Lessons from the Financial Crisis E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Robert W. Kolb Series
• Sprache: Englisch

Seitenzahl: 1333

Veröffentlichungsjahr: 2010

Beschreibung

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.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Acknowledgments

Editor’s Note

Introduction

PART I - Overview of the Crisis

CHAPTER 1 - Leverage and Liberal Democracy

NOTES

ABOUT THE AUTHOR

CHAPTER 2 - A Property Economics Explanation of the Global Financial Crisis

THE BREACH OF BAGEHOT’S FIRST PRINCIPLE OF CENTRAL BANKING SPARKED THE CRISIS

FROM CHEAP MONEY TO THE SUBPRIME FIASCO

THE BREACH OF BAGEHOT’S SECOND PRINCIPLE OF CENTRAL BANKING THROUGH LOWERING ...

THE STATE AS PROPRIETOR OF LAST RESORT

NOTES

ABOUT THE AUTHORS

CHAPTER 3 - Of Subprimes and Sundry Symptoms: The Political Economy of the ...

THE EVOLUTION OF THE CURRENT CRISIS

SUBPRIMING THE FINANCIAL PUMP

OVERGLOBALIZATION

STRUCTURAL FACTORS

REFERENCE

ABOUT THE AUTHOR

CHAPTER 4 - The Political Economy of the Financial Crisis of 2008

GOVERNMENT SUPPORT FOR MORTGAGE MARKETS

OTHER REGULATORY-INDUCED SUPPLIES OF MORTGAGES AND CREDIT

POLITICS AND THE SIZE OF THE MORTGAGE MARKET

THE END OF THE BUBBLES

GOVERNMENT POLICIES AND THE GREAT EVAPORATION OF WEALTH AND CAPITAL

REFERENCES

ABOUT THE AUTHOR

CHAPTER 5 - The Global Financial Crisis of 2008: What Went Wrong?

IS THE PURSUIT OF SELF-INTEREST ALWAYS GOOD?

FREE MARKETS AND THE ROLE OF REGULATION

EXECUTIVE COMPENSATION

CONFLICTS OF INTEREST

MODELS HAVE ONLY LIMITED VALUE

CONCLUSION

NOTES

ABOUT THE AUTHORS

CHAPTER 6 - The Roots of the Crisis and How to Bring It to a Close

THE NATURE OF RISK ASSESSMENT

THE UNRAVELING

HOW DEEP? HOW LONG?

WHAT SHOULD BE IN THE NEXT PACKAGE?

IN THE FUTURE

NOTE

ABOUT THE AUTHOR

CHAPTER 7 - Enron Rerun: The Credit Crisis in Three Easy Pieces

SHOULD WE HAVE SEEN IT COMING?

UNLEARNING FROM HISTORY

NOTES

ABOUT THE AUTHOR

CHAPTER 8 - The Global Crisis and Its Origins

REFERENCES

ABOUT THE AUTHOR

CHAPTER 9 - Four Paradoxes of the 2008-2009 Economic and Financial Crisis

FOUR MACROECONOMIC PARADOXES

CONCLUSION

NOTES

ABOUT THE AUTHOR

CHAPTER 10 - Understanding the Subprime Financial Crisis

HOW AND WHY DID THE FINANCIAL CRISIS HAPPEN?

WHAT SHOULD BE DONE TO AVOID FUTURE FINANCIAL CRISES?

NOTES

ABOUT THE AUTHOR

PART II - Causes and Consequences of the Financial Crisis

CHAPTER 11 - The Origins of the Financial Crisis

FINANCIAL INNOVATION AND THE RISE OF SUBPRIME LENDING

HOW WERE SUCH DANGEROUS EXCESSES ALLOWED TO BUILD UP?

REFERENCES

NOTE

ABOUT THE AUTHORS

CHAPTER 12 - Ten Myths About Subprime Mortgages

MYTHS

CONCLUSION

RECOMMENDED READING

ABOUT THE AUTHOR

CHAPTER 13 - The Financial Crisis: How Did We Get Here and Where Do We Go Next?

BUILDUP AND MELTDOWN OF THE MORTGAGE AND CREDIT MARKETS

THE PAIN SPREADS THROUGHOUT THE FINANCIAL SECTOR AND BEYOND

WHAT WENT WRONG . . . ? AND NEEDED REGULATORY FIXES!

CONCLUSION

ABOUT THE AUTHORS

CHAPTER 14 - A Decade of Living Dangerously

NOTES

ABOUT THE AUTHORS

CHAPTER 15 - Making Sense of the Subprime Crisis

UNDERWRITING STANDARDS IN THE SUBPRIME MARKET

ABOUT THE AUTHORS

CHAPTER 16 - Miraculous Financial Engineering or Legacy Assets?

ABOUT THE AUTHOR

CHAPTER 17 - The Making and Ending of the Financial Crisis of 2007-2009

THE NEW VIRUS THAT INFLICTS CATASTROPHIC FINANCIAL DISEASES

THE MORTGAGE CRISIS

THE LIQUIDITY CRISIS

THE WORLDWIDE ECONOMIC CRISIS

SOLUTIONS

TEACHING FINANCIAL MANAGERS CREDIT ANALYSIS SKILLS

CONCLUSION

ABOUT THE AUTHOR

CHAPTER 18 - The Subprime Mortgage Problem

NOTES

ABOUT THE AUTHOR

CHAPTER 19 - Sequence of Asset Bubbles and the Global Financial Crisis

ASSET BUBBLES

ASSET BUBBLES AND THE FED

SEQUENCE OF BUBBLES

TRAVELING BUBBLES

FUTURE BUBBLES

STOPPING THE BUBBLES

REFERENCES

ABOUT THE AUTHORS

PART III - Borrowers

CHAPTER 20 - The Past, Present, and Future of Subprime Mortgages

MODEL

DATA

RESULTS

SIMULATIONS

CONCLUSIONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 21 - FHA Loans and Policy Responses to Credit Availability

RECENT FHA, SUBPRIME, AND PRIME MORTGAGE MARKET TRENDS

POLICY IMPLICATIONS AND COMMENTS

NOTE

REFERENCES

ABOUT THE AUTHORS

CHAPTER 22 - The Single-Family Mortgage Industry in the Internet Era: ...

TECHNOLOGY AND MORTGAGE LENDING

THE GROWTH OF SECURITIZATION AND THE UNBUNDLING OF THE LENDING PROCESS

AUTOMATION OF MORTGAGE LENDER OPERATIONS

CONSOLIDATION IN THE ORIGINATION MARKET

CONSOLIDATION IN THE SERVICING MARKET

THE DEVELOPMENT OF NEW CREDIT RISK MANAGEMENT TECHNOLOGIES IN SINGLE-FAMILY ...

MORTGAGE LENDING AND THE INTERNET

THE OPPORTUNITIES AND CHALLENGES FOR MORTGAGE LENDERS CREATED BY THE INTERNET

DATA AND COMMUNICATION STANDARDS

E-MORTGAGE LENDING

CHANGED MORTGAGE MARKET: 2004 TO 2009

NOTES

ABOUT THE AUTHOR

CHAPTER 23 - Speed Kills?

CREDIT BOOMS

THE MORTGAGE MARKET: REGIONAL ANALYSIS

THE MORTGAGE MARKET: LENDER ANALYSIS

POSSIBLE SOLUTIONS

REFERENCES

ABOUT THE AUTHORS

CHAPTER 24 - Subprime Mortgages

SUPERCHARGING THE SUBPRIME MARKET

WHO’S AFRAID OF SUBPRIME LENDING?

HAS THE BLOOM COME OFF THE ROSE?

CONCLUSION

NOTES

ABOUT THE AUTHORS

CHAPTER 25 - Rating Agencies

THE EXPLOSIVE GROWTH OF THE SUBPRIME MORTGAGE MARKET

THE ROLE OF RATING AGENCIES IN RMBS SECURITIZATIONS

THE FAILURE OF RATING AGENCY REGULATION

CONCLUSION

NOTES

ABOUT THE AUTHOR

PART IV - The Process of Securitization

CHAPTER 26 - A Primer on the Role of Securitization in the Credit Market Crisis ...

WHAT IS SECURITIZATION?

DID SECURITIZATION CONTRIBUTE TO THE CREDIT MARKET CRISIS?

TRIGGERING THE PANIC OF 2007-2008

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHOR

CHAPTER 27 - Incentives in the Originate-to-Distribute Model of Mortgage Production

NOTES

ABOUT THE AUTHOR

CHAPTER 28 - Did Securitization Lead to Lax Screening?

FINDINGS

CONCLUSION

REFERENCES

ABOUT THE AUTHORS

CHAPTER 29 - Tumbling Tower of Babel

RISK-SHIFTING BUILDING BLOCKS

THE RISE OF SUBPRIME

THE FALL

CONCLUSION

REFERENCES

ABOUT THE AUTHOR

CHAPTER 30 - The Incentives of Mortgage Servicers and Designing Loan ...

FORECLOSURES, MORTGAGE WORKOUTS, AND LOSSES FROM FORECLOSURE

SELECTED RECENT LOAN MODIFICATION PROGRAMS

NOTES

ABOUT THE AUTHORS

CHAPTER 31 - The Contribution of Structured Finance to the Financial Crisis

A CLASSIFICATION OF STRUCTURED FINANCE

HOW STRUCTURED FINANCE CONTRIBUTED TO THE FINANCIAL CRISIS

REFERENCES

ABOUT THE AUTHORS

CHAPTER 32 - Problematic Practices of Credit Rating Agencies

CREDIT RATING AGENCIES AS GATEKEEPERS

CREDIT RATINGS IN MORTGAGE SECURITIZATION

PROBLEMS IN THE CREDIT RATING INDUSTRY

PROPOSAL: HANDICAPPING THE CREDIT RATING AGENCIES

CONCLUSION

NOTES

ABOUT THE AUTHOR

CHAPTER 33 - Did Asset Complexity Trigger Ratings Bias?

POTENTIAL SOURCES OF RATINGS BIAS

OUR EXPLANATION

EVALUATING POLICY RECOMMENDATIONS

GOING FORWARD

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 34 - The Pitfalls of Originate-to-Distribute in Bank Lending

NOTES

REFERENCES

ABOUT THE AUTHORS

PART V - Risk Management and Mismanagement

CHAPTER 35 - Behavioral Basis of the Financial Crisis

BEHAVIORAL FINANCE FRAMEWORK

CURRENT CRISIS

CONCLUSION

ABOUT THE AUTHOR

CHAPTER 36 - Risk Management Failures During the Financial Crisis

INTRODUCTION

WHAT WENT WRONG IN RISK MANAGEMENT AND RISK MODELING

LESSONS FROM THIS FIASCO

NOTES

REFERENCES

ABOUT THE AUTHOR

CHAPTER 37 - The Outsourcing of Financial Regulation to Risk Models

THE RISE OF RISK MODELS

THE OUTSOURCING OF REGULATION

THE FAILURE OF MODELS IN THE CRISIS

PRECURSORS

SOLUTIONS

ABOUT THE AUTHOR

CHAPTER 38 - The Future of Risk Modeling

REFERENCES

ABOUT THE AUTHOR

CHAPTER 39 - What Happened to Risk Management During the 2008-2009 Financial Crisis?

INTRODUCTION

THE FAST RECESSION OF 2008 AND 2009 IN PERSPECTIVE

RISK MANAGEMENT DURING THE 2008-2009 FINANCIAL CRISIS UNDER THE BASEL II ACCORD

PROPOSALS FOR SOPHISTICATING THE FORECASTS OF VAR TO MINIMIZE DCC WITHIN BASEL II

CONCLUSION

APPENDIX

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 40 - Risk Management Lessons from the Global Financial Crisis for ...

LESSON 1: ROBUSTNESS

LESSON 2: REGIME SWITCHING VERSUS STRUCTURAL BREAKS

LESSON 3: PITFALLS OF 1990S-ERA RISK MANAGEMENT SYSTEMS

TOWARDS ROBUST SOPHISTICATION: THE FUTURE OF RISK MANAGEMENT

NOTE

ABOUT THE AUTHOR

PART VI - The Problem of Regulation

CHAPTER 41 - Regulation and Financial Stability in the Age of Turbulence

ANATOMY OF A CRISIS

IN EARCH OF FINANCIAL STABILITY

REGULATORY CHALLENGES IN THE AGE OF TURBULENCE

REGULATORY LESSONS AND OUTLOOK

NOTES

REFERENCES

ABOUT THE AUTHOR

CHAPTER 42 - The Financial Crisis of 2007-2009

FINANCIAL REGULATION

CRITIQUE OF CURRENT REGULATION

SYSTEMIC RISK

MARKET FAILURE

CONCLUSION

REFERENCES

ABOUT THE AUTHORS

CHAPTER 43 - The Demise of the United Kingdom’s Northern Rock and Large U.S. ...

BACKGROUND

SIMILARITIES AND DIFFERENCES AMONG THE THREE CASES

WHAT THE UNITED STATES AND THE UNITED KINGDOM SHOULD HAVE LEARNED FROM FAILURES ...

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 44 - Why Securities Regulation Failed to Prevent the CDO Meltdown

NOTE

ABOUT THE AUTHOR

CHAPTER 45 - Curbing Optimism in Managerial Estimates Through Transparent Accounting

ABOUT THE AUTHORS

CHAPTER 46 - Basel II Put on Trial

THE ROLE PLAYED BY BASEL II IN THE FINANCIAL CRISIS

THE ULTIMATE PIECE OF EVIDENCE

CONCLUSION

REFERENCES

ABOUT THE AUTHORS

CHAPTER 47 - Credit Rating Organizations, Their Role in the Current Calamity, ...

HOW THE CROs CAME TO BE

OVERARCHING PROBLEMS IN THE CRO SYSTEM

CHECKS ON CRO POWER

PROPOSALS FOR REFORM

CONCLUSION

NOTES

ABOUT THE AUTHORS

CHAPTER 48 - Global Regulation for Global Markets?

NOTES

ABOUT THE AUTHORS

CHAPTER 49 - Financial Regulation, Behavioral Finance, and the Global Financial Crisis

THE CAUSES OF THE CRISIS

A NEW MODEL FOR THE REGULATION OF BANKS AND INTERNATIONAL INVESTMENT FUNDS

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHOR

PART VII - Institutional Failures

CHAPTER 50 - Why Financial Conglomerates Are at the Center of the Financial Crisis

NOTES

ABOUT THE AUTHOR

CHAPTER 51 - Corporate Governance and the Financial Crisis: A Case Study From ...

THE DEVELOPMENT OF CORPORATE GOVERNANCE IN U.S. PUBLIC COMPANIES

THE 2008 STOCK MARKET MELTDOWN

SAMPLE SELECTION AND SEARCH STRATEGY

CORPORATE GOVERNANCE AND S&P 500 REMOVAL, 2008

POLICY IMPLICATIONS

NOTES

ABOUT THE AUTHOR

CHAPTER 52 - Secondary-Management Conflicts

INTRODUCTION

ANALYSIS

CONCLUSIONS

NOTES

ABOUT THE AUTHOR

CHAPTER 53 - The Financial Crisis and the Systemic Failure of Academic Economics

INTRODUCTION

A RESEARCH AGENDA TO COPE WITH FINANCIAL FRAGILITY

CONCLUSIONS

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 54 - Fannie Mae and Freddie Mac: Privatizing Profit and Socializing Loss

FANNIE AND FREDDIE CREATE THE MODERN SECONDARY MORTGAGE MARKET

THE FOUNDATION OF THE FANNIE AND FREDDIE BUSINESS MODEL IS THEIR REGULATORY PRIVILEGE

FANNIE AND FREDDIE AND THE CREDIT CRISIS

FANNIE AND FREDDIE ARE GENERATING A POOR RETURN ON THE NATION’S INVESTMENT

CONCLUSION

ABOUT THE AUTHOR

CHAPTER 55 - Disclosure’s Failure in the Subprime Mortgage Crisis

INTRODUCTION

TERMINOLOGY

ANALYSIS

CONCLUSION

NOTES

ABOUT THE AUTHOR

PART VIII - The Federal Reserve, Monetary Policy, and the Financial Crisis

CHAPTER 56 - Federal Reserve Policy and the Housing Bubble

WHAT HAPPENED AND WHY

THE CREDIT SUPPLY BUBBLE

THE FEDERAL RESERVE’S NEW POST-BUBBLE ROLES

NOTES

ABOUT THE AUTHOR

CHAPTER 57 - The Greenspan and Bernanke Federal Reserve Roles in the Financial Crisis

INTRODUCTION

GREENSPAN’S LEGACY

BEN BERNANKE’S FEDERAL RESERVE AND THE POWER OF WALL STREET

THE UNACCOUNTABLE FEDERAL RESERVE

NOTES

ABOUT THE AUTHOR

CHAPTER 58 - The Risk Management Approach to Monetary Policy: Lessons from the ...

INTRODUCTION

MONETARY POLICY IN NORMAL TIMES

MONETARY POLICY IN DIFFICULT TIMES: RISK MANAGEMENT BY CENTRAL BANKS

RISK MANAGEMENT OF ASSET BUBBLES

THE RISK MANAGEMENT APPROACH TO MONETARY POLICY AND THE CURRENT FINANCIAL CRISIS

THE RECENT FINANCIAL CRISIS: LESSONS FOR MONETARY POLICY

REFERENCES

ABOUT THE AUTHORS

CHAPTER 59 - Reawakening the Inflationary Monster: U.S. Monetary Policy and the ...

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 60 - The Transformation of the Federal Reserve System Balance Sheet and ...

INTRODUCTION

CHANGES IN FED OPERATIONS AND ASSET HOLDINGS

FEDERAL RESERVE BALANCE SHEET RISK

SEPARATING INSTITUTIONAL RESPONSIBILITIES FOR MONETARY AND FINANCIAL STABILITY POLICIES

NOTES

REFERENCES

ABOUT THE AUTHOR

PART IX - Implications of the Crisis for Our Economic Systems

CHAPTER 61 - Systemic Risk and Markets

INTRODUCTION

ANALYSIS

CONCLUSION

NOTE

ABOUT THE AUTHOR

CHAPTER 62 - The Transmission of Liquidity Shocks During the Crisis

GOOD VERSUS BAD TIMES

A STYLIZED ANATOMY OF THE CRISIS

DATA AND METHODOLOGY

RESULTS

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 63 - Credit Contagion From Counterparty Risk

PORTFOLIO CREDIT MODELS

CREDIT CONTAGION FROM COMMON FACTORS

CREDIT CONTAGION FROM COUNTERPARTY RISK

EVIDENCE ON COUNTERPARTY RISK EXPOSURES

EFFECTS OF COUNTERPARTY RISK

CONCLUSIONS

NOTE

REFERENCES

ABOUT THE AUTHORS

PART X - International Dimensions of the Financial Crisis

CHAPTER 64 - Only in America? When Housing Boom Turns to Bust

NOTE

ABOUT THE AUTHOR

CHAPTER 65 - The Equity Risk Premium Amid a Global Financial Crisis

INTRODUCTION

METHOD

CONCLUSIONS

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 66 - Australia’s Experience in the Global Financial Crisis

INTRODUCTION

THE EVOLUTION OF THE CRISIS IN AUSTRALIA

THE “LUCKY” COUNTRY?

POLICY RESPONSES AND IMPLICATIONS

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 67 - Collapse of a Financial System: An Icelandic Saga

INTRODUCTION

THE ORIGINS

IMPROVEMENT

CAPITAL INJECTION

EMERGENCY LAW

NORDIC TIGER

PONZI SCHEME

MONETARY FRAMEWORK

LESSONS

REFERENCES

ABOUT THE AUTHOR

CHAPTER 68 - Iceland’s Banking Sector and the Political Economy of Crisis

WHAT . . . ?

HOW ...?

WHY . . . ?

AND . . .

REFERENCES

ABOUT THE AUTHORS

CHAPTER 69 - The Subprime Crisis: Implications for Emerging Markets

SOFTENED LENDING PRACTICES—BETTING ON THE COLLATERAL RATHER THAN THE BORROWER

THE SUBPRIME BOOM AND ACCESS TO FINANCE

WEAKNESSES IN SECONDARY MARKET PRACTICES

REGULATION OF SUBPRIME LENDING AND SECURITIZATION

OBSERVATIONS AND RECOMMENDATIONS FOR EMERGING MARKETS

ABOUT THE AUTHORS

PART XI - Financial Solutions and Our Economic Future

CHAPTER 70 - The Long-Term Cost of the Financial Crisis

THE ISSUES

CONCLUSION

ACKNOWLEDGMENTS

ABOUT THE AUTHORS

CHAPTER 71 - Coping with the Financial Crisis

THE EVOLUTION OF THE CRISIS—WHAT HAS GONE WRONG AND WHY?

DESIGNING A SHEET ANCHOR—GOVERNMENT INTERVENTION IN RESPONSE TO THE CRISIS

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 72 - Fiscal Policy for the Crisis

FISCAL POLICY IN FINANCIAL CRISES—LESSONS FROM HISTORY

COMPOSITION OF A FISCAL STIMULUS

SUSTAINABILITY CONCERNS

A COLLECTIVE INTERNATIONAL EFFORT

CONCLUSION

NOTES

ABOUT THE AUTHORS

CHAPTER 73 - The Future of Securitization

WHAT WENT WRONG, AND WHAT NEEDS TO BE FIXED?

CONCLUSION

NOTES

ABOUT THE AUTHOR

CHAPTER 74 - Modification of Mortgages in Bankruptcy

NOTES

ABOUT THE AUTHOR

CHAPTER 75 - The Shadow Bankruptcy System

WHO’S AFRAID OF CHAPTER 11?

SHADOW BANKRUPTCY: THE PROBLEMS

SOME SOLUTIONS—POSITIONAL DISCLOSURE

CONCLUSION

NOTES

ABOUT THE AUTHOR

CHAPTER 76 - Reregulating Fannie Mae and Freddie Mac

A FRAMEWORK FOR THE REREGULATION OF FANNIE MAE AND FREDDIE MAC

THE POLITICS OF REREGULATING OF FANNIE MAE AND FREDDIE MAC

PROPOSALS FOR THE REREGULATION OF FANNIE MAE AND FREDDIE MAC

LOW-INCOME HOUSING INCENTIVES

NOTES

REFERENCES

ABOUT THE AUTHOR

CHAPTER 77 - Would Greater Regulation of Hedge Funds Reduce Systemic Risk?

STYLIZED FACTS ON HEDGE FUNDS

REGULATION OF HEDGE FUNDS

WHO REGULATES HEDGE FUNDS?

CONCLUSION

NOTES

REFERENCES

ABOUT THE AUTHORS

CHAPTER 78 - Regulating Credit Default Swaps

BACKGROUND

CDS REGULATION AND OVERSIGHT

TREASURY DEPARTMENT DERIVATIVES REFORM PROPOSALS

THE ROLE OF CREDIT DEFAULT SWAPS IN THE FINANCIAL CRISIS

EVALUATING CDS REGULATORY REFORM

NOTES

REFERENCES

ABOUT THE AUTHOR

Index

The Robert W. Kolb Series in Finance series provides a comprehensive view of the field of finance in all of its variety and complexity. The series is projected to include approximately 65 volumes covering all major topics and specializations in finance, ranging from investments, to corporate finance, to financial institutions. Each volume in the Kolb Series in Finance consists of new articles especially written for the volume.

Each Kolb Series volume is edited by a specialist in a particular area of finance, who develops the volume outline and commissions articles by the world’s experts in that particular field of finance. Each volume includes an editor’s introduction and approximately thirty articles to fully describe the current state of financial research and practice in a particular area of finance.

The essays in each volume are intended for practicing finance professionals, graduate students, and advanced undergraduate students. The goal of each volume is to encapsulate the current state of knowledge in a particular area of finance so that the reader can quickly achieve a mastery of that special area of finance.

Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Lessons from the financial crisis : causes, consequences, and our economic future /

Robert W. Kolb, editor.

p. cm.—(The Robert W. Kolb series in finance)

Includes bibliographical references and index.

ISBN 978-0-470-56177-5 (cloth)

1. Financial crises. 2. Global Financial Crisis, 2008-2009. 3. Financial crises—United States. I. Kolb, Robert W., 1949-

HB3722.L476 2010

330.9—dc22

2009050964

For Lori, as always.

Acknowledgments

My first appreciation extends to the authors who contributed to this volume. Their work is what makes the volume possible. I would also like to thank Pamela Van Giessen, Jennifer MacDonald, and Melissa Lopez at John Wiley & Sons for their editorial expertise and their support and encouragement of the idea behind this volume. I also wish to thank Sarah Schaffer for her expert editing work.

Editor’s Note

Taken together, the articles in this volume present a deep understanding of the financial crisis we have all endured. But it must be acknowledged that even this volume is only an initial view. The financial crisis has been an economic event that ranks second only to the Great Depression. Like the Great Depression, the financial crisis will be studied for decades to come, and yet greater understanding of these recent events is sure to emerge with further study. Much of that understanding will come from the further researches of those represented in this volume.

Introduction

Many efforts to understand the historical origins, the present meaning, and the future trajectory of the present financial crisis rely on the Great Depression as a touchstone. For some, the Great Depression serves merely as a metaphor, while others try to use that great historical event as a reliable guide to our future. While the current financial crisis differs greatly from the Great Depression, there is at least one important similarity—those who are enduring the crisis struggle to understand the event even as it evolves, and many will continue to study the crisis for decades to come.

Already many popular and journalistic books on the crisis have appeared and gained considerable attention. Some are quite good and make fascinating reading. Yet the broad scope of these books and their focus on drama and personalities implies that they cannot provide the definitive word on the crisis. Far from the limelight of the best-seller list and television interview shows, an entirely alternative literature continues to develop, a literature that will ultimately be of more value in understanding the crisis than the rapidly produced and impressionistic accounts that already sit on bookstore shelves.

Lessons from the Financial Crisis: Causes, Consequences, and Our Economic Future aims to bring to the attention of the general public an understanding of the conceptual underpinnings of the issues that lie at the heart of the crisis. Objective conceptual studies of the crisis are being produced mainly by academics and economists at government agencies, and this research is directed toward policy makers and academic economists. Not surprisingly, much of this thought and study is not accessible to a wider public because the work is often highly mathematical, uses complex econometric techniques, and appears in academic journals. The core idea of is to bring the broader meaning of this contemporary research to a wider audience, and to achieve this now, rather than at the leisurely academic pace of the usual publication outlets.