Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

Synopsis

In this innovative and exhaustive study, Steven A. Ramirez posits that the subprime mortgage crisis, as well as the global macroeconomic catastrophe it spawned, is traceable to a gross failure of law.

The rule of law must appropriately channel and constrain the exercise of economic and political power. Used effectively, it ensures that economic opportunity isn’t limited to a small group of elites that enjoy growth at the expense of many, particularly those in vulnerable economic situations. In Lawless Capitalism, Ramirez calls for the rule of law to displace crony capitalism. Only through the rule of law, he argues, can capitalism be reconstructed.

Excerpt

It is to be regretted that the rich and powerful too often bend the
acts of government to their own ends.

President Andrew Jackson (1832)

On September 13, 2008, CEO Jamie Dimon told his senior management team at JP Morgan Chase: “You are about to experience the most unbelievable week in America ever.” Dimon summed up the outcome for the Chase bankers of extended late night meetings with government officials and fellow banking executives: The government would not bail out Lehman Brothers, and he envisioned a systemic failure of many other Wall Street banks, leading to a near-total financial collapse. On September 15, 2008, Lehman Brothers, one of America’s oldest investment banks, declared bankruptcy. On Tuesday, September 16, 2008, the Reserve Primary Fund, the nation’s oldest money market mutual fund, “broke the buck” when its shares fell to 97 cents, after accounting for losses on short-term debt obligations issued by Lehman. This caused a massive and historic run on money markets and short-term debt markets around the world. Holders of such obligations reacted to risks of loss that previously seemed remote—that the government would permit a major financial institution to fail—and this deep risk aversion spread rapidly . . .

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