Financial Market Failure as a Crisis in the Rule of Law
by TIMOTHY A. CANOVA
Against the background of a close presidential election campaign, the U.S. government responded to the great financial crisis of 2008 with a great financial bailout, a massive federal effort to prop up financial institutions and the economy itself. The crisis in credit and financial markets was the most serious since the collapse of the nation’s banking system in March 1933. A seismic generational shift in values has led to our present crisis. The generation that came of age during the Great Depression and World War II, the so-called Greatest Generation, achieved its most important public policy objectives—converting the economy first to enormous wartime production and then to peacetime rebuilding—in large part because of a financial regulatory regime that kept competition within prescribed limits while allocating credit and capital away from private, speculative activity and into longer-term public investment in physical and social infrastructure.
