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11. Understanding the Interventionist Impulse of the Modern Central Bank

Author:
Jeffrey M. Lacker
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The financial crisis of 2007 and 2008 was a watershed event for the Federal Reserve and other central banks. The extraordinary actions they took have been described, alternatively, as a natural extension of monetary policy to extreme circumstances or as a problematic exercise in credit allocation. I have expressed my view elsewhere that much of the Fed's response to the crisis falls in the latter category rather than the former (Lacker 2010). Rather than reargue that case, I want to take this opportunity to reflect on some of the institutional reasons behind the prevailing propensity of many modern central banks to intervene in credit markets.
Topic:
Financial Crisis
Political Geography:
United States

12. What Made the Financial Crisis Systemic?

Author:
Patric H. Hendershott and Kevin Villani
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The current narrative regarding the 2008 systemic financial system collapse is that numerous seemingly unrelated events occurred in unregulated or underregulated markets, requiring widespread bailouts of actors across the financial spectrum, from mortgage borrowers to investors in money market funds. The Financial Crisis Inquiry Commission, created by the U.S. Congress to investigate the causes of the crisis, promotes this politically convenient narrative, and the 2010 Dodd-Frank Act operationalizes it by completing the progressive extension of federal protection and regulation of banking and finance that began in the 1930s so that it now covers virtually all financial activities, including hedge funds and proprietary trading. The Dodd-Frank Act further charges the newly created Financial Stability Oversight Council, made up of politicians, bureaucrats, and university professors, with preventing a subsequent systemic crisis.
Topic:
Economics, Government, Markets, Global Recession, and Financial Crisis
Political Geography:
United States

13. Libertarian Roots of the Tea Party

Author:
David Kirby and Emily McClintock Ekins
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Many people on the left still dismiss the tea party as the same old religious right, but the evidence says they are wrong. The tea party has strong libertarian roots and is a functionally libertarian influence on the Republican Party.
Topic:
Democratization, Economics, Politics, Insurgency, and Financial Crisis
Political Geography:
United States

14. Regulation, Market Structure, and Role of the Credit Rating Agencies

Author:
Mark A. Calabria and Emily McClintock Ekins
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
During the financial crisis of 2008, the financial markets would have been better served if the credit rating agency industry had been more competitive. We present evidence that suggests the Securities and Exchange Commission's designation of Nationally Recognized Statistical Rating Organizations (NRSROs) inadvertently created a de facto oligopoly, which primarily propped up three firms: Moody's, S, and Fitch. We also explain the rationale behind the NRSRO designation given to credit rating agencies (CRAs) and demonstrate that it was not intended to be an oligopolistic mechanism or to reduce investor due diligence, but rather was intended to protect consumers. Although CRAs were indirectly constrained by their reputation among investors, the lack of competition allowed for greater market complacency. Government regulatory use of credit ratings inflated the market demand for NRSRO ratings, despite the decreasing informational value of credit ratings. It is unlikely that this sort of regulatory framework could result in anything except misaligned incentives among economic actors and distorted market information that provides inaccurate signals to investors and other financial actors. Given the importance of our capital infrastructure and the power of credit rating agencies in our financial markets, and despite the good intentions of the uses of the NRSRO designation, it is not worth the cost and should be abolished. Regulators should work to eliminate regulatory reliance on credit ratings for financial safety and soundness. These regulatory reforms will, in turn, reduce CRA oligopolistic power and the artificial demand for their ratings.
Topic:
Economics, Markets, Financial Crisis, and Governance
Political Geography:
United States

15. Corporate Welfare in the Federal Budget

Author:
Tad DeHaven
Publication Date:
07-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Rising federal spending and huge deficits are pushing the nation toward a financial and economic crisis. Policymakers should find and eliminate wasteful, damaging, and unneeded programs in the federal budget. One good way to save money would be to cut subsidies to businesses. Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States

16. World Hyperinflations

Author:
Steve H. Hanke and Nicholas Krus
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This chapter supplies, for the first time, a table that contains all 56 episodes of hyperinflation, including several which had previously gone unreported. The Hyperinflation Table is compiled in a systematic and uniform way. Most importantly, it meets the replicability test. It utilizes clean and consistent inflation metrics, indicates the start and end dates of each episode, identifies the month of peak hyperinflation, and signifies the currency that was in circulation, as well as the method used to calculate inflation rates.
Topic:
Economics, Globalization, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis

17. The Subprime Lending Debacle: Competitive Private Markets Are the Solution, Not the Problem

Author:
Patric H. Hendershott and Kevin Villani
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The United States' market-government hybrid mortgage system is unique in the world. No other nation has such heavy government intervention in housing finance. This hybrid system nurtured the excessively risky loans, financed with too much leverage, that fueled the U.S. housing bubble of the last decade and resulted in the systemic collapse of the global financial system.
Topic:
Debt, Economics, and Financial Crisis
Political Geography:
United States

18. Fannie Mae, Freddie Mac, and the Future of Federal Housing Finance Policy: A Study of Regulatory Privilege

Author:
David Reiss
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit driven, but as government-sponsored enterprises (GSEs) they also have a government-mandated mission to provide liquidity and stability to the U.S. mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy.
Topic:
Economics, Markets, Privatization, Financial Crisis, and Governance
Political Geography:
United States

19. Bankrupt: Entitlements and the Federal Budget

Author:
Michael Tanner
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The U.S. government is about to exceed its statutory debt limit of $14.3 trillion. But that actually underestimates the size of the fiscal time bomb that this country is facing. If one considers the unfunded liabilities of programs such as Medicare and Social Security, the true national debt could run as high as $119.5 trillion.
Topic:
Debt, Economics, Human Welfare, Financial Crisis, Governance, and Health Care Policy
Political Geography:
United States

20. Putting Politics above Markets: Historical Background to the Greek Debt Crisis

Author:
Takis Michas
Publication Date:
08-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Political clientelism and rent seeking have been the central organizing principles of Greek society since the foundation of the Greek state in the 19th century. The influence of the Eastern Orthodox Church on Greek nationalism and the legacy of the patrimonialist Ottoman empire produced a weak civil society. The result has been a disproportionately large Greek state and public bureaucracy since the 1800s that set the stage for rent-seeking struggles that have followed.
Topic:
Corruption, Debt, Financial Crisis, and Governance
Political Geography:
Europe