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The Global Financial Crisis: Causes and Cures *
Author(s) -
CARMASSI JACOPO,
GROS DANIEL,
MICOSSI STEFANO
Publication year - 2009
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/j.1468-5965.2009.02031.x
Subject(s) - leverage (statistics) , maturity (psychological) , financial crisis , monetary economics , financial intermediary , business , intermediary , financial system , asset (computer security) , monetary policy , economics , financial innovation , finance , macroeconomics , psychology , developmental psychology , computer security , machine learning , computer science
The massive financial instability of 2007–08 was, in the main, the result of lax monetary policy. Regulation compounded this error by allowing and encouraging excessive leverage and maturity transformation by banks. Innovation did contribute to reckless credit expansion and investments, but without lax money and excessive leverage, reckless bets on asset price increases would not have been possible. Therefore, a repeat of this instability could be avoided by correcting these two policy faults. There is no need for intrusive rules constraining non‐bank intermediaries and financial innovation. The main message is: keep it simple.