AUTHOR'S NOTE: Thanks Jennifer Connolly and David Gastwirth, Ph.D. students at the USC Sol Price School of Public Policy, for their excellent assistance with the research for this article.
The President, Congress, and the Financial Crisis: Ideology and Moral Hazard in Economic Governance
Version of Record online: 23 FEB 2012
© 2012 Center for the Study of the Presidency
Presidential Studies Quarterly
Special Issue: The Presidency and Economic Governance in Hazardous Times
Volume 42, Issue 1, pages 81–100, March 2012
How to Cite
KNOTT, J. H. (2012), The President, Congress, and the Financial Crisis: Ideology and Moral Hazard in Economic Governance. Presidential Studies Quarterly, 42: 81–100. doi: 10.1111/j.1741-5705.2012.03942.x
- Issue online: 23 FEB 2012
- Version of Record online: 23 FEB 2012
This article examines how the democratic political institutions of the president and the Congress interacted with private firms and regulatory agencies to contribute to the financial meltdown in 2008-09. This economic governance system failed to counteract the excessive optimism in the financial markets but rather contributed to and reinforced this development. Political moral hazard weakened institutional checks and balances in economic regulation and contributed to a convergence of political ideology and policy preferences of the president, Congress, political parties, and professional experts. These developments occurred during significant financial innovation, making it difficult to foresee the risk building in the system.