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Whether or not deposits are explicitly insured, the public expects governments to intervene to save most depositors from losses when financial intermediaries run into trouble. Warnings that intervention will not be forthcoming appear to be simply not believable. (374)This is because no ex ante announcement by policy makers can convince the public that, ex post (that is, in the midst of a generalized financial turmoil), the government will cross its arms and let the financial system proceed toward itsdebacle. Agents will therefore expect a bailout regardless of "laissez-faire commitments"--in the words of Diaz-Alejandro--"which a misguided minister of finance or central bank president may occasionally utter in a moment of dogmatic exaltation" (379).
Excerpted from Regional and Global Capital Flows: Macroeconomic Causes and Consequences by Anne O. Krueger Copyright © 2001 by Anne O. Krueger. Excerpted by permission.
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