FINANCIAL CRISIS RESOLUTION – THE STATE AS A LENDER OF LAST RESORT?

Charles Blankart and Erik R. Fasten

Economic Affairs, 2009, vol. 29, issue 3, 47-52

Abstract: What is the theoretical basis for spending billions of dollars to fight the financial and economic crisis? Neither the model of an omnipotent state nor that of a welfare‐maximising state seems appropriate. We propose a model of a contractual state resulting from an exchange of protection against systemic risks against regulation of the banking sector. During the years of globalisation governments have neglected to install institutions to reduce systematic risks and currently pay the price for their laxity. We evaluate what can be undertaken in both the short and long run and how far a framework can be enforced internationally.

Date: 2009
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