Lessons from the Financial Crisis: Causes, Consequences, and Our Economic Future


The world's best financial minds help us understand today's financial crisis

With so much information saturating the market for the everyday investor, trying to understand why the economic crisis happened and what needs to be done to fix it can be daunting. There is a real need, and demand, from both investors and the financial community to obtain answers as to what really happened and why.

Lessons from the Financial Crisis brings together the ...

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The world's best financial minds help us understand today's financial crisis

With so much information saturating the market for the everyday investor, trying to understand why the economic crisis happened and what needs to be done to fix it can be daunting. There is a real need, and demand, from both investors and the financial community to obtain answers as to what really happened and why.

Lessons from the Financial Crisis brings together the leading minds in the worlds of finance and academia to dissect the crisis. Divided into three comprehensive sections-The Subprime Crisis; The Global Financial Crisis; and Law, Regulation, the Financial Crisis, and The Future-this book puts the events that have transpired in perspective, and offers valuable insights into what we must do to avoid future missteps.

  • Each section is comprised of chapters written by experienced contributors, each with his or her own point of view, research, and conclusions
  • Examines the market collapse in detail and explores safeguards to stop future crises
  • Encompasses the most up-to-date analysis from today's leading financial minds

We currently face a serious economic crisis, but in understanding it, we can overcome the challenges it presents. This well-rounded resource offers the best chance to get through the current situation and learn from our mistakes.

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Product Details

  • ISBN-13: 9780470561775
  • Publisher: Wiley
  • Publication date: 6/8/2010
  • Series: Robert W. Kolb Series , #12
  • Edition number: 1
  • Pages: 667
  • Product dimensions: 7.30 (w) x 10.00 (h) x 1.70 (d)

Meet the Author

ROBERT W. KOLB is the Frank W. Considine Chair of Applied Ethics and Professor of Finance at Loyola University, Chicago. Before this, he was the assistant dean, Business and Society, and director, Center for Business and Society, at the University of Colorado at Boulder and department chairman at the University of Miami. Kolb has authored over twenty books on finance, derivatives, and futures, as well as numerous articles in leading finance journals.

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Table of Contents


Editor's Note


PART I Overview of the Crisis 1

1 Leverage and Liberal Democracy George Bragues Bragues, George 3

2 A Property Economics Explanation of the Global Financial Crisis Frank Decker Decker, Frank 9

3 Of Subprimes and Sundry Symptoms: The Political Economy of the Financial Crisis Ashok Bardhan Bardhan, Ashok 17

4 The Political Economy of the Financial Crisis of 2008 Roger D. Congleton Congleton, Roger D. 23

5 The Global Financial Crisis of 2008: What Went Wrong? Linda Weiser Friedman Friedman, Linda Weiser 31

6 The Roots of the Crisis and How to Bring It to a Close James K. Galbraith Galbraith, James K. 37

7 Enron Rerun: The Credit Crisis in Three Easy Pieces Jonathan C. Lipson Lipson, Jonathan C. 43

8 The Global Crisis and Its Origins Peter L. Swan Swan, Peter L. 51

9 Four Paradoxes of the 2008-2009 Economic and Financial Crisis John E. Marthinsen Marthinsen, John E. 59

10 Understanding the Subprime Financial Crisis Steven L. Schwarcz Schwarcz, Steven L. 69

PART II Causes and Consequences of the Financial Crisis 77

11 The Origins of the Financial Crisis Matthew S. Johnson Johnson, Matthew S. 79

12 Ten Myths about Subprime Mortgages Yuliya Demyanyk Demyanyk, Yuliya 87

13 The Financial Crisis: How Did We Get Here and Where Do We Go Next? New Evidence on How the Crisis Spread Among Financial Institutions Glenn H. Yago Yago, Glenn H. 95

14 A Decade of Living Dangerously: The Causes and Consequences of the Mortgage, Financial, and Economic Crises Jarjisu Sa-Aadu Sa-Aadu, Jarjisu 103

15 Making Sense of the Subprime Crisis Paul Willen Willen, Paul 109

16 Miraculous Financial Engineering or Legacy Assets? Ivo Pezzuto Pezzuto, Ivo 119

17 The Making and Ending of the Financial Crisis of 2007-2009 Austin Murphy Murphy, Austin 125

18 The Subprime Mortgage Problem: Causes and Likely Cure Ronald D. Utt Utt, Ronald D. 133

19 Sequence of Asset Bubbles and the Global Financial Crisis A. G. (Tassos) Malliaris Malliaris, A. G. (Tassos) 139

PART III Borrowers 147

20 The Past, Present, and Future of Subprime Mortgages Shane M. Sherlund Sherlund, Shane M. 149

21 FHA Loans and Policy Responses to Credit Availability Dr. Peter Zorn Zorn, Dr. Peter 155

22 The Single-Family Mortgage Industry in the Internet Era: Technology Developments and Market Structure Forrest Pafenberg Pafenberg, Forrest 163

23 Speed Kills? Mortgage Credit Boom and the Crisis Luc Laeven Laeven, Luc 175

24 Subprime Mortgages: What We Have Learned From a New Class of Homeowners Satya Thallam Thallam, Satya 181

25 Rating Agencies: Facilitators of Predatory Lending in the Subprime Market David J. Reiss Reiss, David J. 191

PART IV The Process of Securitization 197

26 A Primer on the Role of Securitization in the Credit Market Crisis of 2007 John D. Martin Martin, John D. 199

27 Incentives in the Originate-to-Distribute Model of Mortgage Production Robert W. Kolb Kolb, Robert W. 209

28 Did Securitization Lead to Lax Screening? Evidence from Subprime Loans Vikrant Vig Vig, Vikrant 217

29 Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis Bruce I. Jacobs Jacobs, Bruce I. 225

30 The Incentives of Mortgage Servicers and Designing Loan Modifications to Address the Mortgage Crisis Eileen Mauskopf Mauskopf, Eileen 231

31 The Contribution of Structured Finance to the Financial Crisis: An Introductory Overview Sarai Criado Criado, Sarai 239

32 Problematic Practices of Credit Rating Agencies: The Neglected Risks of Mortgage-Backed Securities Phil Hosp Hosp, Phil 247

33 Did Asset Complexity Trigger Ratings Bias? Laura Veldkamp Veldkamp, Laura 259

34 The Pitfalls of Originate-to-Distribute in Bank Lending Anurag Gupta Gupta, Anurag 267

PART V Risk Management and Mismanagement 275

35 Behavioral Basis of the Financial Crisis J. V. Rizzi Rizzi, J. V. 277

36 Risk Management Failures During the Financial Crisis Dr. Michel Crouhy Crouhy, Dr. Michel 283

37 The Outsourcing of Financial Regulation to Risk Models Erik F. Gerding Gerding, Erik F. 293

38 The Future of Risk Modeling Elizabeth Sheedy Sheedy, Elizabeth 301

39 What Happened to Risk Management During the 2008-2009 Financial Crisis? Teodosio Perez-Amaral Perez-Amaral, Teodosio 307

40 Risk Management Lessons from the Global Financial Crisis for Derivative Exchanges Jayanth Varma Varma, Jayanth 317

PART VI The Problem of Regulation 325

41 Regulation and Financial Stability in the Age of Turbulence David S. Bieri Bieri, David S. 327

42 The Financial Crisis of 2007-2009: Missing Financial Regulation or Absentee Regulators? A. G. Malliaris Malliaris, A. G. 337

43 The Demise of the United Kingdom's Northern Rock and Large U.S. Financial Institutions: Public Policy Lessons George G. Kaufman Kaufman, George G. 345

44 Why Securities Regulation Failed to Prevent the CDO Meltdown Richard E. Mendales Mendales, Richard E. 355

45 Curbing Optimism in Managerial Estimates Through Transparent Accounting: The Case of Securitizations Bharat Sarath Sarath, Bharat 361

46 Basel II Put on Trial: What Role in the Financial Crisis? Mario Quagliariello Quagliariello, Mario 369

47 Credit Rating Organizations, Their Role in the Current Calamity, and Future Prospects for Reform Chris Sagers Sagers, Chris 377

48 Global Regulation for Global Markets? Douglas W. Arner Arner, Douglas W. 383

49 Financial Regulation, Behavioral Finance, and the Global Financial Crisis: In Search of a New Regulatory Model Emilios Avgouleas Avgouleas, Emilios 391

PART VII Institutional Failures 401

50 Why Financial Conglomerates Are at the Center of the Financial Crisis Arthur E. Wilmarth Wilmarth, Arthur E. 403

51 Corporate Governance and the Financial Crisis: A Case Study from the S&P 500 Brian R. Cheffins Cheffins, Brian R. 411

52 Secondary-Management Conflicts Steven L. Schwarcz Schwarcz, Steven L. 419

53 The Financial Crisis and the Systemic Failure of Academic Economics Thomas Lux Lux, Thomas 427

54 Fannie Mae and Freddie Mac: Privatizing Profit and Socializing Loss David Reiss Reiss, David 437

55 Disclosure's Failure in the Subprime Mortgage Crisis Steven L. Schwarcz Schwarcz, Steven L. 443

PART VIII The Federal Reserve, Monetary Policy, and the Financial Crisis 451

56 Federal Reserve Policy and the Housing Bubble Lawrence H. White White, Lawrence H. 453

57 The Greenspan and Bernanke Federal Reserve Roles in the Financial Crisis John Ryan Ryan, John 461

58 The Risk Management Approach to Monetary Policy: Lessons from the Financial Crisis of 2007-2009 A. G. Malliaris Malliaris, A. G. 467

59 Reawakening the Inflationary Monster: U.S. Monetary Policy and the Federal Reserve Martin Hutchinson Hutchinson, Martin 475

60 The Transformation of the Federal Reserve System Balance Sheet and Its Implications Peter Stella Stella, Peter 483

PART IX Implications of the Crisis for Our Economic Systems 493

61 Systemic Risk and Markets Steven L. Schwarcz Schwarcz, Steven L. 495

62 The Transmission of Liquidity Shocks During the Crisis: Ongoing Research into the Transmission of Liquidity Shock Suggests the Emergence of a Range of New Channels During the Credit Crisis Heiko Hesse Hesse, Heiko 501

63 Credit Contagion From Counterparty Risk Gaiyan Zhang Zhang, Gaiyan 509

PART X International Dimensions of the Financial Crisis 517

64 Only in America? When Housing Boom Turns to Bust Luci Ellis Ellis, Luci 519

65 The Equity Risk Premium Amid a Global Financial Crisis Campbell R. Harvey Harvey, Campbell R. 525

66 Australia's Experience in the Global Financial Crisis Kevin Davis Davis, Kevin 537

67 Collapse of a Financial System: An Icelandic Saga Tryggvi Thor Herbertsson Herbertsson, Tryggvi Thor 545

68 Iceland's Banking Sector and the Political Economy of Crisis Ian Ashman Ashman, Ian 551

69 The Subprime Crisis: Implications for Emerging Markets Anthony B. Sanders Sanders, Anthony B. 559

PART XI Financial Solutions and Our Economic Future 569

70 The Long-Term Cost of the Financial Crisis Campbell R. Harvey Harvey, Campbell R. 571

71 Coping with the Financial Crisis: Illiquidity and the Role of Government Intervention Niklas Wagner Wagner, Niklas 579

72 Fiscal Policy for the Crisis Carlo Cottarelli Cottarelli, Carlo 587

73 The Future of Securitization Steven L. Schwarcz Schwarcz, Steven L. 595

74 Modification of Mortgages in Bankruptcy Adam J. Levitin Levitin, Adam J. 601

75 The Shadow Bankruptcy System Jonathan C. Lipson Lipson, Jonathan C. 609

76 Reregulating Fannie Mae and Freddie Mac Dwight M. Jaffee Jaffee, Dwight M. 617

77 Would Greater Regulation of Hedge Funds Reduce Systemic Risk? Philipp Maier Maier, Philipp 625

78 Regulating Credit Default Swaps Houman B. Shadab Shadab, Houman B. 633

Index 641

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