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Too Big to Bail: The "Paulson Put," Presidential Politics, and the Global Financial Meltdown

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  • Thomas Ferguson
  • Robert Johnson

Abstract

This paper analyzes how a world financial meltdown developed out of U.S. subprime mortgage markets. It outlines how deregulatory initiatives allowed Wall Street to build an entire line of new, risky financial products out of raw materials the mortgage markets supplied. We show how further bipartisan regulatory failures allowed these same firms to take on extreme amounts of leverage, which guaranteed that when a crisis hit, it would be severe. A principle focus is the "Paulson Put"—the effort by the U.S. Treasury secretary to stave off high-profile public financial bailouts until after the 2008 presidential election. The paper shows how the Federal Home Loan Bank System and other government agencies were successfully pressed into service for this purpose—for a while.

Suggested Citation

  • Thomas Ferguson & Robert Johnson, 2009. "Too Big to Bail: The "Paulson Put," Presidential Politics, and the Global Financial Meltdown," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(1), pages 3-34.
    • Handle: RePEc:mes:ijpoec:v:38:y:2009:i:1:p:3-34
    DOI: 10.2753/IJP0891-1916380101
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    Cited by:

    1. Edward Kane, 2010. "Redefining and Containing Systemic Risk," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(3), pages 251-264, September.
    2. Mario Sarcinelli, 2010. "Past and future regulation to prevent a systemic financial crisis," PSL Quarterly Review, Economia civile, vol. 63(253), pages 103-129.
    3. Parmendra Sharma & Eduardo Roca, 2011. "Reâ Designing Financial Systems: A Review of the Role of Stock Markets in Developing Economies," Discussion Papers in Finance finance:201120, Griffith University, Department of Accounting, Finance and Economics.
    4. Edward Kane, 2018. "Double Whammy: Implicit Subsidies and the Great Financial Crisis," Working Papers Series 81, Institute for New Economic Thinking.
    5. Eugenia Correa & Alicia Girón, 2013. "Public expenditure and deficits: the emerging countries’ financial circuits and crises," Chapters, in: Louis-Philippe Rochon & Mario Seccareccia (ed.), Monetary Economies of Production, chapter 12, pages 181-194, Edward Elgar Publishing.
    6. Casselmann, Farina, 2013. "Financial services regulation in the wake of the crisis: The Capital Requirements Directive IV and the Capital Requirements Regulation," IPE Working Papers 18/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    7. Domenica Tropeano, 2011. "The Monetary Policy Response to the Financial Crisis in the Euro Area and in the United States: A Comparison," Palgrave Macmillan Books, in: Pompeo Posta & Leila Simona Talani (ed.), Europe and the Financial Crisis, chapter 2, pages 28-45, Palgrave Macmillan.
    8. Thomas Ferguson & Paul Jorgensen & Jie Chen, 2016. "How Money Drives US Congressional Elections," Working Papers Series 48, Institute for New Economic Thinking.
    9. Wosnitza, Jan Henrik & Denz, Cornelia, 2013. "Liquidity crisis detection: An application of log-periodic power law structures to default prediction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(17), pages 3666-3681.

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