October 23, 2010
Zaring on the Post-Crisis
The Post-Crisis and its Critics, by David T. Zaring, University of Pennsylvania - Legal Studies Department, was recently posted on SSRN. Here is the abstract:
What should we make of the continuing government oversight over the recipients of bailout funds in the aftermath of the financial crisis? It certainly blurs the public-private distinction and involves the state in business practices in which, as recently as 2007, it would not have dreamed of overseeing. In this brief symposium essay, I evaluate the government's slow exit from its dramatic market intervention and reject the oft-made, but rather unrealistic claim that its conduct represents a permanent abandonment of free market principles. After all, the regulators did not ask for the roles they were given in the aftermath of the collapse of the financial markets. And as the government’s crisis response matures, its market interventions have begun to look more and more prosaic. In fact, the government has acted as any other investor might in some cases, while in others it is doing things to the financial system that it has done many times before – and that investors expect the government to do. The government’s post-crisis roles as private equity manager and insolvency cleanup specialist are the sorts of tasks that we want it to take on, at least in extraordinary times – and they are essentially the same sort of services that we would expect of vulture funds and cramdown specialists in the private sector to provide were the intervention not to have happened.
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