Electronic copy available at: http://ssrn.com/abstract=1577264
The Financial Turmoil of 2007-09: Sinners and Their Sins
George G. Kaufman
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.
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
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
Financial Crisis, Banking, Financial Regulation
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
firstname.lastname@example.org. Any errors or omissions are the responsibility of the author. NFI working papers and
other publications are available on NFI’s website (
Leadership” and then “Publications/Papers.” Earlier versions of this paper under various titles were presented at