On the political economy of the financial crisis and bailout of 2008–2009
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U.S. policies to promote home ownership and other banking regulatory decisions helped to create a highly leveraged international market for mortgage-based securities. Declines in the price of housing, consequently, had major effects on the balance sheets and portfolios of financial institutions throughout the world.
The political response to the financial crisis has been rapid and large. In general, differences in the effectiveness of government policies show the advantage of standing institutions at crisis management relative to innovative legislation.
KeywordsPolitical economy Crisis management Regulatory failure Financial markets Housing markets Credit markets Asset bubbles Public choice
JEL ClassificationD72 D73 D8 K2
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