ABSTRACT
This chapter examines the historical background of the bubble economy both domestically and internationally. Correlating crises with enhanced market power over public policy, it examines the political responses of the US as it first confronted financial crises in the 1970s, next the savings and loans crisis in the 1980s, and finally the global recession in the 1990s and 2000s. Underlying this perspective is the argument that US financial policy attuned itself to the global economy and in response to market innovations within the US economy itself. This review, however, stresses that financial crises are not simply cyclical events that only involve market structures. They are equally dependent on how political authorities create rules to modify prevailing market structures and systematize the creation and implementation of new ones. These interventions, while seeming to have broadened the scope of public oversight, have indeed extended, redefined and systematized regulations to a degree that were increasingly allied with powerful market actors (Underhill and Zhang 2008: 536). This is consistent with federal regulators’ “competition in laxity” that has historically reinforced power through relaxed enforcement and interpretation of the banking laws. While government bailouts have been interpreted as “non-market” support for the financial industry and hence “inefficient”, they reflect instead how markets historically depend on political supports for the very operation of financial institutions.
