Chapter

Sub‐Prime Finance: Yes, We are Still in Kansas<sup>1</sup>

Gerard Caprio, Jr.

in Time for a Visible Hand

Published in print January 2010 | ISBN: 9780199578801
Published online February 2010 | e-ISBN: 9780191723285 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199578801.003.0003

Series: Initiative for Policy Dialogue

Sub‐Prime Finance: Yes, We are Still in Kansas1

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Caprio Jr. argues that many of the features of the crisis are disturbingly familiar: they reflect “universal constants” of financial market behavior, particularly incentive systems that are conducive to excessive risk‐taking and lax oversight by markets and supervisors alike. In the author's view, one of the major mistakes that authorities made was putting their faith in a static set of rules, ignoring the dynamics of the regulatory game—that is, the fact that any static set of rules will end up inducing innovations designed to evade the same rules. According to Caprio, the goal of regulation should be a financial system that takes prudent risks in supplying a large volume of useful financial services efficiently, to the broadest part of society, and with the least corruption.

Keywords: subprime finance; policy reform; regulation; financial crisis and their common causes

Chapter.  5970 words. 

Subjects: Macroeconomics and Monetary Economics

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