Willem Buiter's Maverecon Thu 2009-10-15 16:51 EDT
Kornai on Soft Budget Constraints, Bail-Outs and the Financial Crisis
...Spreading of the SBC syndrome is at once a cause and an effect of the crisis. I will not say it is the only cause: the situation that led to the crisis was brought about by a complex of factors. But I will say firmly that softening of the budget constraint is one of the main causes of the crisis. The general softening tendency has been reinforced in the United States and several other countries by successive bailouts over the last ten or twenty years. Some economists, such as Professor Chenggang Xu, have been pointing for years at a close link between the crisis in East Asia and earlier bailouts. [moral hazard generalized]
bail-outs; Financial Crisis; Kornai; Soft Budget Constraints; Willem Buiter's Maverecon.