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Guardians of Finance: Making Regulators Work for Us
     

Guardians of Finance: Making Regulators Work for Us

4.5 2
by James R. Barth, Gerard Caprio, Ross Levine
 

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The recent financial crisis was an accident, a "perfect storm" fueled by an unforeseeable confluence of events that unfortunately combined to bring down the global financial systems. Or at least this is the story told and retold by a chorus of luminaries that includes Timothy Geithner, Henry Paulson, Robert Rubin, Ben Bernanke, and Alan Greenspan. In Guardians of

Overview

The recent financial crisis was an accident, a "perfect storm" fueled by an unforeseeable confluence of events that unfortunately combined to bring down the global financial systems. Or at least this is the story told and retold by a chorus of luminaries that includes Timothy Geithner, Henry Paulson, Robert Rubin, Ben Bernanke, and Alan Greenspan. In Guardians of Finance, economists James Barth, Gerard Caprio, and Ross Levine argue that the financial meltdown of 2007 to 2009 was no accident; it was negligent homicide. They show that senior regulatory officials around the world knew or should have known that their policies were destabilizing the global financial system and yet chose not to act until the crisis had fully emerged.Barth, Caprio, and Levine propose a reform to counter this systemic failure: the establishment of a "Sentinel" to provide an informed, expert, and independent assessment of financial regulation. Its sole power would be to demand information and to evaluate it from the perspective of the public--rather than that of the financial industry, the regulators, or politicians.

Editorial Reviews

Publishers Weekly
Despite the complex subject, this incisive book presents a straightforward thesis: the financial meltdown of 2007–2009 happened largely because the “Guardians of Finance” (market regulatory agencies) failed to represent the public interest. In lively prose, Barth (Auburn University finance scholar), Caprio (economics professor at Williams College), and Levine (economics professor at Brown University) review how and why this happened, focusing on changes in organizational structure. The evolution of banks and brokerages from partnerships to limited liability corporations encouraged risk taking and put a premium on expansion, high volume, and quick turnover. For market participants, this was a rational response to the prevailing incentives. Securitization enabled mortgage originators to package bundles of mortgages for sale and pass along the consequences of potential loan default to others, while rating agencies knew that traditional caution might send business to more compliant rivals. Exploding the myth that banks were unregulated during this period, the authors instead ask why regulators were ineffective even though Fed staff understood “the growing fragility of the financial system in the decade before the crisis.” Rejecting rote expansion of regulatory ranks and authority, they propose creating an independent “Sentinel” agency, staffed with experts, to provide “an ongoing assessment that seeks to identify problems with financial regulation before they trigger a crisis,” and present a strong case for this informed outside perspective. (Mar.)
Choice R.Grossman
This is a timely, well-written, and nontechnical book by established experts in the field.

Richard Parlour
For those involved in policy formulation and regulation, whether at national or international level, in government or financial institutions, this is compulsory reading.

From the Publisher

"This is a timely, well-written, and nontechnical book by established experts in the field."--R.Grossman, Choice

The MIT Press

"For those involved in policy formulation and regulation, whether at national or international level, in government or financial institutions, this is compulsory reading." --
Richard Parlour, Central Banking Journal

The MIT Press

Product Details

ISBN-13:
9780262300766
Publisher:
MIT Press
Publication date:
02/10/2012
Sold by:
Barnes & Noble
Format:
NOOK Book
Pages:
296
Sales rank:
518,457
File size:
994 KB

What People are Saying About This

Nouriel Roubini
This book will become a classic for those who want to learn what was behind the global financial crisis — not just what went wrong, but why current reforms won't work. Most important, it offers guidelines to prevent the next crisis by forcing regulators, the Guardians of Finance, to work for the public interest rather than for narrow elites.

Raghuram G. Rajan
There have been plenty of books on the financial crisis. But this one is different. While acknowledging that private financiers did plenty of damage, the authors shine the spotlight on regulators across the world. They argue that the crisis did not just happen to policymakers, it happened because of them, and offer careful and well-reasoned arguments to support their case. Guardians of Finance should be read by everyone interested in the future of free enterprise.

Stephen Haber
Financial crises are not in the interests of bankers, regulators, or politicians. Yet all three groups did nothing as the U.S. financial system headed over a cliff. Why didn't they act? Why did their counterparts in other countries,such as Ireland and Iceland, also stick their heads in the sand? Is there a way to prevent the next crisis, or do we have to rely on the same groups that brought us the ongoing disaster of 2007? Read this meticulously researched and clearly argued book, and learn the answers.

From the Publisher

"This book will become a classic for those who want to learn what was behind the global financial crisis -- not just what went wrong, but why current reforms won't work. Most important, it offers guidelines to prevent the next crisis by forcing regulators, the Guardians of
Finance, to work for the public interest rather than for narrow elites."--Nouriel
Roubini
, Co-Founder and Chairman, Roubini Global Economics

The MIT Press

"This book involves a strongly, even passionately, argued attack on financial regulators for having made a mess of financial regulation, prior to 2007. It is beautifully written,
and very well designed to achieve a wide audience of readers who are interested in the crisis, but are not necessarily themselves expert. It is based on great academic expertise, but wears its deep scholarship lightly, with no maths and no equations."--Charles Goodhart, London
School of Economics

The MIT Press

"There have been plenty of books on the financial crisis. But this one is different.
While acknowledging that private financiers did plenty of damage, the authors shine the spotlight on regulators across the world. They argue that the crisis did not just happen to policymakers, it happened because of them, and offer careful and well-reasoned arguments to support their case.
Guardians of Finance should be read by everyone interested in the future of free enterprise."--Raghuram G. Rajan, The University of Chicago Booth School of
Business

The MIT Press

"Financial crises are not in the interests of bankers, regulators, or politicians.
Yet all three groups did nothing as the U.S. financial system headed over a cliff. Why didn't they act? Why did their counterparts in other countries, such as Ireland and Iceland, also stick their heads in the sand? Is there a way to prevent the next crisis, or do we have to rely on the same groups that brought us the ongoing disaster of 2007? Read this meticulously researched and clearly argued book, and learn the answers."--Stephen Haber, Stanford
University

The MIT Press

"This is a timely, well-written, and nontechnical book by established experts in the field."--R.Grossman, Choice

The MIT Press

"For those involved in policy formulation and regulation, whether at national or international level, in government or financial institutions, this is compulsory reading." --
Richard Parlour, Central Banking Journal

The MIT Press

Charles Goodhart
This book involves a strongly, even passionately, argued attack on financial regulators for having made a mess of financial regulation, prior to 2007.

It is beautifully written, and very well designed to achieve a wide audience of readers who are interested in the crisis, but are not necessarily themselves expert.

It is based on great academic expertise, but wears its deep scholarship lightly,with no maths and no equations.

Meet the Author

James R. Barth is Lowder Eminent Scholar in Finance at Auburn University and Senior Finance Fellow at the Milken Institute. Gerard Caprio Jr. is William Brough Professor of Economics and Chair of the Center for Development Economics at Williams College. Ross Levine is the Willis H. Booth Chair in Banking and Finance at the University of California, Berkeley, and Senior Fellow at the Milken Institute.

The three are coauthors of Rethinking Banking Regulation: Till Angels Govern.

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Guardians of Finance: Making Regulators Work for Us 4.5 out of 5 based on 0 ratings. 2 reviews.
sergevansteenkiste More than 1 year ago
James Barth, Gerard Caprio, and Ross Levine methodically debunk the myth that the ongoing financial crisis is an accident. The authors relentlessly bring to light the decisive role that defective regulatory and political systems played in undermining the global financial system during the ten years or so before the start of the current financial crisis. Messrs. Barth, Caprio, and Levine convincingly demonstrate in this process that financial innovation, regulatory gaps, and insufficient regulatory powers were not the key drivers behind this downfall. The financial regulators adopted detrimental policies to the long-term sustainability of the global financial system and persevered with these misguided policies even in the presence of growing evidence about their deleterious effect on financial stability. The authors clearly explain why the financial regulators too often espoused the interests of the finance industry at the expense of those of the public. Think for example about bias in favor of the financial services industry (home field advantage), fast revolving door between industry and regulators, lobbying, and simplistic ideologies. Messrs. Barth, Caprio, and Levine come to the conclusion that the public is still in no position to pressure financial regulators to act in their interest, regardless of the current reforms enacted to strengthen the global financial system. Think for example about the evolving policies that the U.S. financial regulators have pursued since the nineteenth century. The answers to recurring crises have been the addition of new rules, the establishment of more regulatory agencies, the hiring of more regulators, and the granting of ever greater discretionary power to the U.S. financial regulators over an even larger portion of the financial system. These reforms are fleeting palliatives that fail to address the systemic institutional defects that continue to afflict the U.S. regulatory apparatus. Messrs. Barth, Caprio, and Levine propose the creation of what they call the Sentinel to establish a better balance between the interests of the public and those of the financial services industry. The Sentinel has to have five traits in order to significantly increase the pressure on the financial regulators to act in the public interest: 1. Independence of short-run politics; 2. Independence of the financial services industry; 3. The power to demand and obtain information necessary for assessing and monitoring the financial regulators; 4. Multidisciplinary expertise necessary for beneficially processing that information; 5. Prominence to deliver such an assessment to the public and its elected representatives in an ongoing manner that materially affects the open discussion of financial sector policies. The authors do not think that existing U.S. institutions such as the Financial Stability Oversight Council (FSOC), the Office of Financial Research (OFR), and the Government Accountability Office (GAO) meet the five requirements mentioned above to qualify for the job description of the Sentinel. To their credit, Messrs. Barth, Caprio, and Levine acknowledge that the Sentinel is not a panacea. The Sentinel is a necessary component to boost governance and regulatory performance. In summary, the authors overwhelmingly demonstrate that the current financial crisis is far from being an accident.
Anonymous More than 1 year ago
This is a very informative and insightful book! In order to understand the financial crisis we need to understand how government regulations was also a culprit to the Great Recession. This book offer interesting insight to that aspect. The only drawback about this book is it should have been better edited. There are annoying misspellings such as " orange country" instead of Orange County. And "countryside" instead of Countrywide. Great read nevertheless !