For instance, it was difficult for many US citizens and members of Congress to grasp the impact of the Lehman Brothers’ failure – as shown by the initial rejection by Congress of the administration’s proposal to establish the Troubled Asset Relief Program (TARP). But they understood its impact when the contagion hit the stock market and caused banks to panic.
In Europe, the countries with stronger fiscal positions have also had difficulty understanding the potential disruption that contagion from the crisis – unfolding in the periphery – would have on their own economies. The political and market constraints that a policy-maker faces tend to be contradictory.