Lehren aus der Finanzkrise: Rolle des Staates und internationale Dimension / Lessons from the financial crisis: The role of government and the international dimension

Roland Vaubel

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2009, vol. 60, issue 1, 247-266

Abstract: The financial crisis is not due to distorted market incentives but to error and government failure. A comparison of risk premia in the US mortgage and corporate bond markets reveals that the crisis was not caused by low risk aversion; rather, the market underestimated the risk. The same factors which explain US regulatory failure in, and prior to, the crisis also throw doubt on current proposals to give regulators more discretionary powers. The regulations which are now to be introduced at the EU level would not have prevented the crisis. Since each country has a sufficient incentive to maintain the stability of its financial system, the crisis is not due to a lack of international cooperation, and there is no need for international regulation in the future. However, the exchange of information may be improved. The paper demonstrates that the economic forecasts of international organisations like the International Monetary Fund are less reliable than those of private and national institutions. Governments should not subsidise solvent banks, nor should they contribute to their capital. Banks which declare bankruptcy, however, should be taken over, restructured and resold by a public agency. Capital requirements ought to be raised and vary with the business cycle. There is also a case for rules requiring more transparency.

Date: 2009
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DOI: 10.1515/ordo-2009-0113

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