Bank bailouts in the aftermath of the collapse of Lehman
Brothers and the onset of the Great Recession brought into sharp
relief the power that the global financial sector holds over
national politics, and provoked widespread public outrage. In The
Power of Inaction, Cornelia Woll details the varying relationships
between financial institutions and national governments by
comparing national bank rescue schemes in the United States and
Europe. Woll starts with a broad overview of bank bailouts in more
than twenty countries. Using extensive interviews conducted with
bankers, lawmakers, and other key players, she then examines three
pairs of countries where similar outcomes might be expected: the
United States and United Kingdom, France and Germany, Ireland and
Denmark. She finds, however, substantial variation within these
pairs. In some cases the financial sector is intimately involved in
the design of bailout packages; elsewhere it chooses to remain at
arm s length.
Such differences are often ascribed to one of two conditions:
either the state is strong and can impose terms, or the state is
weak and corrupted by industry lobbying. Woll presents a third
option, where the inaction of the financial sector critically
shapes the design of bailout packages in favor of the industry. She
demonstrates that financial institutions were most powerful in
those settings where they could avoid a joint response and force
national policymakers to deal with banks on a piecemeal basis. The
power to remain collectively inactive, she argues, has had
important consequences for bailout arrangements and ultimately
affected how the public and private sectors have shared the cost
burden of these massive policy decisions."
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