Because large financial institutions are bailed out by governments when they fail, they receive a subsidy from taxpayers. How valuable is this too-big-to-fail subsidy to large financial institutions? Click here for an IMF study which suggests that it is substantial. Mark Roe has an opinion piece at Project Syndicate which also suggests that big banks enjoy a large subsidy from the taxpayer.
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.
