Bank run When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits see fractional-reserve bankingit is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance. An event in which bank runs are widespread is called a systemic banking crisis or banking panic.
They felt unfair—and counterproductive: And beyond the ethics of it was the question of whether the government even had the authority to bail out failing firms like Bear Stearns and AIG.
The answer, according to Eric A. The federal government freely and frequently violated the law with the bailouts—but it did so in the public interest. An understandable lack of sympathy toward Wall Street has obscured the fact that bailouts have happened throughout economic history and are unavoidable in any modern, market-based economy.
Contrary to popular belief, the financial system cannot operate properly unless the government stands ready to bail out banks and other firms. The legal constraints were damaging, but harm was limited because the agencies—with a few exceptions—violated or improvised elaborate evasions of the law.
Yet the agencies also abused their power. If illegal actions were what it took to advance the public interest, Posner argues, we ought to change the law, but we need to do so in a way that also prevents agencies from misusing their authority.
In the aftermath of the crisis, confusion about what agencies did do, should have done, and were allowed to do, has prevented a clear and realistic assessment and may hamper our response to future crises.
Taking up the common objections raised by both right and left, Posner argues that future bailouts will occur. Acknowledging that inevitability, we can and must look ahead and carefully assess our policy options before we need them.The origins of the financial crisis Crash course.
The effects of the financial crisis are still being felt, five years on. This article, the first of a series of five on the lessons of the.
The financial crisis of –, also known as the global financial crisis and the financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the s.. It began in with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the.
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The Asian financial crisis was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of