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Trade Review
"In conclusion, this book should be read by every serious observer of the crisis. It is an outstanding contribution." (Lombard Street) "…ably tackles complex issues and covers a wide spectrum of the current debate, including the multiplicity of regulators, the need for international regulatory coordination, transparency, fair value accounting, compensation reform, and the extent to which monetary policy should address systemic asset bubbles." (The Investment Professional)
“…the book that best combines history, analysis and prescription is “Restoring Financial Stability”, a series of essays by academics at New York University’s Stern School of Business. The 60-page prologue is packed with telling facts and sophisticated analysis, and alone is worth the steep cover price. The individual chapters deal methodically with the myriad issues raised by the crunch, and the policy changes that will be needed, covering everything from the American mortgage market to the need for international cooperation in regulating finance." (The Economist)
"We are always better analysts with a 20/20 hindsight. Indeed, an ex post reading about events leading up to a crisis appears logical, and often leaves one with the question about why the evolution of the crisis could not be seen and corrected in time. Still, policy-makers know that such a review and understanding are important to learning from mistakes. Restoring Financial Stability (Wiley) acts as a catalyst to that understanding by offering a comprehensive sequencing of the causes and progression of the build-up of the financial strains that . . evolved into a full-blown global financial crisis. . . highly recommended even though bankers will remain bankers and will probably figure out ways to beat the new system." (Business Standard)
Table of Contents
Foreword xi
Acknowledgments xiii
Prologue: A Bird’s-Eye View
The Financial Crisis of 2007–2009: Causes and Remedies 1
Viral V. Acharya, Thomas Philippon, Matthew Richardson, and Nouriel Roubini
Part One Causes of the Financial Crisis of 2007–2009 57
Matthew Richardson
Chapter 1 Mortgage Origination and Securitization in the Financial Crisis 61
Dwight Jaffee, Anthony W. Lynch, Matthew Richardson, and Stijn Van Nieuwerburgh
Chapter 2 How Banks Played the Leverage Game 83
Viral V. Acharya and Philipp Schnabl
Chapter 3 The Rating Agencies: Is Regulation the Answer? 101
Matthew Richardson and Lawrence J. White
Part Two Financial Institutions 117
Matthew Richardson
Chapter 4 What to Do about the Government-Sponsored Enterprises? 121
Dwight Jaffee, Matthew Richardson, Stijn Van Nieuwerburgh, Lawrence J. White, and Robert E. Wright
Chapter 5 Enhanced Regulation of Large, Complex Financial Institutions 139
Anthony Saunders, Roy C. Smith, and Ingo Walter
Chapter 6 Hedge Funds in the Aftermath of the Financial Crisis 157
Stephen J. Brown, Marcin Kacperczyk, Alexander Ljungqvist, Anthony W. Lynch, Lasse H. Pedersen, and Matthew Richardson
Part Three Governance, Incentives, and Fair Value Accounting Overview 179
Viral V. Acharya and Rangarajan K. Sundaram
Chapter 7 Corporate Governance in the Modern Financial Sector 185
Viral V. Acharya, Jennifer N. Carpenter, Xavier Gabaix, Kose John, Matthew Richardson, Marti G. Subrahmanyam, Rangarajan K. Sundaram, and Eitan Zemel
Chapter 8 Rethinking Compensation in Financial Firms 197
Gian Luca Clementi, Thomas F. Cooley, Matthew Richardson, and Ingo Walter
Chapter 9 Fair Value Accounting: Policy Issues Raised by the Credit Crunch 215
Stephen G. Ryan
Part Four Derivatives, Short Selling, and Transparency 229
Viral V. Acharya
Chapter 10 Derivatives: The Ultimate Financial Innovation 233
Viral V. Acharya, Menachem Brenner, Robert F. Engle, Anthony W. Lynch, and Matthew Richardson
Chapter 11 Centralized Clearing for Credit Derivatives 251
Viral V. Acharya, Robert F. Engle, Stephen Figlewski, Anthony W. Lynch, and Marti G. Subrahmanyam
Chapter 12 Short Selling 269
Menachem Brenner and Marti G. Subrahmanyam
Part Five The Role of the Federal Reserve 277
Thomas F. Cooley and Thomas Philippon
Chapter 13 Regulating Systemic Risk 283
Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon, and Matthew Richardson
Chapter 14 Private Lessons for Public Banking: The Case for Conditionality in LOLR Facilities 305
Viral V. Acharya and David K. Backus
Part Six The Bailout 323
Thomas F. Cooley and Thomas Philippon
Chapter 15 The Financial Sector Bailout: Sowing the Seeds of the Next Crisis? 327
Viral V. Acharya and Rangarajan K. Sundaram
Chapter 16 Mortgages and Households 341
Andrew Caplin and Thomas F. Cooley
Chapter 17 Where Should the Bailout Stop? 353
Edward I. Altman and Thomas Philippon
Part Seven International Coordination 363
Chapter 18 International Alignment of Financial Sector Regulation 365
Viral V. Acharya, Paul Wachtel, and Ingo Walter
About the Authors 377
Index 381
