A Year of Living Dangerously: The Management of the Financial Crisis in 2008

Vincent Reinhart

Journal of Economic Perspectives, 2011, vol. 25, issue 1, 71-90

Abstract: There are many reasons to regret the decision of U.S. financial authorities to insert the government into the resolution of the investment bank Bear Stearns in March 2008. The Federal Reserve's use of its discount window built up false hope of future rescues. Paying off the uninsured creditors of Bear Stearns overcompensated them at the time and invited speculative attacks on the equity of similarly situated firms. I will argue that the market seizure after Lehman Brothers' decision to seek the protection of bankruptcy was an echo of the prior official decision to protect Bear Stearns.

JEL-codes: E23 E32 E44 G01 G24 G33 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/jep.25.1.71
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Citations: View citations in EconPapers (13)

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