Guardians of Finance: Making Regulators Work for Us

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How the unaccountable, unmonitorable, and unchecked actions of regulators precipitated the global financial crisis; and how to reform the system.

The recent financial crisis was an accident, a “perfect storm” fueled by an unforeseeable confluence of events that unfortunately combined to bring down the global financial systems. Or at least this is the story told and retold by a chorus of luminaries that includes Timothy Geithner, Henry Paulson, Robert Rubin, Ben Bernanke, and Alan Greenspan.

In Guardians of Finance, economists James Barth, Gerard Caprio, and Ross Levine argue that the financial meltdown of 2007 to 2009 was no accident; it was negligent homicide. They show that senior regulatory officials around the world knew or should have known that their policies were destabilizing the global financial system and yet chose not to act until the crisis had fully emerged.

Barth, Caprio, and Levine propose a reform to counter this systemic failure: the establishment of a “Sentinel” to provide an informed, expert, and independent assessment of financial regulation. Its sole power would be to demand information and to evaluate it from the perspective of the public—rather than that of the financial industry, the regulators, or politicians.

 

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Contents

Chapter 1 Introduction
1
Chapter 2 Regulating Finance Is Hard to Do
21
Chapter 3 Incentives Run Amok
57
Chapter 4 How US Regulators Encouraged the Financial Crisis
85
Chapter 5 American Crisis? Aint Necessarily So
121
Chapter 6 Been Down This Road Many Times Before
147
Post 20072009 Financial Crisis Regulation
171
Chapter 8 Making the Guardians of Finance Work for Us
203
Glossary
233
Notes
237
Index
259
About the Authors
279
Copyright

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About the author (2012)

James R. Barth is Lowder Eminent Scholar in Finance at Auburn University and Senior Finance Fellow at the Milken Institute.

Gerard Caprio Jr. is William Brough Professor of Economics and Chair of the Center for Development Economics at Williams College.

Ross Levine is the Willis H. Booth Chair in Banking and Finance at the University of California, Berkeley, and Senior Fellow at the Milken Institute.

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