Lessons Not Learned: 10 Steps to Stable Financial Markets

Description

Much has been written and spoken about the lessons learned from the financial crisis of 2009. In this book, we list the lessons not learned before the financial crisis. The purpose of this book is to demonstrate that the theoretical and intellectual frameworks for regulating financial systems that had been available since at least 2001 could have prevented the systemic failure in the United States that led to the collapse of global credit markets in 2007-2009. Step by step the book will guide you through what we can do right now and what could have been done before 2008 or Dodd-Frank. The book concludes with a key idea for how to make your financial services business stand out from the crowd and be successful in the coming decades. The list of 10 Steps is quite straight-forward and simple. 1. Have private, independent rating agencies. 2. Provide some government safety net but not so much that banks are not held accountable ( Too Big to Fail ) 3. Allow very little government ownership and control of national financial assets. 4. Allow banks to reduce the volatility of returns by offering a wide-range of services. 5. Require financial market players to register and be authorized. 6. Provide information, including setting standards, to enhance market transparency. 7. Routinely examine financial institutions to ensure that the regulatory code is obeyed. 8. Enforce the code and discipline transgressors. 9. Develop policies that keep the regulatory code up to date. 10. Encourage the creation of specialized financial institutions. For each step the reader will find: Legislative/regulatory background on the existing rules plus what academic work is available on the theory. The facts and data showing where it was not implemented/enforced in the US (with examples of countries that did get it right), where applicable. The facts and data supporting the connection between this step and the events of 2008. Acknowledgements About the author Contents Abbreviations Tables of authorities Foreword Introduction 1. Updated Regulations 1.1. Lesson 1.2. Purpose 1.3. Theory 1.4. Practice 1.5. Connection 1.6. Conclusion 2. Registration and Authorisation 2.1. Lesson 2.2. Purpose 2.3. Theory 2.4. Practice 2.5. Connection 2.6. Conclusion 3. Surveillance and Examinations 3.1. Lesson 3.2. Purpose 3.3. Theory 3.4. Practice 3.5. Connection 3.6. Conclusion 4. Allowable Diversification 4.1. Lesson 4.2. Purpose 4.3. Theory 4.4. Practice 4.5. Connection 4.6. Conclusion 5. Independent Monitors 5.1. Lesson 5.2. Purpose 5.3. Theory 5.4. Practice 5.5. Connection 5.6. Conclusion 6. Information and Standards 6.1. Lesson 6.2. Purpose 6.3. Theory 6.4. Practice 6.5. Connection 6.6. Conclusion 7. Enforcement and Discipline 7.1. Lesson 7.2. Purpose 7.3. Theory 7.4. Practice 7.5. Connection 7.6. Conclusion 8. Safety with Accountability 8.1. Lesson 8.2. Purpose 8.3. Theory 8.3.1. Principal-Agent and Moral Hazard 8.3.2. Optimism and Apathy 8.3.3. Special Interests 8.3.4. Credibility 8.4. Practice 8.5. Connection 8.6. Conclusion 9. Private Ownership 9.1. Lesson 9.2. Purpose 9.3. Theory 9.4. Practice 9.5. Connection 9.6. Conclusion 10. Specialization 10.1. Lesson 10.2. Purpose 10.3. Theory 10.4. Practice 10.5. Connection 10.6. Conclusion 11. Conclusion 11.1. Finance is Everywhere 11.2. No single cause, no single solution 11.3. Moving Beyond Finance and Economics 11.4. Where We Are Now 11.5. Where we could be 11.6. Epilogue to Individual Investors Appendices Appendix 1: Note on the Mathematics of Derivatives Appendix 2: SROs, Born of the Paperwork Crisis Appendix 3: Structured Finance Appendix 4: Who Regulates Banks Appendix 5: DFA Cross-Reference and Implementation Trackers Appendix 6: A Collection of Lessons References Index