Hostname: page-component-76fb5796d-vfjqv Total loading time: 0 Render date: 2024-04-26T09:04:09.134Z Has data issue: false hasContentIssue false
  • English
  • Français

Unmet Duties in Managing Financial Safety Nets

Published online by Cambridge University Press:  23 January 2015

Edward J. Kane
Get access Rights & Permissions [Opens in a new window]

Abstract:

Officials must understand why and how the public lost confidence in the federal government’s ability to manage financial turmoil. Officials outsourced to private parties responsibility for monitoring and policing the safety-net exposures that were bound to be generated by weaknesses in the securitization process. When the adverse consequences of this imprudent arrangement first emerged, officials claimed for months that the difficulties that short-funded, highly leveraged firms were facing in rolling over debt reflected only a shortage of aggregate liquidity and not individual-firm shortages of economic capital. Then, in September 2008, the president and other officials created an unwise sense of urgency that delays in implementation show to have been greatly exaggerated.

That authorities and financiers violated common-law duties of loyalty, competence, and care they owe to taxpayers indicates a massive incentive breakdown in industry and government. Taxpayers deserve a thorough-going reorientation of: (1) how regulatory agencies report on their regulatory performance and back-room interactions with Congress and the Treasury, and (2) the contract structures and performance measures used by the financial industry and its government overseers.

Type
Article
Information
Business Ethics Quarterly , Volume 21 , Issue 1 , January 2011 , pp. 1 - 22
Copyright
Copyright © Society for Business Ethics 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Barth, James. 2009. The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown. Hoboken, N.J.: John Wiley & Sons.Google Scholar
Buchanan, James. 2003. “Politics as Tragedy in Several Acts,” Economics and Politics 15 (July): 180–91.CrossRefGoogle Scholar
Caprio, Gerard, Demirgüç-Kunt, Aslı, and Kane, Edward J.. 2010. “The Meltdown in Structured Securitization: Searching for Lessons, not Scapegoats,” World Bank Research Observer 25 (February): 125–55.CrossRefGoogle Scholar
Chari, V. V., Christiano, Lawrence, and Kehoe, Patrick J.. 2008. “Facts and Myths about the Financial Crisis of 2008,” Federal Reserve Bank of Minneapolis Working Paper No. 666 (February).CrossRefGoogle Scholar
Claessens, Styn, Klingebiel, Daniela, and Laeven, Luc. 2005. “Crisis Resolution, Policies, and Institutions: Empirical Evidence,” in Systemic Financial Distress: Containment and Resolution, ed. Honohan, Patrick and Laeven, Luc. Cambridge: Cambridge University Press, 169–96.CrossRefGoogle Scholar
Cohen-Cole, Ethan. 2009. “Can Monetary Policy Fix a Broken SIV?: Understanding the Response to the Crisis of 2007.” College Park: University of Maryland (unpublished).Google Scholar
Drucker, Peter. 1981. “Ethical Chic,” Forbes (September 14):160–73.Google Scholar
Hoffman, W. Michael, and Moore, Jennifer Mills. 1982. “What is Business Ethics? A Reply to Peter Drucker,” Journal of Business Ethics 1: 293–300.CrossRefGoogle Scholar
Honohan, Patrick, and Klingebiel, Daniela. 2003. “The Fiscal Cost Implications of Accommodating Approach to Banking Crises,” Journal of Banking and Finance 27 (August): 1539–60.CrossRefGoogle Scholar
Hovakimian, Armen, Kane, Edward, and Laeven, Luc. 2003. Journal of Financial Services Research, 23 (June): 171–204.CrossRefGoogle Scholar
Kane, Edward J. 1980. “Politics and Fed Policymaking: The More Things Change, The More They Remain the Same,” Journal of Monetary Economics 6 (April): 199–211.CrossRefGoogle Scholar
Kane, Edward J. 1981. “Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation,” Journal of Finance 36 (May): 355–65.CrossRefGoogle Scholar
Kane, Edward J. 1989. The S&L Insurance Mess: How Did It Happen? Washington, D.C.: The Urban Institute Press.Google Scholar
Kane, Edward J. 2001. “Using Disaster Planning to Optimize Expenditures on Financial Safety Nets,” Atlantic Economic Journal 29:3 (September): 243–53.CrossRefGoogle Scholar
Kane, Edward J. 2006. “Inadequacy of Nation-Based and VaR-Based Safety Nets in the European Union,” North American Journal of Economics and Finance 17: 375–87.CrossRefGoogle Scholar
Kane, Edward J. 2009. “Incentive Roots of the Securitization Crisis and Its Early Mismanagement,” Yale Journal of Regulation 26 (Summer): 405–16.Google Scholar
Kane, Edward J., and Klingebiel, Daniela. 2004. “Alternatives to Blanket Guarantees for Containing a Systemic Crisis,” Journal of Financial Stability 1 (September): 31–63.CrossRefGoogle Scholar
Kaplow, Louis, and Shavell, Steven. 2007. “Moral Rules, the Moral Sentiments, and Behavior: Toward a Theory of an Optimal Moral System,” Journal of Political Economy 115 (June): 494–514.CrossRefGoogle Scholar
Kydland, Finn E., and Prescott, Edward C.. 1977. “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy 85 (June): 473–91.CrossRefGoogle Scholar
Laeven, Luc. 2004. “Banking Risks around the World: The Implicit Safety Net Subsidy Approach,” Washington, D.C.: World Bank Policy Research Paper No. 2473 (November).Google Scholar
Laeven, Luc, and Valencia, Fabian. 2008. “The Use of Blanket Guarantees in Banking Crisis,” Washington, D.C.: International Monetary Fund (unpublished working paper).Google Scholar
Milgram, Stanley. 1974. Obedience to Authority. New York: Harper and Row Publishers, Inc.Google Scholar
Montesquieu, Charles de. 1949 (1748). The Spirit of the Laws, trans. Nugent, Thomas. New York: Hafner.Google Scholar
Moore, Geoff, and Beadle, Ron. 2006. “In Search of Organizational Virtue in Business: Agents, Goods, Practices, Institutions and Environments,” Organizational Studies 27 (March): 369–89.CrossRefGoogle Scholar
Nielsen, Richard P. 1996. The Politics of Ethics: Methods for Acting, Learning, and Sometimes Fighting With Others. Oxford: Oxford University Press.CrossRefGoogle Scholar
Phaup, Marvin. 2009, “Federal Use of Implied Guarantees: Some Preliminary Lessons from the Current Financial Distress,” Public Administration Review (July/August): 651–59.CrossRefGoogle Scholar
Smith, Adam. 1759. The Theory of Moral Sentiments. Indianapolis: Liberty Classics (republished 1976).CrossRefGoogle Scholar
Tatom, John A. 2008. “The U.S. Foreclosure Crisis: A Two-Pronged Assault on the U.S. Economy.” Indianapolis: Networks Financial Institute (unpublished working paper).Google Scholar
Upton, Candace L. 2009. “Virtue Ethics and Moral Psychology: The Situationism Debate,” Journal of Ethics 13 (September): 103–15.CrossRefGoogle Scholar
Zimbardo, Philip. 2007. The Lucifer Effect: Understanding How Good People Turn Evil. New York: Random House Trade Paperbacks.Google Scholar