from industrial output to provide public goods and services; unsuccessful enterprises starve local governments of revenue and result in radical cutbacks in services. High peasant burdens, land takings without adequate compensation by local governments, and other poor governance practices tend to be associated with unsuccessful industrialization. In light of the recent liberalization of the rural credit sector in China, the book makes a significant contribution to debates within political science, economic development, and international banking.
Youssef Cassis
- Published in print:
- 2011
- Published Online:
- May 2011
- ISBN:
- 9780199600861
- eISBN:
- 9780191724930
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199600861.003.0009
- Subject:
- Business and Management, Finance, Accounting, and Banking, Business History
This chapter provides a synthesis of the preceding discussions and presents some concluding thoughts. The Financial Debacle of 2007–8 was the most severe financial crisis in modern history. Never ...
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This chapter provides a synthesis of the preceding discussions and presents some concluding thoughts. The Financial Debacle of 2007–8 was the most severe financial crisis in modern history. Never before, even in the 1930s, did so many of the leading banks — in terms of both size and reputation — in so many advanced countries find themselves, at almost exactly the same moment, requiring state intervention to save them from failing. However, a financial catastrophe was avoided. Banks were bailed out by their governments in various ways, usually through loans or by buying a stake in their capital. The governments' intervention proved effective and the worst of the financial crisis appeared to be over by the start of 2009.Less
This chapter provides a synthesis of the preceding discussions and presents some concluding thoughts. The Financial Debacle of 2007–8 was the most severe financial crisis in modern history. Never before, even in the 1930s, did so many of the leading banks — in terms of both size and reputation — in so many advanced countries find themselves, at almost exactly the same moment, requiring state intervention to save them from failing. However, a financial catastrophe was avoided. Banks were bailed out by their governments in various ways, usually through loans or by buying a stake in their capital. The governments' intervention proved effective and the worst of the financial crisis appeared to be over by the start of 2009.
Aaron S. Edlin
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231160155
- eISBN:
- 9780231504324
- Item type:
- chapter
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231160155.003.0018
- Subject:
- Economics and Finance, Public and Welfare
This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more ...
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This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more funds and the government paid obscene sums in interest to service the debt. All that almost came to an end on Wednesday, September 17, 2008, when the interest rate on ninety-day Treasuries fell to three basis points. That is 75 cents of interest on $10,000 of borrowing. Government borrowing was essentially free. And the interest rate, falling fast, seemed sure to go negative. Negative interest on Treasuries would mean no more costs from servicing the debt. People would be paying the Treasury for the privilege of using their money. The Bush administration, however, came up with a plan to bail out the private financial system, destroying the Treasury’s competitive advantage by shoring up the Treasury’s competitive rivals in borrowing. Not only does the government now bear the costs of other borrowers failing to repay, but it must now again pay significant sums for its own borrowing.Less
This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more funds and the government paid obscene sums in interest to service the debt. All that almost came to an end on Wednesday, September 17, 2008, when the interest rate on ninety-day Treasuries fell to three basis points. That is 75 cents of interest on $10,000 of borrowing. Government borrowing was essentially free. And the interest rate, falling fast, seemed sure to go negative. Negative interest on Treasuries would mean no more costs from servicing the debt. People would be paying the Treasury for the privilege of using their money. The Bush administration, however, came up with a plan to bail out the private financial system, destroying the Treasury’s competitive advantage by shoring up the Treasury’s competitive rivals in borrowing. Not only does the government now bear the costs of other borrowers failing to repay, but it must now again pay significant sums for its own borrowing.
Arthur E. Wilmarth Jr.
- Published in print:
- 2020
- Published Online:
- September 2020
- ISBN:
- 9780190260705
- eISBN:
- 9780190260736
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190260705.001.0001
- Subject:
- Economics and Finance, Financial Economics
This book demonstrates that universal banks—which accept deposits, make loans, and engage in securities activities—played central roles in precipitating the Great Depression of the early 1930s and ...
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This book demonstrates that universal banks—which accept deposits, make loans, and engage in securities activities—played central roles in precipitating the Great Depression of the early 1930s and the Great Recession of 2007–09. Universal banks promoted a dangerous credit boom and a hazardous stock market bubble in the U.S. during the 1920s, which led to the Great Depression. Congress responded by passing the Glass-Steagall Act of 1933, which separated banks from the securities markets and prohibited nonbanks from accepting deposits. Glass-Steagall’s structural separation of the banking, securities, and insurance sectors prevented financial panics from spreading across the U.S. financial system for more than four decades. Despite Glass-Steagall’s success, large U.S. banks pursued a twenty-year campaign to remove the statute’s prudential buffers. Regulators opened loopholes in Glass-Steagall during the 1980s and 1990s, and Congress repealed Glass-Steagall in 1999. The United Kingdom and the European Union adopted similar deregulatory measures, thereby allowing universal banks to dominate financial markets on both sides of the Atlantic. In addition, large U.S. securities firms became “shadow banks” as regulators allowed them to issue short-term deposit substitutes to finance long-term loans and investments. Universal banks and shadow banks fueled a toxic subprime credit boom in the U.S., U.K., and Europe during the 2000s, which led to the Great Recession. Limited reforms after the Great Recession have not broken up universal banks and shadow banks, thereby leaving in place a financial system that is prone to excessive risk-taking and vulnerable to contagious panics. A new Glass-Steagall Act is urgently needed to restore a financial system that is less risky, more stable and resilient, and better able to serve the needs of our economy and society.Less
This book demonstrates that universal banks—which accept deposits, make loans, and engage in securities activities—played central roles in precipitating the Great Depression of the early 1930s and the Great Recession of 2007–09. Universal banks promoted a dangerous credit boom and a hazardous stock market bubble in the U.S. during the 1920s, which led to the Great Depression. Congress responded by passing the Glass-Steagall Act of 1933, which separated banks from the securities markets and prohibited nonbanks from accepting deposits. Glass-Steagall’s structural separation of the banking, securities, and insurance sectors prevented financial panics from spreading across the U.S. financial system for more than four decades. Despite Glass-Steagall’s success, large U.S. banks pursued a twenty-year campaign to remove the statute’s prudential buffers. Regulators opened loopholes in Glass-Steagall during the 1980s and 1990s, and Congress repealed Glass-Steagall in 1999. The United Kingdom and the European Union adopted similar deregulatory measures, thereby allowing universal banks to dominate financial markets on both sides of the Atlantic. In addition, large U.S. securities firms became “shadow banks” as regulators allowed them to issue short-term deposit substitutes to finance long-term loans and investments. Universal banks and shadow banks fueled a toxic subprime credit boom in the U.S., U.K., and Europe during the 2000s, which led to the Great Recession. Limited reforms after the Great Recession have not broken up universal banks and shadow banks, thereby leaving in place a financial system that is prone to excessive risk-taking and vulnerable to contagious panics. A new Glass-Steagall Act is urgently needed to restore a financial system that is less risky, more stable and resilient, and better able to serve the needs of our economy and society.
Frank J. Vandall
- Published in print:
- 2010
- Published Online:
- May 2011
- ISBN:
- 9780195391916
- eISBN:
- 9780199894772
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195391916.003.0007
- Subject:
- Law, Constitutional and Administrative Law, Legal History
Georgia Power, through lobbying, was able to convince the members of the Georgia legislature to allow customers to fund the construction of a nuclear reactor. During the 2008 government bailout, the ...
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Georgia Power, through lobbying, was able to convince the members of the Georgia legislature to allow customers to fund the construction of a nuclear reactor. During the 2008 government bailout, the government chose to allocate the rescue funds to the country's leading corporations instead of to individuals. This chapter demonstrates how corporations implement their view of morality. It provides examples of circumstances where regulations fail to comply with what the public needs because of power issues, and also introduces the concept of proximate cause as a means of tort “reform” to remove liability in negligence cases.Less
Georgia Power, through lobbying, was able to convince the members of the Georgia legislature to allow customers to fund the construction of a nuclear reactor. During the 2008 government bailout, the government chose to allocate the rescue funds to the country's leading corporations instead of to individuals. This chapter demonstrates how corporations implement their view of morality. It provides examples of circumstances where regulations fail to comply with what the public needs because of power issues, and also introduces the concept of proximate cause as a means of tort “reform” to remove liability in negligence cases.
Robert W. Poole Jr.
- Published in print:
- 2018
- Published Online:
- May 2019
- ISBN:
- 9780226557571
- eISBN:
- 9780226557601
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226557601.003.0007
- Subject:
- Economics and Finance, Public and Welfare
Opponents include grass-roots populists, some groups on the left, and interest groups. The latter include some environmental groups, a few public employee unions, some toll agencies, and trucking ...
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Opponents include grass-roots populists, some groups on the left, and interest groups. The latter include some environmental groups, a few public employee unions, some toll agencies, and trucking organizations. This chapter addresses arguments made by these various groups.Less
Opponents include grass-roots populists, some groups on the left, and interest groups. The latter include some environmental groups, a few public employee unions, some toll agencies, and trucking organizations. This chapter addresses arguments made by these various groups.
Gary B. Gorton and Ellis W. Tallman
- Published in print:
- 2018
- Published Online:
- May 2019
- ISBN:
- 9780226479514
- eISBN:
- 9780226479651
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226479651.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The clearing house also engaged in bailouts of large member banks during crises. This policy of “too-big-to-fail” was entirely voluntary and created a risk exposure for the clearing house membership. ...
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The clearing house also engaged in bailouts of large member banks during crises. This policy of “too-big-to-fail” was entirely voluntary and created a risk exposure for the clearing house membership. The bailout was a signal that the clearing house members were willing to take the risk suggesting that their information pointed to the bailed-out bank being solvent. The clearing house expressed the view that the failure of a large bank would be devastating and this was avoidable with a bailout.Less
The clearing house also engaged in bailouts of large member banks during crises. This policy of “too-big-to-fail” was entirely voluntary and created a risk exposure for the clearing house membership. The bailout was a signal that the clearing house members were willing to take the risk suggesting that their information pointed to the bailed-out bank being solvent. The clearing house expressed the view that the failure of a large bank would be devastating and this was avoidable with a bailout.
Daniel McDowell
- Published in print:
- 2017
- Published Online:
- December 2016
- ISBN:
- 9780190605766
- eISBN:
- 9780190609504
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190605766.001.0001
- Subject:
- Political Science, Political Economy, International Relations and Politics
When financial crises occur, it has long been accepted that national economies need a lender of last resort to stabilize markets. In today’s global financial system, crises are rarely confined to one ...
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When financial crises occur, it has long been accepted that national economies need a lender of last resort to stabilize markets. In today’s global financial system, crises are rarely confined to one country. Indeed, they often go global. Yet, there is no formal international lender of last resort (ILLR) to perform this function for the world economy. Conventional wisdom says that the International Monetary Fund (IMF) has emerged in recent decades as the de facto ILLR. Yet that premise is incomplete. This book explores how the United States has for decades regularly complemented the Fund’s ILLR role by selectively providing billions of dollars in emergency loans to foreign economies in crisis. Why would US policymakers ever put national financial resources at risk to bail out foreign governments and citizens to whom they are not beholden when the IMF was created for this purpose? I argue the United States has been compelled to provide such rescues unilaterally when it believes a multilateral response via the IMF is either too slow or too small to protect vital US economic and financial interests. Through a combination of historical case studies and statistical analysis, I uncover the defensive motives behind US decisions to provide global liquidity from the 1960s through the 2008 global financial crisis. The book paints a more complete picture of how international financial crises have been managed and highlights the unique role that the United States has played in stabilizing the world economy in troubled times.Less
When financial crises occur, it has long been accepted that national economies need a lender of last resort to stabilize markets. In today’s global financial system, crises are rarely confined to one country. Indeed, they often go global. Yet, there is no formal international lender of last resort (ILLR) to perform this function for the world economy. Conventional wisdom says that the International Monetary Fund (IMF) has emerged in recent decades as the de facto ILLR. Yet that premise is incomplete. This book explores how the United States has for decades regularly complemented the Fund’s ILLR role by selectively providing billions of dollars in emergency loans to foreign economies in crisis. Why would US policymakers ever put national financial resources at risk to bail out foreign governments and citizens to whom they are not beholden when the IMF was created for this purpose? I argue the United States has been compelled to provide such rescues unilaterally when it believes a multilateral response via the IMF is either too slow or too small to protect vital US economic and financial interests. Through a combination of historical case studies and statistical analysis, I uncover the defensive motives behind US decisions to provide global liquidity from the 1960s through the 2008 global financial crisis. The book paints a more complete picture of how international financial crises have been managed and highlights the unique role that the United States has played in stabilizing the world economy in troubled times.
Janet Grossbach Mayer
- Published in print:
- 2011
- Published Online:
- September 2011
- ISBN:
- 9780823234165
- eISBN:
- 9780823240814
- Item type:
- chapter
- Publisher:
- Fordham University Press
- DOI:
- 10.5422/fordham/9780823234165.003.0003
- Subject:
- History, Social History
In 1975, the United States was in the midst of yet another economic crisis, and New York City was close to financial ruin. Mayor Abraham Beame and Governor Hugh Carey looked to President Gerald Ford ...
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In 1975, the United States was in the midst of yet another economic crisis, and New York City was close to financial ruin. Mayor Abraham Beame and Governor Hugh Carey looked to President Gerald Ford for a bailout. Mayor Beame successfully negotiated an agreement with Albert Shanker, president of the United Federation of Teachers. City officials said that they had no other sources of cash in reserve and that the teachers' union was all that separated them from declaring bankruptcy. Mr. Shanker agreed to commit $150 million, a huge sum in 1975, of teacher pension money to bail out the city. Even with the teachers' largess, thousands of teachers were let go, take-home pay was cut, and wages were frozen at the pre-June 1975 level. It was at this time that public school repairs ended abruptly — with catastrophic results. This chapter describes the plight of the Carter High School in the Bronx during this time.Less
In 1975, the United States was in the midst of yet another economic crisis, and New York City was close to financial ruin. Mayor Abraham Beame and Governor Hugh Carey looked to President Gerald Ford for a bailout. Mayor Beame successfully negotiated an agreement with Albert Shanker, president of the United Federation of Teachers. City officials said that they had no other sources of cash in reserve and that the teachers' union was all that separated them from declaring bankruptcy. Mr. Shanker agreed to commit $150 million, a huge sum in 1975, of teacher pension money to bail out the city. Even with the teachers' largess, thousands of teachers were let go, take-home pay was cut, and wages were frozen at the pre-June 1975 level. It was at this time that public school repairs ended abruptly — with catastrophic results. This chapter describes the plight of the Carter High School in the Bronx during this time.
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.
Anita Anand (ed.)
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780198777625
- eISBN:
- 9780191823183
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198777625.001.0001
- Subject:
- Law, Company and Commercial Law
Following the recent financial crisis, regulators have been preoccupied with the concept of systemic risk in financial markets, believing that such risk could cause the markets that they oversee to ...
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Following the recent financial crisis, regulators have been preoccupied with the concept of systemic risk in financial markets, believing that such risk could cause the markets that they oversee to implode. At the same time, they have demonstrated a certain inability to develop and implement comprehensive policies to address systemic risk. This inability is due not only to the indeterminacy inherent in the term ‘systemic risk’ but also to existing institutional structures which, because of their existing legal mandates, ultimately make it difficult to monitor and regulate systemic risk across an entire economic system. Bringing together leading figures in the field of financial regulation, this book explores the related concepts of systemic risk and institutional design of financial markets, responding to a number of questions: In terms of systemic risk, what precisely is the problem and what can be done about it? How should systemic risk be regulated? What should be the role of the central bank, banking authorities, and securities regulators? Should countries implement a macroprudential regulator? If not, how is macroprudential regulation to be addressed within their respective legislative schemes? What policy mechanisms can be employed when developing regulation relating to financial markets? A significant and timely examination of one of the most intractable challenges is posed to financial regulation.Less
Following the recent financial crisis, regulators have been preoccupied with the concept of systemic risk in financial markets, believing that such risk could cause the markets that they oversee to implode. At the same time, they have demonstrated a certain inability to develop and implement comprehensive policies to address systemic risk. This inability is due not only to the indeterminacy inherent in the term ‘systemic risk’ but also to existing institutional structures which, because of their existing legal mandates, ultimately make it difficult to monitor and regulate systemic risk across an entire economic system. Bringing together leading figures in the field of financial regulation, this book explores the related concepts of systemic risk and institutional design of financial markets, responding to a number of questions: In terms of systemic risk, what precisely is the problem and what can be done about it? How should systemic risk be regulated? What should be the role of the central bank, banking authorities, and securities regulators? Should countries implement a macroprudential regulator? If not, how is macroprudential regulation to be addressed within their respective legislative schemes? What policy mechanisms can be employed when developing regulation relating to financial markets? A significant and timely examination of one of the most intractable challenges is posed to financial regulation.
Aaron Tornell (ed.)
- Published in print:
- 2002
- Published Online:
- February 2013
- ISBN:
- 9780226184944
- eISBN:
- 9780226185057
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226185057.003.0016
- Subject:
- Economics and Finance, International
This chapter assesses the policy responses to crisis in the presence of enforceability problems, bailout problems, and balance sheet effects. Systemic bailout guarantees are a second-best instrument ...
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This chapter assesses the policy responses to crisis in the presence of enforceability problems, bailout problems, and balance sheet effects. Systemic bailout guarantees are a second-best instrument to raise investment in emerging economies. They have also investment enhancing effects in the presence of risk. Risky debt plays a useful role in promoting investment. There is a need to improve the prudential regulation concurrently with privatization and financial reforms. Bankers and regulators have incentives to believe that negative news is more transitory than it actually is and to make predictions about the banks' portfolios that are more optimistic than is warranted by the facts. The effect of this misperception is an evergreening of banks' balance sheets. It is noted that not every bailout-guarantee scheme will result in higher growth. It is important that authorities can commit to refrain from granting bailouts on an idiosyncratic basis.Less
This chapter assesses the policy responses to crisis in the presence of enforceability problems, bailout problems, and balance sheet effects. Systemic bailout guarantees are a second-best instrument to raise investment in emerging economies. They have also investment enhancing effects in the presence of risk. Risky debt plays a useful role in promoting investment. There is a need to improve the prudential regulation concurrently with privatization and financial reforms. Bankers and regulators have incentives to believe that negative news is more transitory than it actually is and to make predictions about the banks' portfolios that are more optimistic than is warranted by the facts. The effect of this misperception is an evergreening of banks' balance sheets. It is noted that not every bailout-guarantee scheme will result in higher growth. It is important that authorities can commit to refrain from granting bailouts on an idiosyncratic basis.
Kim Oosterlinck
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780300190915
- eISBN:
- 9780300220933
- Item type:
- chapter
- Publisher:
- Yale University Press
- DOI:
- 10.12987/yale/9780300190915.003.0005
- Subject:
- Biology, Ecology
This chapter details the reasons which prompted French investors to believe that France might bail them out. During the 19th century the French government had bailed out its citizens who had invested ...
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This chapter details the reasons which prompted French investors to believe that France might bail them out. During the 19th century the French government had bailed out its citizens who had invested in the Mexican bonds the French government had promoted. In the Russian case the French government was even more involved. While legally the French government had never underwritten these bonds, it had vaunted their reliability and attractiveness. This was due to political reasons at a time when France felt it needed the diplomatic support of Russia but it was also the result of vast bribing campaigns undertaken by Russia. The fact that, during the First World War, France had paid the coupons on Russian bonds in the name of mutual assistance between allies put the French government in a delicate position. The chapter details the numerous parliamentary debates held to decide whether or not to bail out French holders of Russian bonds. The chapter concludes by describing the actions undertaken by foreign governments in terms of bailout.Less
This chapter details the reasons which prompted French investors to believe that France might bail them out. During the 19th century the French government had bailed out its citizens who had invested in the Mexican bonds the French government had promoted. In the Russian case the French government was even more involved. While legally the French government had never underwritten these bonds, it had vaunted their reliability and attractiveness. This was due to political reasons at a time when France felt it needed the diplomatic support of Russia but it was also the result of vast bribing campaigns undertaken by Russia. The fact that, during the First World War, France had paid the coupons on Russian bonds in the name of mutual assistance between allies put the French government in a delicate position. The chapter details the numerous parliamentary debates held to decide whether or not to bail out French holders of Russian bonds. The chapter concludes by describing the actions undertaken by foreign governments in terms of bailout.
Kim Oosterlinck
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780300190915
- eISBN:
- 9780300220933
- Item type:
- chapter
- Publisher:
- Yale University Press
- DOI:
- 10.12987/yale/9780300190915.003.0007
- Subject:
- Biology, Ecology
The first chapters of the book identified all the potential reasons Russian bond prices remained resilient despite the formal announcement of their repudiation. The purpose of this chapter is to ...
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The first chapters of the book identified all the potential reasons Russian bond prices remained resilient despite the formal announcement of their repudiation. The purpose of this chapter is to determine the relative importance of each of these factors from a quantitative perspective. In a first phase the analysis determines the dates on which market prices for Russian bonds underwent major changes. In a second phase, the impact of a specific factor, expectations of a bailout, is scrutinized. Results highlight the predominant influence of events, whether actual or rumored, connected to the Russian civil war. Expectations of repayment by France had a strong influence in 1920 but less so in the previous years. Announcements of a Soviet or White repayment played only a secondary role. As for bailout expectations their impact is far from negligible.Less
The first chapters of the book identified all the potential reasons Russian bond prices remained resilient despite the formal announcement of their repudiation. The purpose of this chapter is to determine the relative importance of each of these factors from a quantitative perspective. In a first phase the analysis determines the dates on which market prices for Russian bonds underwent major changes. In a second phase, the impact of a specific factor, expectations of a bailout, is scrutinized. Results highlight the predominant influence of events, whether actual or rumored, connected to the Russian civil war. Expectations of repayment by France had a strong influence in 1920 but less so in the previous years. Announcements of a Soviet or White repayment played only a secondary role. As for bailout expectations their impact is far from negligible.
Alicia Hinarejos
- Published in print:
- 2015
- Published Online:
- August 2015
- ISBN:
- 9780198714958
- eISBN:
- 9780191783128
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198714958.003.0003
- Subject:
- Law, EU Law
This chapter provides a brief account of the events leading up to, and the unfolding of, the euro area crisis. It further addresses the relationship between the crisis and the original design of EMU, ...
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This chapter provides a brief account of the events leading up to, and the unfolding of, the euro area crisis. It further addresses the relationship between the crisis and the original design of EMU, discussed in the previous chapter.Less
This chapter provides a brief account of the events leading up to, and the unfolding of, the euro area crisis. It further addresses the relationship between the crisis and the original design of EMU, discussed in the previous chapter.
