Ending Government Bailouts As We Know Them

Overview

How Do We Make Failure Tolerable?

The American people are clearly upset about the massive government bailouts of faltering organizations and the consequent commitment of taxpayer dollars-as well as the heavy involvement of the federal government in private sector activities. How do we approach a problem of this magnitude? The key question, which George Shultz presents at the outset, is: How do we make failure tolerable? In other words, if clear and credible measures can be put ...

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Overview

How Do We Make Failure Tolerable?

The American people are clearly upset about the massive government bailouts of faltering organizations and the consequent commitment of taxpayer dollars-as well as the heavy involvement of the federal government in private sector activities. How do we approach a problem of this magnitude? The key question, which George Shultz presents at the outset, is: How do we make failure tolerable? In other words, if clear and credible measures can be put into place that convince everybody that failure will be allowed, then the expectations of bailouts will recede and perhaps even disappear. Perhaps more important, we would also get rid of the risk-inducing behavior that even implicit government guarantees bring about. In Ending Government Bailouts as We Know Them, a team of expert contributors examine the dangers of continuing government bailouts and offer constructive alternatives designed to both resolve the current bailout problem and prevent future crises.

The other contributors follow up on Shultz's premise with discussions on a range of key topics. They begin with the nature of systemic risk-particularly in the experience of the Lehman Brothers bankruptcy-and the reforms that financial firms can implement, whether or not required by government regulatory agencies. They also explore in detail the two main alternatives to government bailouts in the case of a failing financial firm: bankruptcy versus resolution authority. The book concludes with a summary of the commentary on the chapters by formal discussants and the audience at the conference, ranging from constructive critiques to strong endorsements to ideas for future research.

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Product Details

  • ISBN-13: 9780817911249
  • Publisher: Hoover Institution Press
  • Publication date: 2/1/2010
  • Series: Hoover inst press Publication
  • Edition description: 1st Edition
  • Pages: 200
  • Product dimensions: 5.60 (w) x 8.10 (h) x 1.20 (d)

Meet the Author

Kenneth E. Scott is the Parsons Professor Emeritus of Law and Business at Stanford Law School and a Hoover Institution senior research fellow.

George P. Shultz is the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution.

John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University.

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Table of Contents

Preface by Kenneth E. Scott, George P. Shultz, and John B. Taylor

Acknowledgments

 

Part I: The Danger of Bailouts and Key Principles of Reform

1. Make Failure Tolerable by George P. Shultz

2. Financial Reforms to End Government Bailouts as We Know Them by Paul Volcker

3. Fifty Years in the Business: From Wall Street to the Treasury and Beyond byNicholas F. Brady

  Part II: Systemic Risk in Theory and in Practice

 

4. Defining Systemic Risk Operationally by John B. Taylor

5. Lessons Learned from the Lehman Bankruptcy by Kimberly Anne Summe

 

Part III: What Financial Firms Can Do

6. A Contractual Approach to Restructuring Financial Institutions by Darrell Duffie

7. Wind-down Plans as an Alternative to Bailouts: The Cross-Border Challenges by Richard J. Herring

8. Wind-down Plans, Incomplete Contracting, and Renegotiation Risk: Lessons From Tiger Woods by Joseph A. Grundfest

 

Part IV: Bankruptcy versus Resolution Authority

 

9. Expanding FDIC-Style Resolution Authority by William F. Kroener III

10. The Kansas City Plan by Thomas M. Hoenig, Charles S. Morris, and Kenneth Spong

11. Chapter 11F: A Proposal for the Use of Bankruptcy to Resolve Financial Institutions by Thomas H. Jackson

12. Evaluating Failure Resolution Plans by Kenneth E. Scott

A Summary of the Commentary by Johannes Stroebel

A Conversation about Key Conclusions by George P. Shultz and John B. Taylor

Appendix: The Financial Crisis: Causes and Lessonsby Kenneth E. Scott

 

About the Authors

Index

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