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It's That 'Vision' Thing: Why the Bailouts Aren't Working, and Why a New Financial System Is Needed

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  • Jan Kregel

Abstract

The Federal Reserve's response to the current financial crisis has been praised because it introduced a zero interest rate policy more rapidly than the Bank of Japan (during the Japanese crisis of the 1990s) and embraced massive "quantitative easing." However, despite vast capital injections, the banking system is not lending in support of the private sector. Senior Scholar Jan Kregel compares the current situation with the Great Depression, and finds an absence of New Deal measures and institutions in the current rescue packages. The lessons of the Great Depression suggest that any successful policy requires fundamental structural reform, an understanding of how the financial system failed, and the introduction of a new financial structure (in a short space of time) that is designed to correct these failures. The current crisis could have been avoided if increased household consumption had been financed through wage increases, says Kregel, and if financial institutions had used their earnings to augment bank capital rather than bonuses.

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  • Jan Kregel, 2009. "It's That 'Vision' Thing: Why the Bailouts Aren't Working, and Why a New Financial System Is Needed," Economics Public Policy Brief Archive ppb_100, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:ppb_100
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    References listed on IDEAS

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    1. James K. Galbraith & L. Randall Wray & Warren Mosler, 2009. "The Case Against Intergenerational Accounting: The Accounting Campaign Against Social Security and Medicare," Economics Public Policy Brief Archive ppb_98, Levy Economics Institute.
    2. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, Taylor & Francis Journals, vol. 37(1), pages 3-23.
    3. Epstein, Gerald & Ferguson, Thomas, 1984. "Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932," The Journal of Economic History, Cambridge University Press, vol. 44(4), pages 957-983, December.
    4. L. Randall Wray, 2009. "The Return of Big Government--Policy Advice for President Obama," Economics Public Policy Brief Archive ppb_99, Levy Economics Institute.
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    Cited by:

    1. Alessandro Vercelli, 2009. "A Perspective on Minsky Moments--The Core of the Financial Instability Hypothesis in Light of the Subprime Crisis," Economics Working Paper Archive wp_579, Levy Economics Institute.
    2. Domenica Tropeano, 2012. "Quantitative Easing in the United States After the Crisis: Conflicting Views," Chapters, in: Louis-Philippe Rochon & Salewa ‘Yinka Olawoye (ed.), Monetary Policy and Central Banking, chapter 11, Edward Elgar Publishing.
    3. Louis-Philippe Rochon & Salewa ‘Yinka Olawoye (ed.), 2012. "Monetary Policy and Central Banking," Books, Edward Elgar Publishing, number 14188.
    4. Alessandro Vercelli, 2011. "A Perspective on Minsky Moments: Revisiting the Core of the Financial Instability Hypothesis," Review of Political Economy, Taylor & Francis Journals, vol. 23(1), pages 49-67.

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