Cover

pdf iconDownload PDF
 

Contents

pdf iconDownload PDF

p. v

List of Figures and Tables

pdf iconDownload PDF

p. vii

Glossary of Abbreviations and Acronyms

pdf iconDownload PDF

pp. ix-x

read more

Introduction

pdf iconDownload PDF

pp. 1-4

This is not the ordinary book about the financial crisis. The product of a collaboration between an economist (Kraus) and a political theorist (Friedman), it is designed for readers who are interested not only in what caused the financial crisis, but in what those causes indicate about the nature of capitalism and of modern government. Along the way to considering these...

read more

1. Bonuses, Irrationality, and Too-Bigness: The Conventional Wisdom About the Financial Crisis and Its Theoretical Implications

pdf iconDownload PDF

pp. 5-56

In this chapter, we will confront the six items of conventional wisdom with hard evidence and, we hope, sound reasoning in order to clear the ground for our own argument: that, stripped to its essentials, the crisis was a regulatory failure in which the prime culprit was none of the usually targeted factors, but was, instead, the set of regulations governing banks’ capital levels known as the Basel rules. ...

read more

2. Capital Adequacy Regulations and the Financial Crisis: Bankers' and Regulators' Errors

pdf iconDownload PDF

pp. 57-85

A bank’s ‘‘capital’’ is the security blanket it needs because of the fragile nature of banking. Any corporation’s capital boils down to its net worth, or ‘‘the residual after subtracting liabilities from assets’’ (Gilliam 2005, 293, emphasis added). ‘‘The greater a bank’s capital, the more it can absorb net losses before liabilities exceed assets’’: capital serves as a buffer against...

read more

3. The Interaction of Regulations and the Great Recession: Fetishizing Market Prices

pdf iconDownload PDF

pp. 86-111

It is doubtful that the U.S. and international financial regulators who, in all three versions of the Basel regime (including the Recourse Rule), assigned a low risk weight to mortgages, anticipated the effect this might have on banks and on the world economy if a housing bubble were to occur—or that they anticipated that this action might have contributed to such a bubble. ...

read more

4. Capitalism and Regulation: Ignorance, Heterogeneity, and Systemic Risk

pdf iconDownload PDF

pp. 112-143

The modern democratic method of case-by-case social-problem solving, which Karl Popper (1961, 64–70) called the system of ‘‘piecemeal social engineering,’’ rarely rises to the conceptual level at which it can be labeled a ‘‘principle,’’ let alone a ‘‘system’’; and ‘‘social engineering’’ has acquired totalitarian connotations that Popper did not intend. The engineer is not an...

read more

Conclusion

pdf iconDownload PDF

pp. 144-156

We began in Chapter 1 with the fact that the mortgage-backed bonds on the balance sheets of U.S. commercial banks appear to have been either guaranteed by the GSEs or rated triple-A. This well-known fact poses serious problems for the two most prominent hypotheses about the cause of the crisis, both of which are ‘‘moral-hazard’’ stories. According to one of the moral-hazard stories, bankers made bets on...

Appendix I. Scholarship About the Corporate-Compensation Hypothesis

pdf iconDownload PDF

pp. 157-162

Appendix II. The Basel Rules off the Balance Sheet

pdf iconDownload PDF

pp. 163-174

Notes

pdf iconDownload PDF

pp. 175-187

References

pdf iconDownload PDF

pp. 189-200

Index

pdf iconDownload PDF

pp. 201-210

Acknowledgments

pdf iconDownload PDF

pp. 211-212