Abstract
One narrative regarding the systemic financial system collapse is that numerous seeminglyunrelated events occurred in un-or-under regulated markets, requiring widespreadbailouts across the spectrum from mortgage borrowers to investors in money marketfunds. Markets become unbalanced but generally correct before crises become systemic.This did not occur with the most recent financial crisis due to the accumulation of pastpolitical reactions to such crises. Public enterprises had crowded out private enterprises,and public protection and the associated prudential regulation had trumped marketdiscipline. Prudential regulation created moral hazard and public protection invitedmission regulation, both of which undermined prudential regulation itself. This eventuallyled to systemic failure. Politicians are responsible for undermining market discipline,regulatory incompetence and mission-induced laxity.
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