Law and Economics Commons^™

Law, Bubbles, And Financial Regulation, Erik F. Gerding

Erik F. Gerding

This introductory chapter of the book "Law, Bubbles, and Financial Regulation" outlines how financial regulation can fail when it is needed the most. The dynamics of asset price bubbles weaken financial regulation just as financial markets begin to overheat and the risk of crisis spikes. At the same time, the failure of financial regulations adds further fuel to a bubble.

This book examines the interaction of bubbles and financial regulation through over three centuries of history of financial crises. This perspective reveals that law is crucial to the story of bubbles and that the legal history of the current global …

Deregulation Pas De Deux: Dual Regulatory Classes Of Financial Institutions And The Path To Financial Crisis In Sweden And The United States, Erik F. Gerding

Erik F. Gerding

This article presents the following model of two regulatory classes of financial institutions interacting in financial and political markets to spur deregulation and riskier lending and investment, which in turn contributes to the severity of a financial crisis:

1) Regulation creates two categories of financial institutions. The first class faces greater restrictions in lending or investment activities but enjoys regulatory subsidies, such as an explicit or implicit government guarantee, while the second class is more loosely regulated and can make riskier loans or investments and earn additional profits.

2) These additional profits leads to calls for deregulation to enable the …