This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans. It finds that subsidy rates on these loans were on average 33.9 percent at origination. In contrast, by the 3rd quarter of the 2010, there was on...

This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause...

I develop a theoretical model for investigating the cost of failure to commit in the provision of bailouts to financial institutions. When a financial institution fails, the fiscal authority often deviates from its ex ante no-bailout commitment: the ex post best response is to bail out. The...

I develop a theoretical model for investigating the cost of failure to commit in the provision of bailouts to financial institutions. When a financial institution fails, the fiscal authority often deviates from its ex ante no-bailout commitment: the ex post best response is to bail out. The...

We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment,...