Monday, April 19, 2010

Who Were the Villains in the Subprime Crisis, and Why it Matters

By Claire A. Hill, University of Minnesota, Twin Cities - School of Law

Abstract: This essay argues for the necessity of dealing with the market actors involved in the financial crisis - actors who committed no crimes, and cannot appropriately be demonized or viewed simply as bad agents making decisions in their short term interest but against their principals’ interests. Without these actors the crisis would not have occurred. It is therefore critical to try to understand why they acted as they did in this case, and how their behavior might be influenced to minimize the chance of future crises. To that end, this essay provides an account of the mindset of market actors other than “villainous” ones, and considers in broad brush what sorts of mechanisms might be employed to affect such actors’ behaviors in ways that might make crises less likely.

Download paper at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1582641

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