Project Report:
Causes of the Financial Crisis
- Investigates the causes of economic imbalances.
- Investigates the effect of the global financial system and/or the monetary system in fostering a sustainable economy.
- Investigates causes tending to destroy or impair the free-market system.
- Explores and develops market-based solutions.


Critical Review published a special double issue, republished as a book, in which scholars examined the causes of the financial crisis from a wide variety of perspectives. The issue treated different causes, ranging from monetary and housing policy to bank-capital regulations, and produced a comprehensive theory of the crisis as being due to regulatory failure of a new sort: the interaction of different regulations, originating as far back as 1936 and covering different industries. This failure was thus totally unpredictable, but has ominous implications for the future, given the immense proliferation of regulations in every industry.


The special issue features John Taylor’s famous paper blaming the Federal Reserve for the crisis; papers by two Nobel laureates (Vernon Smith and Joseph Stiglitz) and a John Bates Clark Medalist (Daron Acemoglu); the "Dahlem Report," which targets the unrealistic assumptions and lack of empirical testing in economics; and pathbreaking analyses of regulations governing the rating agencies and the housing market, and of the pivotal role played by the Basel rules governing bank capital.

Taken as a whole, the special issue shows that bankers, investors, credit-raters, and government regulators were all ignorant of the unintended effects of—or even the very existence of—of obscure regulations ranging from as far back as 1864, that interacted with each other in unanticipated and disastrous ways.

This is the only scholarly volume exclusively devoted to examining the causes and larger implications of the crisis.


The financial crisis is (1) an economic imbalance that (2) may have been caused, in part, by monetary policy. The intellectual reaction to the crisis (3) may destroy or impair the free-market system.

Our special issue investigated the causes of the crisis, with particular attention to whether economic or political actors' ignorance fostered the crisis. This may suggest (4) free-market solutions. We plan (5) to widely disseminate the special issue; it is also being republished by the University of Pennsylvania Press.


The financial crisis is an economic imbalance that threatens both the American and global economies.

Information Dissemination

The special issue and the ideas published in it generated widespread commentary among economics bloggers, including the New York Times economics blog. The University of Pennsylvania Press will be republishing the issue in book form in 2010, under the title "Causes of the Financial Crisis," with an Afterword by Judge Richard A. Posner.

Project Link

Amount Approved
$26,000.00 on 2/9/2009 (Check sent: 2/23/2009)

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2009 special double issue of Critical Review examining the causes of the financial crisis.

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Critical Review table of contents (PDF)
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What Caused the Financial Crisis

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Jeffrey Friedman
Executive Director, Critical Review Foundation

Posted 2/8/2009 4:07 PM
Updated   1/12/2011 8:34 PM

  • Nonprofit

What Caused the Financial Crisis
The special issue of Critical Review, supported by the Foundation, was republished by the University of Pennsylvania Press in 2011.

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