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The Financial Turmoil of 2007-09: Sinners and Their Sins

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  • George G. Kaufman

Abstract

The causes of the financial crisis of 2007-09 are many and varied. Indeed, the crisis may be viewed as the product of a perfect storm. This paper identifies the major culprits or sinners of the U.S. crisis and enumerates their more important sins. The culprits include central bankers, commercial bankers, credit rating agencies, financial engineers, the government, investors, mortgage borrowers, mortgage brokers, and prudential bank regulators. Among the numerous sins committed by these sinners, the role of the government in encouraging and subsidizing risky home mortgages and the poor performance of the prudential regulators in adequately enforcing the in-place rules are of particular concern. The regulators were poor agents for their healthy bank and taxpayer principals. It follows that prevention of future crisis requires the development of better incentives to motivate the regulators to be more faithful to the letter and spirit of the regulations.

Suggested Citation

  • George G. Kaufman, 2010. "The Financial Turmoil of 2007-09: Sinners and Their Sins," NFI Policy Briefs 2010-PB-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfipbs:2010-pb-01
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2010-PB-01_Kaufman.pdf
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    References listed on IDEAS

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    1. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Spr), pages 161-200.
    2. John B. Taylor, 2009. "Getting Off Track - How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis," Books, Hoover Institution, Stanford University, number 3, Q2.
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    Cited by:

    1. von Furstenberg, George M., 2011. "Contingent capital to strengthen the private safety net for financial institutions: Cocos to the rescue?," Discussion Paper Series 2: Banking and Financial Studies 2011,01, Deutsche Bundesbank.
    2. Requeijo, Jaime, 2010. "The Aftermath," MPRA Paper 35879, University Library of Munich, Germany.
    3. Dalla Pellegrina Lucia & Saraceno Margherita, 2011. "Securities Class Actions: A Helping Hand for Bank Regulators in Trouble?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 214-242, July.

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    More about this item

    Keywords

    Financial Crisis; Banking; Financial Regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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