Description
Book SynopsisThis study examines the role of the Basel Accords-a set of international standards regulating bank capital-in the global financial crisis. It argues that because the accords were so widely adopted, they effectively homogenized the banking industry, increasing the systemic risk they were intended to prevent.
Trade Review"This book argues that the incentive distortions of bank capital-adequacy regulations were the proximate cause of the 2007 financial crisis. The systemic instability that followed was fueled by blind-sided experts who perpetuated the myths of too-big-to-fail and overcompensated corporate managers. A serious read for those struggling to make sense of the worst crisis since the Depression." * Vernon Smith, 2002 Nobel Laureate in Economics *
"An excellent conceptual book on the financial crisis, full of deep research and intellectual honesty." * Tyler Cowen,
Marginal Revolution *
"For anyone wanting to read only a single book about the crisis and its origins, this is the book to read." *
Choice *
"Jeffrey Friedman and Wladimir Kraus distinguish themselves by presenting the most systematic and rigorously argued empirical analysis of the crash to date." *
Perspectives on Politics *
"While this is the single best book on the financial crisis, it also offers an outstanding analysis of decision making in modern regulatory states." * Samuel DeCanio, Yale University *
"If you thought you understood the causes of the financial crisis, think again. This thought-provoking exploration of the financial crisis provides a convincing argument that much of what we thought we knew about the crisis is, at best, misleading. In thinking about the cause, much more focus needs to be given to ignorance on everyone's part, and models that don't include ignorance will be, at best, incomplete. Ignorance of the importance of ignorance is a sign of ignorance." * David Colander, Middlebury College *
Table of ContentsList of Figures and Tables
Glossary of Abbreviations and Acronyms
Introduction
1 Bonuses, Irrationality, and Too-Bigness: The Conventional Wisdom About the Financial Crisis and Its Theoretical Implications
2 Capital Adequacy Regulations and the Financial Crisis: Bankers' and Regulators' Errors
3 The Interaction of Regulations and the Great Recession: Fetishizing Market Prices
4 Capitalism and Regulation: Ignorance, Heterogeneity, and Systemic Risk
Conclusion
Appendix I. Scholarship About the Corporate-Compensation Hypothesis
Appendix II. The Basel Rules off the Balance Sheet
Notes
References
Index
Acknowledgments
