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Summary
Summary
There is still no consensus on who or what caused the financial crisis which engulfed the world, beginning in the summer of 2007.
A huge number of suspects have been identified, from greedy investment bankers, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone among the denizens of trading floors. There is not even agreement on whether the crisis shows a need for more government intervention in markets, or less: some maintain that government encouragement of home ownership lay at the heart of the problem in the US, in particular.
In The Financial Crisis Howard Davies charts a course through these arguments, and the evidence advanced for each of them. The reader can thereby assess the weight to be attached to each, and the likely effectiveness of the remedies under development.
Author Notes
Sir Howard John Davies is the current Chairman of the Royal Bank of Scotland and the former Director of the London School of Economics. He also teaches courses on the regulation of financial markets and central banking at the Paris School of International Affairs at Sciences Po.
Reviews 1
Choice Review
"Get me a one-handed economist" was President Truman's plea, having tired of being told, "On the one hand, on the other hand" (OTOH, OTOH). Davies (director, London School of Economics, with a distinguished career in both the UK government and private sectors) conforms to the OTOH, OTOH model, but in a most positive way. In myriad brief chapters, Davies discusses the many conflicting views of the causes of the recent financial crisis. Were the low interest rates during 2003-04 a result of world economic conditions or an engineered US monetary policy? Were hedge funds and their short-selling significant contributors to the crisis? Did the unwieldy US regulatory structure, with diffused responsibility among various federal agencies, make a difference? Would the presence of the Volcker Rule, now enshrined in US financial regulation, have prevented the meltdown? How about US government-sponsored entities, mark-to-market accounting rules, and oversized Wall Street bonuses? And so on for 38 chapters. Davies's work will be of immense value to those who value inquisitiveness and an open mind, i.e., serious students, be they professionals or students. They will also benefit from the brief chapter-end bibliographies. This reviewer has already strongly recommended this book to his financial crises course undergraduate students. Summing Up: Highly recommended. Upper-division undergraduates through professionals. J. Prager New York University
Table of Contents
Introduction |
A The Big Picture |
1 Frankenstein's monster: The end of Laissez-faire capitalism |
2 The rich get richer - the poor borrow |
3 The savings glut - global imbalances |
4 Too loose for too long - US monetary policy |
B The Trigger |
5 Minsky's Moment |
6 The sub-prime collapse - a failure of government? |
C The Failures of Regulation |
7 A capital shortage |
8 Procyclicality |
9 The Canary in the Coal Mine: off-balance sheet vehicles |
10 The taxi at the station: liquidity |
11 The Blind Mind and The Elephant: US Regulation |
12 SEC- RIP? |
13 Financial Weapons of Mass Destruction: Derivatives |
14 Federal Mortgage Regulation |
15 Casino banking: the end of the Glass-Steagall Act |
16 Too big to fail |
17 Lighting the Touchpaper: Light touch regulation |
18 There were three people in the marriage: UK regulation |
19 Lack of Coordination |
20 Paradise lost: offshore centres |
D Accountants, auditors and rating agencies |
21 Shoot the Messenger: fair value accounting |
22 Tunnel Vision: the auditors |
23 Conflicts of interest: credit rating agencies |
E Financial Firms and Markets |
24 Breaking the chain: originate to distribute |
25 Too complex to trade: derivatives |
26 Disaster Myopia: risk management |
27 The Roach Motel: corporate governance |
28 Blankfein's bonus: pay and incentives |
29 The Vampire Squid |
30 A plague of locusts: hedge funds |
31 Short Selling |
F Economics and Finance Theory |
32 The death of economics |
33 Inefficient markets |
34 An ethics-free zone: business schools |
G Wild Cards |
35 The watchdog didn't bark: the media |
36 Greed is bad |
37 Lara Croft: video games |
38 Hormones and Finally |
39 A combustible mixture |