- Title Pages
- Dedication
- Acknowledgments
- Introduction
-
I Connectedness, Contagion, and Correlation: Definitions and a Review of the Economic Literature -
1 The Concept of Connectedness -
2 The Concept and History of Contagion -
3 The Concept of Correlation -
II Connectedness in the Crisis -
4 Asset Connectedness: Lehman and AIG -
5 Liability Connectedness: Money Market Funds and Tri-Party Repo Market -
6 Dodd–Frank Act Policies to Address Connectedness -
III Contagion -
7 Contagion in the 2008 Crisis: The Run on the Nonbank Sector, “Shadow Banks” -
8 History of Lender of Last Resort in the United States -
9 Dodd–Frank Restrictions on the Lender-of-Last-Resort Power -
10 Comparison of LLR Powers of Fed with Bank of England, European Central Bank, and Bank of Japan -
11 Strengthening the LLR Powers of the Fed -
12 Liability Insurance and Guarantees -
13 Insuring Money Market Funds -
IV Ex ante Policies to Avoid Contagion: Capital, Liquidity, Resolution, Money Market Mutual Fund Reform, and Limits on Short-Term Funding -
14 Capital Requirements: Basel III Framework -
15 Liquidity Requirements -
16 Bank Resolution Procedures, Contingent Capital (CoCos), and Bail-Ins -
17 Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies) -
18 Living Wills -
19 Money Market Mutual Fund Reform -
20 Dependence of the Financial System on Short-Term Funding -
21 Government Crowding Out of Private Issuance of Short-Term Debt -
V Public Capital Injections into Insolvent Financial Institutions -
22 Capital Purchase Program and Other TARP Support Programs -
23 Criticisms of Bailouts Generally -
24 Specific Criticisms of TARP -
25 Standing Bailout Programs -
26 Conclusion - Appendix
- Index
Criticisms of Bailouts Generally
Criticisms of Bailouts Generally
- Chapter:
- (p.265) 23 Criticisms of Bailouts Generally
- Source:
- Connectedness and Contagion
- Author(s):
Hal S. Scott
- Publisher:
- The MIT Press
This chapter discusses five general criticisms of government bailout efforts. First, taxpayers can suffer losses. While bailouts may, in the end, not be costly for taxpayers, one does not know this in advance of the expenditure. Second, bailouts may not work or may be prolonged. Bailouts may be the beginning and not the end of financial recovery. Third, bailouts create moral hazard. Both individual firms and the market may have perverse incentives if they know the government will come to the rescue. The consequence of this moral hazard is that firms will take on more risk than would otherwise be optimal because risk taking becomes a one-sided bet. Fourth, government decisions over bailout may be political and ad hoc. Some have claimed that the use of Troubled Asset Relief Program (TARP) funds was determined based on political rather than actual systemic risk grounds. Public confidence in the bailout effort can be seriously damaged if it is perceived by the public that the government did not follow any clearly articulated goals and principles in making important decisions. Fifth, bailouts may fail to boost lending activities.
Keywords: government bailout, financial crisis, taxpayers, moral hazard, lending, Troubled Asset Relief Program, TARP
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- Title Pages
- Dedication
- Acknowledgments
- Introduction
-
I Connectedness, Contagion, and Correlation: Definitions and a Review of the Economic Literature -
1 The Concept of Connectedness -
2 The Concept and History of Contagion -
3 The Concept of Correlation -
II Connectedness in the Crisis -
4 Asset Connectedness: Lehman and AIG -
5 Liability Connectedness: Money Market Funds and Tri-Party Repo Market -
6 Dodd–Frank Act Policies to Address Connectedness -
III Contagion -
7 Contagion in the 2008 Crisis: The Run on the Nonbank Sector, “Shadow Banks” -
8 History of Lender of Last Resort in the United States -
9 Dodd–Frank Restrictions on the Lender-of-Last-Resort Power -
10 Comparison of LLR Powers of Fed with Bank of England, European Central Bank, and Bank of Japan -
11 Strengthening the LLR Powers of the Fed -
12 Liability Insurance and Guarantees -
13 Insuring Money Market Funds -
IV Ex ante Policies to Avoid Contagion: Capital, Liquidity, Resolution, Money Market Mutual Fund Reform, and Limits on Short-Term Funding -
14 Capital Requirements: Basel III Framework -
15 Liquidity Requirements -
16 Bank Resolution Procedures, Contingent Capital (CoCos), and Bail-Ins -
17 Dodd–Frank Orderly Liquidation for Nonbank SIFIs (Including Bank Holding Companies) -
18 Living Wills -
19 Money Market Mutual Fund Reform -
20 Dependence of the Financial System on Short-Term Funding -
21 Government Crowding Out of Private Issuance of Short-Term Debt -
V Public Capital Injections into Insolvent Financial Institutions -
22 Capital Purchase Program and Other TARP Support Programs -
23 Criticisms of Bailouts Generally -
24 Specific Criticisms of TARP -
25 Standing Bailout Programs -
26 Conclusion - Appendix
- Index
