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Perspectives on Dodd-Frank and Finance$
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Paul H. Schultz

Print publication date: 2014

Print ISBN-13: 9780262028035

Published to MIT Press Scholarship Online: May 2015

DOI: 10.7551/mitpress/9780262028035.001.0001

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Economic Principles, Government Policy, and the Market Crisis

Economic Principles, Government Policy, and the Market Crisis

Chapter:
(p.9) 2 Economic Principles, Government Policy, and the Market Crisis
Source:
Perspectives on Dodd-Frank and Finance
Author(s):

Chester Spatt

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262028035.003.0002

In this chapter, Chester Spatt argues that policymakers should rely on economic principles to formulate and evaluate policy and discusses how adherence to these principles could have improved regulators’ responses to the crisis. He emphasizes the role of clear and predictable rules and cautions that discretion creates uncertainty and risk for capital market participants. He notes that moral hazard is often ignored by policymakers during times of crisis, but observes that this is when moral hazard is most important. Professor Spatt concludes the chapter by raising questions about how to improve our regulatory system.

Keywords:   TARP, Moral Hazard, Deleveraging, Predictability

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