The Cato Journal

The Cato Journal is a leading free-market public policy journal. The Cato Journal features articles discussing politics and the economy of interest to scholars and professionals but accessible to a general audience as well.

Articles from Vol. 29, No. 1, Winter

After War: The Political Economy of Exporting Democracy
After War: The Political Economy of Exporting Democracy Christopher J. Coyne Stanford, Calif.: Stanford University Press, 2006, 238 pp. Christopher Coyne's book seeks to contribute to an understanding of the "precise mechanisms and contexts...
Asset Prices and Monetary Policy
Crisis: Time to Ponder on Traditional Wisdom Beyond dealing with the immediate problems, any crisis raises questions of why and how we got there and what lessons should be drawn to avoid a repetition of past developments--without laying the ground...
Bad Rules Produce Bad Outcomes: Underlying Public-Policy Causes of the U.S. Financial Crisis
The current global financial crisis is the worst economic crisis since the Great Depression, with no end in sight. Already, much political finger pointing has occurred, with most of those fingers pointed at supposedly greedy bankers, investors, and...
Bailout or Bankruptcy?
At the end of September 2007, the U.S. economy had experienced 24 consecutive quarters of positive GDP growth, at an average annual rate of 2.73 percent. The S&P 500 Index stood at roughly 1,500, having rebounded over 600 points from its low point...
Editor's Note
The articles in this issue of the Cato Journal were first presented at the Cato Institute's 26th Annual Monetary Conference, November 19, 2008. The intent of that conference was to focus on the U.S. subprime crisis, but by the time of the conference...
Federal Reserve Policy and the Housing Bubble
The U.S. housing bubble and the fallout from its bursting are not the results of a laissez-faire monetary and financial system. They happened in an unanchored government fiat monetary system with a restricted financial system. What Happened and...
Financial Innovation, Regulation, and Reform
Financial innovations often respond to regulation by sidestepping regulatory restrictions that would otherwise limit activities in which people wish to engage. Securitization of loans (e.g., credit card receivables, or subprime residential mortgages)...
Interest-Rate Targeting during the Great Moderation: A Reappraisal
In the era that has come to be known as the "Great Moderation" (dating from the mid-1980s), the Federal Reserve's policy committee (the Federal Open Market Committee or FOMC) pursued what has to be called a "learning-by-doing" strategy. The data that...
Monetary Policy and Asset Prices Revisited
We are in the midst of a global financial crisis that is now weighing heavily on economies around the world. Although the outlook remains extremely uncertain, both the fragility of the financial system and the weakness in real activity seem likely...
Money and the Present Crisis
We remain in an economic crisis and financial crisis, one that Gary Gorton has named "The Panic of 2007" (Gorton 2008). The thesis of this article is that monetary policy has played a pivotal role. Under Alan Greenspan and now Ben Bernanke, the Fed...
Moral Hazard and the Financial Crisis
There is no denying that the current financial crisis has delivered a major seismic shock to the policy landscape. In country after country, we see governments panicked into knee-jerk responses and throwing their policy manuals overboard: bailouts...
Moral Hazard in the Policy Response to the 2008 Financial Market Meltdown
The Cato Institute is the ideal place to draw lessons from the subprime crisis. The organization's mission focuses on the interaction of public policies with free markets and limited government. Even the most ardent believer in free markets must fully...
Origins of the Financial Market Crisis of 2008
I begin by describing the factors that contributed to the financial market crisis of 2008. I end by proposing policies that could have prevented the baleful effects that produced the crisis. Factors Contributing to the Financial Crisis At least...
Reflections on the Financial Crisis
I am going to make several unrelated points, and then I am going to discuss how we got into this financial crisis and some needed changes to reduce the risk of future crises. Some Observations First, we should close down as promptly as possible...
The Case for Policy Sustainability
Should we worry about moral hazard while the house is burning? The discussion about economic policy is full of biblical metaphors, the language of water and floods, and of fire extinction during crises. Metaphors, even when not mixed, are often obstacles...
The Way Forward: Incentives, Not Regulations
Most of the world today is concentrating not on the way forward after the crisis, but the way out of the crisis. This concentration brings the very real danger that steps taken now will cause problems later. The most obvious danger, perhaps, is that...
What Lessons Can We Learn from the Boom and Turmoil?
The current financial crisis undoubtedly will inspire a great deal of research in the years ahead, and it may take some time before anything like a professional consensus emerges on causes and consequences. After all, it took several decades to document...

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