Kaufman-Sinners+and+Their+Sins+2007-09 - Policy Brief...

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Electronic copy available at: http://ssrn.com/abstract=1577264 Policy Brief 2010-PB-01 March 2010 The Financial Turmoil of 2007-09: Sinners and Their Sins George G. Kaufman Abstract: The causes of the financial crisis of 2007-09 are many and varied. Indeed, the crisis may be viewed as the product of a perfect storm. This paper identifies the major culprits or sinners of the U.S. crisis and enumerates their more important sins. The culprits include central bankers, commercial bankers, credit rating agencies, financial engineers, the government, investors, mortgage borrowers, mortgage brokers, and prudential bank regulators. Among the numerous sins committed by these sinners, the role of the government in encouraging and subsidizing risky home mortgages and the poor performance of the prudential regulators in adequately enforcing the in-place rules are of particular concern. The regulators were poor agents for their healthy bank and taxpayer principals. It follows that prevention of future crisis requires the development of better incentives to motivate the regulators to be more faithful to the letter and spirit of the regulations. About the Author: George G. Kaufman is the John F. Smith Professor of Finance and Economics and Director of the Center for Financial and Policy Studies in the School of Business Administration, Loyola University, Chicago. Before teaching at Loyola, he was a research fellow, economist and research officer at the Federal Reserve Bank of Chicago and has been a consultant to the Bank since 1981. Kaufman received his B.A. from Oberlin College, M.A. from the University of Michigan, and Ph.D. in economics from the University of Iowa. Professor Kaufman's teaching and research interests are in financial economics, institutions, markets and regulation and in the Federal Reserve and monetary policy. He has lectured widely in the U.S. and abroad and published extensively in professional journals, as well as having been an editor or a member of the editorial board of several major journals. He is also the author or editor of numerous books. In May 2003, the Economist identified Kaufman as one of “America’s leading financial economists.” Professor Kaufman has served as a consultant to numerous government agencies and private firms. He has frequently testified before Congress and other legislative and policy groups. Keywords : Financial Crisis, Banking, Financial Regulation JEL Classifications : G01, G21, G28, G18 The views expressed are those of the individual author and do not necessarily reflect official positions of Networks Financial Institute. Please address questions regarding content to George Kaufman at gkaufma@luc.edu. Any errors or omissions are the responsibility of the author. NFI working papers and other publications are available on NFI’s website ( www.networksfinancialinstitute.org ). Click “Thought Leadership” and then “Publications/Papers.” Earlier versions of this paper under various titles were presented at
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Kaufman-Sinners+and+Their+Sins+2007-09 - Policy Brief...

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