Working Paper #682
The Great Panic
Peter Linneman
Borrowing Constraints Political Risk United States
The government played many roles in the recession of 2008-2009. The government’s failure to enforce existing regulations, not private market greed, was the root cause of market excesses. Capital markets ceased to function not because of a fundamental economic collapse, but rather because of a great panic that resulted from a lack of leadership by government officials. Unfortunately, the government continues to give more power to those who contributed to the initial panic (for example, the Federal Reserve, Department of the Treasury, rating agencies). The government must first do no harm; it needs to stop giving blood to the dead, to increase transparency, and to structure reforms with greater accountability.