Controlling Dangerous Financial Products through A Financial Pre-Cautionary Principle

Gerald Epstein and James Crotty
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Gerald Epstein: Department of Economics and Political Economy Research Institute (PERI)

EKONOMIAZ. Revista vasca de Economía, 2009, vol. 72, issue 03, 270-294

Abstract: High risk, opaque, and extremely complex financial products such as collateralized debt obligations and credit default swaps have been among the key causes of the worst economic crisis since the Great Depression. Regulators, buyers, and even many issuers of these investor or capital market products (as distinct from consumer products) did not understand how they worked in calm times, much less in times of extreme market stress. Not only have these products helped cause the crisis but they have also made the crisis extremely difficult to resolve. In response, building on the analogy of the Food and Drug Administration (FDA), a number of analysts have proposed a requirement that financial products be approved by a government regulatory authority, the Financial Stability and Product Safety Administration (FSPSA), before they can be marketed.

Keywords: financial precautionary principle; financial products regulation; financial innovation (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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