Description
The world's best financial minds help us understand today's financial crisis
With so much information saturating the market for the everyday investor, trying to understand why the economic crisis happened and what needs to be done to fix it can be daunting. There is a real need, and demand, from both investors and the financial community to obtain answers as to what really happened and why.
Lessons from the Financial Crisis brings together the leading minds in the worlds of finance and academia to dissect the crisis. Divided into three comprehensive sections-The Subprime Crisis; The Global Financial Crisis; and Law, Regulation, the Financial Crisis, and The Future-this book puts the events that have transpired in perspective, and offers valuable insights into what we must do to avoid future missteps.
- Each section is comprised of chapters written by experienced contributors, each with his or her own point of view, research, and conclusions
- Examines the market collapse in detail and explores safeguards to stop future crises
- Encompasses the most up-to-date analysis from today's leading financial minds
We currently face a serious economic crisis, but in understanding it, we can overcome the challenges it presents. This well-rounded resource offers the best chance to get through the current situation and learn from our mistakes.
Table of Contents
Acknowledgments xv
Editor’s Note xvii
Introduction xix
PART I Overview of the Crisis 1
1 Leverage and Liberal Democracy 3
George Bragues
2 A Property Economics Explanation of the Global Financial Crisis 9
Gunnar Heinsohn and Frank Decker
3 Of Subprimes and Sundry Symptoms: The Political Economy of the Financial Crisis 17
Ashok Bardhan
4 The Political Economy of the Financial Crisis of 2008 23
Roger D. Congleton
5 The Global Financial Crisis of 2008: WhatWent Wrong? 31
Hershey H. Friedman and Linda Weiser Friedman
6 The Roots of the Crisis and How to Bring It to a Close 37
James K. Galbraith
7 Enron Rerun: The Credit Crisis in Three Easy Pieces 43
Jonathan C. Lipson
8 The Global Crisis and Its Origins 51
Peter L. Swan
9 Four Paradoxes of the 2008–2009 Economic and Financial Crisis 59
John E. Marthinsen
10 Understanding the Subprime Financial Crisis 69
Steven L. Schwarcz
PART II Causes and Consequences of the Financial Crisis 77
11 The Origins of the Financial Crisis 79
Martin N. Baily, Robert E. Litan, and Matthew S. Johnson
12 Ten Myths about SubprimeMortgages 87
Yuliya Demyanyk
13 The Financial Crisis: How Did We Get Here and Where Do We Go Next? New Evidence on How the Crisis Spread Among Financial Institutions 95
James R. Barth, Tong Li, Lu Wenling, and Glenn H. Yago
14 A Decade of Living Dangerously: The Causes and Consequences of theMortgage, Financial, and Economic Crises 103
Jon A. Garfinkel and Jarjisu Sa-Aadu
15 Making Sense of the Subprime Crisis 109
Kristopher S. Gerardi, Andreas Lehnert, Shane M. Sherlund, and Paul Willen
16 Miraculous Financial Engineering or Legacy Assets? 119
Ivo Pezzuto
17 TheMaking and Ending of the Financial Crisis of 2007–2009 125
Austin Murphy
18 The SubprimeMortgage Problem: Causes and Likely Cure 133
Ronald D. Utt
19 Sequence of Asset Bubbles and the Global Financial Crisis 139
Abol Jalilvand and A. G. (Tassos) Malliaris
PART III Borrowers 147
20 The Past, Present, and Future of Subprime Mortgages 149
Shane M. Sherlund
21 FHA Loans and Policy Responses to Credit Availability 155
Dr. Marsha Courchane, Rajeev Darolia, and Dr. Peter Zorn
22 The Single-Family Mortgage Industry in the Internet Era: Technology Developments and Market Structure 163
Forrest Pafenberg
23 Speed Kills? Mortgage Credit Boom and the Crisis 175
Giovanni Dell’Ariccia, Deniz Igan, and Luc Laeven
24 SubprimeMortgages:What We Have Learned From a New Class of Homeowners 181
Todd J. Zywicki and Satya Thallam
25 Rating Agencies: Facilitators of Predatory Lending in the SubprimeMarket 191
David J. Reiss
PART IV The Process of Securitization 197
26 A Primer on the Role of Securitization in the Credit Market Crisis of 2007 199
John D. Martin
27 Incentives in the Originate-to-DistributeModel of Mortgage Production 209
Robert W. Kolb
28 Did Securitization Lead to Lax Screening? Evidence from Subprime Loans 217
Benjamin J. Keys, Tanmoy Mukherjee, Amit Seru, and Vikrant Vig
29 Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis 225
Bruce I. Jacobs
30 The Incentives of Mortgage Servicers and Designing Loan Modifications to Address the Mortgage Crisis 231
Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang, and Eileen Mauskopf
31 The Contribution of Structured Finance to the Financial Crisis: An Introductory Overview 239
Adrian A.R.J.M. van Rixtel and Sarai Criado
32 Problematic Practices of Credit Rating Agencies: The Neglected Risks ofMortgage-Backed Securities 247
Phil Hosp
33 Did Asset Complexity Trigger Ratings Bias? 259
Vasiliki Skreta and Laura Veldkamp
34 The Pitfalls of Originate-to-Distribute in Bank Lending 267
Antje Berndt and Anurag Gupta
PART V RiskManagement and Mismanagement 275
35 Behavioral Basis of the Financial Crisis 277
J. V. Rizzi
36 Risk Management Failures During the Financial Crisis 283
Dr. Michel Crouhy
37 The Outsourcing of Financial Regulation to Risk Models 293
Erik F. Gerding
38 The Future of Risk Modeling 301
Elizabeth Sheedy
39 What Happened to Risk Management During the 2008–2009 Financial Crisis? 307
Michael McAleer, Juan-Angel Jim´enez-Martin, and Teodosio P´erez-Amaral
40 Risk Management Lessons from the Global Financial Crisis for Derivative Exchanges 317
Jayanth Varma
PART VI The Problem of Regulation 325
41 Regulation and Financial Stability in the Age of Turbulence 327
David S. Bieri
42 The Financial Crisis of 2007–2009: Missing Financial Regulation or Absentee Regulators? 337
George G. Kaufman and A. G. Malliaris
43 The Demise of the United Kingdom’s Northern Rock and Large U.S. Financial Institutions: Public Policy Lessons 345
Robert A. Eisenbeis and George G. Kaufman
44 Why Securities Regulation Failed to Prevent the CDO Meltdown 355
Richard E. Mendales
45 Curbing Optimism in Managerial Estimates Through Transparent Accounting: The Case of Securitizations 361
Stephen Bryan, Steven Lilien, and Bharat Sarath
46 Basel II Put on Trial: What Role in the Financial Crisis? 369
Francesco Cannata and Mario Quagliariello
47 Credit Rating Organizations, Their Role in the Current Calamity, and Future Prospects for Reform 377
Thomas J. Fitzpatrick IV and Chris Sagers
48 Global Regulation for GlobalMarkets? 383
Michael W. Taylor and Douglas W. Arner
49 Financial Regulation, Behavioral Finance, and the Global Financial Crisis: In Search of a New RegulatoryModel 391
Emilios Avgouleas
PART VII Institutional Failures 401
50 Why Financial Conglomerates Are at the Center of the Financial Crisis 403
Arthur E. Wilmarth
51 Corporate Governance and the Financial Crisis: A Case Study from the S&P 500 411
Brian R. Cheffins
52 Secondary-Management Conflicts 419
Steven L. Schwarcz
53 The Financial Crisis and the Systemic Failure of Academic Economics 427
David Colander, Michael Goldberg, Armin Haas, Alan Kirman, Katarina Juselius, Brigitte Sloth, and Thomas Lux
54 FannieMae and FreddieMac: Privatizing Profit and Socializing Loss 437
David Reiss
55 Disclosure’s Failure in the SubprimeMortgage Crisis 443
Steven L. Schwarcz
PART VIII The Federal Reserve, Monetary Policy, and the Financial Crisis 451
56 Federal Reserve Policy and the Housing Bubble 453
Lawrence H. White
57 The Greenspan and Bernanke Federal Reserve Roles in the Financial Crisis 461
John Ryan
58 The Risk Management Approach to Monetary Policy: Lessons from the Financial Crisis of 2007–2009 467
Marc D. Hayford and A. G. Malliaris
59 Reawakening the Inflationary Monster: U.S. Monetary Policy and the Federal Reserve 475
Kevin Dowd and Martin Hutchinson
60 The Transformation of the Federal Reserve System Balance Sheet and Its Implications 483
Peter Stella
PART IX Implications of the Crisis for Our Economic Systems 493
61 Systemic Risk and Markets 495
Steven L. Schwarcz
62 The Transmission of Liquidity Shocks During the Crisis: Ongoing Research into the Transmission of Liquidity Shock Suggests the Emergence of a Range of New Channels During the Credit Crisis 501
Nathaniel Frank, Brenda Gonz´alez-Hermosillo, and Heiko Hesse
63 Credit Contagion From Counterparty Risk 509
Philippe Jorion and Gaiyan Zhang
PART X International Dimensions of the Financial Crisis 517
64 Only in America? When Housing Boom Turns to Bust 519
Luci Ellis
65 The Equity Risk Premium Amid a Global Financial Crisis 525
John R. Graham and Campbell R. Harvey
66 Australia’s Experience in the Global Financial Crisis 537
Christine Brown and Kevin Davis
67 Collapse of a Financial System: An Icelandic Saga 545
Tryggvi Thor Herbertsson
68 Iceland’s Banking Sector and the Political Economy of Crisis 551
James A. H. S. Hine and Ian Ashman
69 The Subprime Crisis: Implications for Emerging Markets 559
William B. Gwinner and Anthony B. Sanders
PART XI Financial Solutions and Our Economic Future 569
70 The Long-Term Cost of the Financial Crisis 571
Murillo Campello, John R. Graham, and Campbell R. Harvey
71 Coping with the Financial Crisis: Illiquidity and the Role of Government Intervention 579
Bastian Breitenfellner and Niklas Wagner
72 Fiscal Policy for the Crisis 587
Antonio Spilimbergo, Steven Symansky, Olivier Blanchard, and Carlo Cottarelli
73 The Future of Securitization 595
Steven L. Schwarcz
74 Modification ofMortgages in Bankruptcy 601
dam J. Levitin
75 The Shadow Bankruptcy System 609
Jonathan C. Lipson
76 Reregulating FannieMae and FreddieMac 617
Dwight M. Jaffee
77 Would Greater Regulation of Hedge Funds Reduce Systemic Risk? 625
Michael R. King and Philipp Maier
78 Regulating Credit Default Swaps 633
Houman B. Shadab
Index 641
