The Costs and Contradictions of the Lender-of-Last Resort Function In Contemporary Capitalism: The Sub-Prime Crisis of 2007 – 2008

Gerald A. Epstein, University of Massachusetts - Amherst

Abstract

The sub-prime crisis and subsequent intervention by central banks, treasuries and other financial regulatory institutions, once again raise a host of issues concerning the role of the lender-of last resort function in contemporary capitalism. These questions go way beyond the normal hue and cry – once again rising to fever pitch – about the dangers of moral hazard and the populist claims of tax payer bail-outs of financial fat cats. It goes almost without saying that both of these are true and highly problematic.