An autopsy of the US financial system: accident, suicide, or negligent homicide

Ross Levine (Department of Economics, Brown University, Providence, Rhode Island, USA)

Journal of Financial Economic Policy

ISSN: 1757-6385

Publication date: 3 August 2010



The purpose of this postmortem is to assess whether the design, implementation, and maintenance of financial policies during the period from 1996 through 2006 were primary causes of the financial system's demise.


To draw conclusions about the policy determinants of the crisis, the paper studies five important policies: Securities and Exchange Commission (SEC) policies toward credit rating agencies, Federal Reserve policies concerning bank capital and credit default swaps, SEC and Federal Reserve policies about over‐the‐counter derivatives, SEC policies toward the consolidated supervision of major investment banks, and government policies toward two housing‐finance entities, Fannie Mae and Freddie Mac.


The evidence is inconsistent with the view that the collapse of the financial system was caused only by the popping of the housing bubble (“accident”) and the herding behavior of financiers rushing to create and market increasingly complex and questionable financial products (“suicide”). Rather, the evidence indicates that senior policymakers repeatedly designed, implemented, and maintained policies that destabilized the global financial system in the decade before the crisis. Moreover, although the major regulatory agencies were aware of the growing fragility of the financial system due to their policies, they chose not to modify those policies, suggesting that “negligent homicide” contributed to the financial system's collapse.


Although influential policymakers presume that international capital flows, euphoric traders, and insufficient regulatory power caused the crisis, this paper shows that these factors played only a partial role. Thus, current reforms represent only a partial and thus incomplete step in establishing a stable and well‐functioning financial system. Since systemic institutional failures helped cause the crisis, systemic institutional reforms must be a part of a comprehensively effective response.



Levine, R. (2010), "An autopsy of the US financial system: accident, suicide, or negligent homicide", Journal of Financial Economic Policy, Vol. 2 No. 3, pp. 196-213.

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