The Financial Crisis: Who is to Blame?

244 Pages·2010·10.628 MB·English

by  Howard Davies

HOWARD
DAVIES
THE
FINANCIAL
CRISIS
Who is to Blame?

THE FINANCIAL CRISIS

THE FINANCIAL CRISIS
Who is to Blame?
Howard Davies
polity
Copyright © Howard Davies 2010
The right of Howard Davies to be identified as Author of this Work has
been asserted in accordance with the UK Copyright, Designs and Patents
Act 1988.
First published in 2010 by Polity Press
Reprinted 2010
Polity Press
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Polity Press
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ISBN-13: 978-0-7456-5163-7 (hardback)
ISBN-13: 978-0-7456-5164-4 (paperback))
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CONTENTS
Acknowledgements vii
Introduction
A The Big Picture
1 Frankenstein’s Monster: The End of Laissez-Faire
Capitalism
The Rich get Richer — the Poor Borrow
The Savings Glut: Global Imbalances
Too Loose for Too Long — US Monetary Policy
The Trigger
Minsky’s Moment
The Subprime Collapse: A Failure of Government?
The Failures of Regulation
A Capital Shortage
Procyclicality
The Canary in the Coal Mine: Off-Balance Sheet
eon”
Vehicles
The Taxi at the Station — Liquidity
11 The Blind Man and the Elephant: US Regulation
12 SEC — RIP?
13 Financial Weapons of Mass Destruction: Derivatives
vi CONTENTS core
14 Federal Mortgage Regulation ~
15 Casino Banking: The End of Glass-Steagall
16 Too Big to Fail
1 Lighting the Touchpaper: Light Touch Regulation
18 There were Three People in the Marriage - UK
Regulation
19 A Failure of Coordination
20 Paradise Lost: Offshore Centres
Accountants, Auditors and Rating Agencies
a Shoot the Messenger: Fair Value Accounting
Tunnel Vision: The Auditors
23 Conflicts of Interest: Credit Rating Agencies
Financial Firms and Markets 131
24 Breaking the Chain: Originate to Distribute
Too Complex to Trade: Derivatives
26 Disaster Myopia: Risk Management
27 The Roach Motel: Corporate Governance
28 Blankfein’s Bonus: Pay and Incentives 155
2 The Vampire Squid: Fraud
30 A Plague of Locusts: Hedge Funds
31 Short-Selling 170
Economics and Finance Theory: Irrational
Expectations 175
The Death of Economics 177
Inefficient Markets 185
An Ethics-Free Zone: Business Schools 191
Wild Cards 195
35 The Watchdog that Didn’t Bark: The Media 197
36 Greed is Bad 202
oF Lara Croft: Video Games 206
38 Hormones 208
And Finally ... 211
39 A Combustible Mixture 213
Index 219
ACKNOWLEDGEMENTS
In preparing this guide I have benefited from discussions with
politicians, central bankers, regulators and market partici-
pants. Some of them are quoted in the relevant sections; others
are not.
Iam particularly grateful to Stephanie Morisset for her help
in preparing the text and the references, with ready support
from Veronique Mizgailo, Kaylee Stewart and Jagoda Sumicka.
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