The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later.

This paper looks at the roots of the current crisis through an analytical framework of bad bets, excessive leverage, domino effects, and 21st-century bank runs. It shows that broad policy areas—including housing policy, capital regulations for banks, industry structure and competition, autonomous financial innovation, and monetary policy—affected elements of this framework to varying, but important degrees. Ultimately, this special study seeks to draw meaningful lessons for policymakers by understanding the complex history, evolution, and integrated nature of financial regulations.

The recent financial crisis has provoked a raft of contending claims as to whether the cause of the crisis is better attributed to market failure or political failure. Such claims are predicated on a presumption that markets and polities are meaningfully separate entities. To the contrary, we argue that contemporary…

In light of the 2007-2008 financial crisis, policymakers are reforming financial regulations in order to create a resolution system for large failing financial institutions. This paper advocates that speed bankruptcy, specifically overnight debt-to-equity conversions be considered as a viable option to recapitalize troubled financial institutions. At the very least, overnight debt-to-equity conversions could have been used to provide hundreds of billions of dollars of extra equity to weak firms in 2008, and could still be used the next time a firm that is ostensibly “too big to fail” comes close to going bust.

Using the most recent quarter of stimulus data from Recovery.gov and data from the Bureau of Labor Statistics, this chart by Mercatus Center Senior Research Fellow Veronique de Rugy puts job creation numbers in context.

This chart by Mercatus Center senior research fellow Veronique de Rugy uses data from the International Monetary Fund’s Cross-Country Fiscal Monitor to compare projected 2010 structural deficits across the G-20.

In response to the financial crisis, Congress passed the American Recovery and Reinvestment Act(ARRA) in February 2009, which totaled $789 billion in government spending. President Obama reassured anxious Americans that this spending would “revive our economy” and “create 3.5 million jobs” over the next two years. A new study by Harvard professor Dr. Robert Barro and Charles Redlick tests this claim and the economic theory that underlies it by using defense spending as a proxy for overall government spending.

Policymakers continue to seek viable alternatives to resolve large insolvent financial institutions. A better option is speed bankruptcy: a process of converting some long-term debt into equity, a more palatable option than using taxpayer funds to recapitalize large banks.

In his testimony before the House of Representatives Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, Anthony Sanders discusses how to encourage the involvement of private mortgage insurers in the home mortgage market and how to reduce government involvement in the housing finance area.

The Labor Department’s Employee Benefits Security Administration seeks comment on a proposal that would allow fiduciaries that provide individual retirement savings plans (such as 401(k)s and IRAs) to offer investment advice to plan participants. The proposal outlines exemptions to the Employee Retirement Security Act, which generally prohibits fiduciaries from giving investment advice in order to prevent conflicts of interest.

Jerry Ellig presents before the Department of Energy, Office of Health, Safety and Security in the Visiting Speakers Program about regulation in high reliability organizations, such as telecommunications, airport security and finance.