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Restoring Financial Stability: How to Repair a Failed System
An insightful look at how to reform our broken financial system
The financial crisis that unfolded in September 2008 transformed the United States and world economies. As each day's headlines brought stories of bank failures and rescues, government policies drawn and redrawn against the backdrop of an historic Presidential election, and solutions that seemed to be discarded almost as soon as they were proposed, a group of thirty-three academics at New York University Stern School of Business began tackling the hard questions behind the headlines. Representing fields of finance, economics, and accounting, these professors-led by Dean Thomas Cooley and Vice Dean Ingo Walter-shaped eighteen independent policy papers that proposed market-focused solutions to the problems within a common framework. In December, with great urgency, they sent hand-bound copies to Washington. Restoring Financial Stability is the culmination of their work. Edited by Matthew Richardson and Viral Acharya, this reliable resource brings together the best thinking of finance and economics from the faculty of one of the top universities in world.
The financial crisis that unfolded in September 2008 transformed the United States and world economies. As each day's headlines brought stories of bank failures and rescues, government policies drawn and redrawn against the backdrop of an historic Presidential election, and solutions that seemed to be discarded almost as soon as they were proposed, a group of thirty-three academics at New York University Stern School of Business began tackling the hard questions behind the headlines. Representing fields of finance, economics, and accounting, these professors-led by Dean Thomas Cooley and Vice Dean Ingo Walter-shaped eighteen independent policy papers that proposed market-focused solutions to the problems within a common framework. In December, with great urgency, they sent hand-bound copies to Washington. Restoring Financial Stability is the culmination of their work. Edited by Matthew Richardson and Viral Acharya, this reliable resource brings together the best thinking of finance and economics from the faculty of one of the top universities in world.
416 pages, Hardcover
First published March 23, 2009
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Displaying 1 of 1 review
March 17, 2011
Very interesting topics, treatment not for everyone
For various reasons, it took me a while to finish this one. The recent financial crisis is still a big interest of mine, and this is the first I've read from the perspective of ways to improve the financial system from what we've learned in the last two years. I'm sure much will be written in the decade to come, but these papers from NYU Stern faculty are among the first I've seen to come out. For that I give them credit. I do like many of the recommendations they present, though I kind of wish there were an executive summary tying it all together. In its current form, it's not something I'd recommend to everyone interested in the topic--hence the mediocre rating.
A quick rundown of some of the topics/opinions:
centralized clearing for derivatives:
where possible, standardize contracts and trade on exchanges
at least require registry of transactions and positions for better counterparty risk transparency
ratings agencies and conflict of interest: have investors pay, not the issuers
accounting: be more strict about when to allow "mark-to-model" accounting (also centralized clearing for derivatives)
executive and high-powered employee compensation: align with reducing systemic risk, and with long-term success of company
deal with existing homeowners who are underwater: encourage renegotiating loans and have borrower/lender split the capital gains (but ignores completely the fractured ownership due to securitization and how to motivate loan servicers)
price guarantees (e.g. FDIC, implicit lender-of-last-resort) for financial institutions according to systemic risk (size and riskiness of positions)
international cooperation: need to coordinate regulation of too-big-to-fail institutions (the suggestions above) to avoid international regulation arbitrage
For various reasons, it took me a while to finish this one. The recent financial crisis is still a big interest of mine, and this is the first I've read from the perspective of ways to improve the financial system from what we've learned in the last two years. I'm sure much will be written in the decade to come, but these papers from NYU Stern faculty are among the first I've seen to come out. For that I give them credit. I do like many of the recommendations they present, though I kind of wish there were an executive summary tying it all together. In its current form, it's not something I'd recommend to everyone interested in the topic--hence the mediocre rating.
A quick rundown of some of the topics/opinions:
centralized clearing for derivatives:
where possible, standardize contracts and trade on exchanges
at least require registry of transactions and positions for better counterparty risk transparency
ratings agencies and conflict of interest: have investors pay, not the issuers
accounting: be more strict about when to allow "mark-to-model" accounting (also centralized clearing for derivatives)
executive and high-powered employee compensation: align with reducing systemic risk, and with long-term success of company
deal with existing homeowners who are underwater: encourage renegotiating loans and have borrower/lender split the capital gains (but ignores completely the fractured ownership due to securitization and how to motivate loan servicers)
price guarantees (e.g. FDIC, implicit lender-of-last-resort) for financial institutions according to systemic risk (size and riskiness of positions)
international cooperation: need to coordinate regulation of too-big-to-fail institutions (the suggestions above) to avoid international regulation arbitrage
Displaying 1 of 1 review