Ebooks Free Download | Restoring Financial Stability: How to Repair a Failed System (Wiley Finance) | The financial crisis that unfolded in September 2008 transformed the United States and world economies. As each day's headlines brought stories of bank failures and rescues, government policies drawn and redrawn against the backdrop of an historic Presidential election, and solutions that seemed to be discarded almost as soon as they were proposed, a group of thirty-three academics at New York University Stern School of Business began tackling the hard questions behind the headlines.
Representing fields of finance, economics, and accounting, these professors-led by Dean Thomas Cooley and Vice Dean Ingo Walter-shaped eighteen independent policy papers that proposed market-focused solutions to the problems within a common framework. In December, with great urgency, they sent hand-bound copies to Washington. Restoring Financial Stability is the culmination of their work. Lastly, I would contend that if we had implemented every single one of the book's recommendations it would have had very little effect on the current situation. Capital would have had to have sat idle or been diverted from other more successful endeavors. It seems unlikely that precious capital would have or should have simply sat idle to protect against 50 year storms. And had other endeavors been more logical, capital should have and would have flowed to them assuming regulations were consistently applied. The problem lies in the fact that a surplus of short-term financing existed relative to the available investment opportunities, opportunities that are always, by their very nature, long-term. And further, that relative to this expanded supply, the equity available to underwrite the resulting duration risk was, logically, in short supply. The supply of short-term debt relative to the equity available to underwrite this risk is more than merely a matter of relative price.
Japanese and Swiss interest rates, for example, have demonstrated that risk adverse short-term investors are largely insensitive to returns so changing relative returns will not covert debt into equity in order to adjust the mix. Again, the book makes no argument why increased regulations, changes to incentive structures or any other of its recommendations in part or in whole would have altered this market imbalance. At "best", it would have left short-term capital underinvested or consumed. More likely, it would have reduced returns to equity and may have exacerbated this imbalance. Again, this core issue is unaddressed by the book. Instead, cries of, "Too much debt!" (i.e. not enough equity) and, "Too little regulation!" implicitly assume as their starting point that regulation can correct this imbalance (or at least divert it from our financial infrastructure; that consuming rather than investing this surplus would be better for society in the long run; or that it would be wiser to let some other economy invest this capital. All seem unlikely.
Representing fields of finance, economics, and accounting, these professors-led by Dean Thomas Cooley and Vice Dean Ingo Walter-shaped eighteen independent policy papers that proposed market-focused solutions to the problems within a common framework. In December, with great urgency, they sent hand-bound copies to Washington. Restoring Financial Stability is the culmination of their work. Lastly, I would contend that if we had implemented every single one of the book's recommendations it would have had very little effect on the current situation. Capital would have had to have sat idle or been diverted from other more successful endeavors. It seems unlikely that precious capital would have or should have simply sat idle to protect against 50 year storms. And had other endeavors been more logical, capital should have and would have flowed to them assuming regulations were consistently applied. The problem lies in the fact that a surplus of short-term financing existed relative to the available investment opportunities, opportunities that are always, by their very nature, long-term. And further, that relative to this expanded supply, the equity available to underwrite the resulting duration risk was, logically, in short supply. The supply of short-term debt relative to the equity available to underwrite this risk is more than merely a matter of relative price.
Japanese and Swiss interest rates, for example, have demonstrated that risk adverse short-term investors are largely insensitive to returns so changing relative returns will not covert debt into equity in order to adjust the mix. Again, the book makes no argument why increased regulations, changes to incentive structures or any other of its recommendations in part or in whole would have altered this market imbalance. At "best", it would have left short-term capital underinvested or consumed. More likely, it would have reduced returns to equity and may have exacerbated this imbalance. Again, this core issue is unaddressed by the book. Instead, cries of, "Too much debt!" (i.e. not enough equity) and, "Too little regulation!" implicitly assume as their starting point that regulation can correct this imbalance (or at least divert it from our financial infrastructure; that consuming rather than investing this surplus would be better for society in the long run; or that it would be wiser to let some other economy invest this capital. All seem unlikely.
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