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Great expectations, financialization and bank bailouts in democracies

Jeffrey Chwieroth and Andrew Walter

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Accelerating financialization and rising societal wealth have meant that democratic governments increasingly provide bailouts following banking crises. Using a new long-run data set, we show that despite frequent and virulent crises before World War II, bank bailouts to protect wealth were then exceptionally rare. In recent decades, by contrast, governments have increasingly opted for extensive bailouts—well before the major interventions of 2007–2009. We argue that this policy shift is the consequence of the “great expectations” of middle-class voters overlooked in existing accounts. Associated with the growing financialization of wealth, rising leverage, and accumulating ex ante financial stabilization commitments by governments, these expectations are suggestive of substantially altered policy preferences and political cleavages. Since the 1970s, when severe banking crises returned as an important threat to middle-class wealth, this “pressure from below” has led elected governments to provide increasingly costly bailouts with no historical precedent.

Keywords: political economy; globalization; economic policy (search for similar items in EconPapers)
JEL-codes: N0 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-07-01
New Economics Papers: this item is included in nep-his
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Published in Comparative Political Studies, 1, July, 2020, 53(8), pp. 1259 - 1297. ISSN: 0010-4140

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