spring2010_greenspan - An article by Alan Greenspan on the...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
The Crisis Alan Greenspan President Greenspan Associates LLC Second Draft: March 9, 2010
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Table of Contents Page I. Preamble 3 II. Causes of the Crisis 1. The Arbitraged Global Bond Market and the Housing Crisis 3 2. Securitization of Subprimes: the Crisis Story Unfolds 6 3. A Classic Euphoric Bubble Takes Hold 8 4. Why Did the Boom Reach Such Heights? 10 III. Financial Intermediation 1. The Purpose of Finance 13 2. Risky Financial Intermediation 16 3. The Hundred Year Flood 17 IV. Regulatory Reform 1. Principles of Reform 19 2. Upward Revisions of Economic Capital 23 3. What Regulation Can Do 26 4. Regulatory Capital History 27 5. Limits to Regulatory Capital Requirements 29 6. Too Big to Fail 31 7. Regulations Embodying a Forecast Fail with Regularity 34 V. Role of Monetary Policy 1. Monetary Policy and House Price Bubbles 37 2. Could the Breakdown Have Been Prevented? 43 VI. In Summary 46
Background image of page 2
3 I. Preamble The bankruptcy of Lehman Brothers in September 2008 precipitated what, in retrospect, is likely to be judged the most virulent global financial crisis ever. To be sure, the contraction in economic activity that followed in its wake has fallen far short of the depression of the 1930s. But the virtual withdrawal, on so global a scale, of private short term credit, the leading edge of financial crisis, is not readily evident in our financial history. The collapse of private counterparty credit surveillance, fine tuned over so many decades, along with the failure of the global regulatory system calls for the thorough review by governments now under way. The central theme of this paper is that in the years leading up to the current crisis, financial intermediation tried to function on too thin a layer of capital, owing to a misreading of the degree of risk embedded in ever-more complex financial products and markets. In sections II through V, this paper reviews the causes of the crisis. In sections VI to VIII, the nature of financial intermediation is probed; in sections IX to XV, a set of reforms that I hope address the shortcomings of the existing regulatory structure; in sections XVI and XVII, the role of monetary policy in the current crisis is examined; and section XVIII, the conclusion. II. 1. The Arbitraged Global Bond Market and the Housing Crisis It was the global proliferation of securitized, toxic U.S. subprime mortgages that was the immediate trigger of the current crisis. But the roots of the crisis reach back, as best I can judge, to the aftermath of the Cold War.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 The fall of the Berlin Wall 1 exposed the economic ruin produced by the Soviet bloc’s economic system. In response, competitive markets quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Soviet bloc and the then Third World.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/29/2010 for the course ECON 345 taught by Professor Sumaila during the Fall '09 term at The University of British Columbia.

Page1 / 66

spring2010_greenspan - An article by Alan Greenspan on the...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online