Considerable agreement exists in Continental Europe on the fact that it was the US authorities’ thoughtless financial liberalization policy over the last two decades at least, and therefore bipartisan, to have brought about the subprime disaster and, furthermore, that it was the US authorities’ decision to sink Lehman to start the chain reaction that brought the international financial system to paralysis from Sept.15th, 2008 to the spring of 2009. Why did they do it? Some Europeans suggested at the time that they did it to scare Congress into agreeing to TARP. Others have argued they did it because domestic political support for additional bailouts had vanished with the takeover of Fannie Mae and Freddie Mac.Whatever the motivations, the fact is that the Lehman bankruptcy precipitated the international financial system into a gigantic repeat of the Herstatt counterparty risk crisis.
Marcello De Cecco: Political Economy: What Can Government Do? What Will Government Do?
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- INET-C@K-Paper-Session-8-De-Cecco (pdf, 39.16 KB)