Document Type

Chapter of Book

Publication Date



financial crisis, financial regulation, financial markets, bailouts, securities, subprime mortgages


Government safety nets in the United States and abroad focus, anachronistically, on problems of banks and other financial institutions, largely ignoring financial markets which have become major credit sources for consumers and companies. Besides failing to protect these markets, this narrow focus encourages morally hazardous behavior by large institutions, like AIG and Citigroup, that are "too big to fail." This paper examines how a safety net should be recast to protect financial markets and also explains why that safety net would mitigate moral hazard and help resolve the too-big-to-fail dilemma.

Library of Congress Subject Headings

Securities (Law), Money market, Subprime mortgage loans, Financial crises, Bailouts (Government policy), Public finance