In one of the first studies critically to examine the Basel Accords, Engineering the Financial Crisis reveals the crucial role that bank capital requirements and other government regulations played in the recent financial crisis. Jeffrey Friedman and Wladimir Kraus argue that by encouraging banks to invest in highly rated mortgage-backed bonds, the Basel Accords created an overconcentration of risk in the banking industry.
Looking for budget savings
Some analysts are suspecting that the current fragile economic recovery will be damaged by the policy of government spending cuts that many countries undertook in order to reduce their public budget deficits. The debate is perfervid, in particular in the US where the government has opted for the keynesian policy of massive public spending. The effects of this policy, as was to be expected, have been so far calamitous and the American deficit is not about to be absorbed. Furthermore, tax reductions introduced by Bush in 2005 will expire next December and, most probably, will not be extended. An additional fiscal burden will therefore hit an already suffering economy.