In Casino Capitalism, Hans-Werner Sinn examines the causes of the
banking crisis, points out the flaws in the economic rescue
packages, and presents a master plan for the reform of financial
markets. Sinn argues that the crisis came about because limited
liability induced both Wall Street and Main Street to gamble with
real estate properties. He meticulously describes the process of
lending to American homeowners and criticizes both the process of
securitizing and selling mortgage claims to the world, as well as
the poor job rating agencies did in providing transparency. He
argues that the American Dream has ended because the world now
realizes that this dream was built on loans that are never likely
to be repaid.
Sinn also asserts that the banking crisis has not yet been
resolved, because the necessary write-offs of toxic assets have
largely been swept under the carpet. Comparing actual worldwide
write-offs with those estimated by the IMF estimates, he concludes
that substantial parts, if not most, of the true losses have yet to
be revealed and that the banking systems of many countries are on
the brink of insolvency.
In view of this, he directs sharp criticism at the various economic
rescue packages, arguing that the plans assume that banks have a
liquidity problem while, in fact, they suffer from a solvency
crisis. Sinn points out that the conflict between the goals of
rescuing banks in the short term and inducing more prudent
behaviour in the long term requires the government to help the
banks, but not their shareholders, by becoming a temporary
co-owner. In addition, he calls for higher equity requirements, a
worldwide return to more cautious accounting methods, a ban on
extremely speculative short selling, and strict regulations on
conduits, hedge funds and credit default swaps.
This authoritative account provides an invaluable overview for
academics, students, policymakers, politicians, and all those with
an interest in the unprecedented 2008 banking crisis.
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