Fallacies of market-friendly financial regulation conducted by the Federal Reserve in the 1990s and 2000s

Juan Barredo-Zuriarrain (), Faruk Ülgen and Ognjen Radonjić
Additional contact information
Juan Barredo-Zuriarrain: UPV / EHU - Universidad del País Vasco [Espainia] / Euskal Herriko Unibertsitatea [España] = University of the Basque Country [Spain] = Université du pays basque [Espagne], CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes
Ognjen Radonjić: University of Belgrade [Belgrade]

Post-Print from HAL

Abstract: This article draws from the Minskyian/Post-Keynesian literature on the dynamics of the 21st century capitalism and points to the incompatibility between market-efficiency-based micro-prudential regulatory reforms—conducted by the Federal Reserve System in the 1990s–2000s—and financial system stability. We argue that these reforms rested on a twofold efficiency fallacy: efficient financial markets/regulation-free innovative dynamics and informational transparency seeking market-friendly regulation. Thus, the financial instabilities of the 2000s do not rest on accidental strategies of some irrational individuals but on the liberal regulatory changes implemented in the last decades. This article supplies evidence about the prevalence of this theoretical and policy stance, documenting through speeches and hearings given over the period 1999–2010 by the Fed's officials. We then show that major regulatory changes conducted by the Fed were based on micro-prudential measures consistent with the blind faith of authorities in the capacity of free financial markets to self-regulate. This faith does not seem to be replaced by an alternative objective regulatory approach even in the aftermath of the world-wide 2007–2008 catastrophe. The major conclusion of this study is that a relevant alternative regulation should rest on a macro-prudential approach seeking to deal with the endogenously unstable dynamics of capitalism.

Keywords: Federal reserve system; financial crisis; financial regulation; New Neoclassical Synthesis; self-regulation; systemic risk (search for similar items in EconPapers)
Date: 2020-10-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Post Keynesian Economics, 2020, 43 (4), pp.540-575. ⟨10.1080/01603477.2020.1734465⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Fallacies of market-friendly financial regulation conducted by the Federal Reserve in the 1990s and 2000s (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03040661

DOI: 10.1080/01603477.2020.1734465

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().