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`This volume is a rich collection of essays on the most important
financial crisis since the 1930s. Here, the authoritative writers
offer trenchant insights on this crisis. Mitchell and Wilmarth are
much to be commended for gathering this valuable material in a
volume easily accessible to analysts, students, scholars, and
anyone alarmed by the panic of 2008. Read it and grow wiser in the
ways of financial crises.' - Robert F. Bruner, University of
Virginia, US and co-author, The Panic of 1907 The Panic of 2008
brings together scholars from a variety of disciplines to examine
the causes and consequences of the global credit crisis, the
subsequent collapse of the financial markets, and the following
recession. The book evaluates the crisis in historical context,
explores its various legal, economic, and financial dimensions, and
considers various possibilities for reform. The Panic of 2008 is
one of the first in-depth efforts to study the crisis as it was in
the very earliest stage of resolution, and establishes a foundation
for thinking about and evaluating current reform efforts and the
likelihood of recurrence. This is a thorough and detailed
examination by leading scholars from law, history, finance and
economics and as such will be of great interest to the scholarly
communities of legal academicians, financial historians, financial
economists, and economists. General readers engaged with the
ramifications of the financial crisis, including practising
lawyers, policymakers, and financial and business professionals,
will also find the book invaluable.
Banks were allowed to enter securities markets and become universal
banks during two periods in the past century - the 1920s and the
late 1990s. Both times, universal banks made high-risk loans and
packaged them into securities that were sold as safe investments to
poorly-informed investors. Both times, universal banks promoted
unsustainable booms that led to destructive busts - the Great
Depression of the early 1930s and the Global Financial Crisis of
2007-09. Both times, governments were forced to arrange costly
bailouts of universal banks. Congress passed the Glass-Steagall Act
of 1933 in response to the Great Depression. The Act broke up
universal banks and established a decentralized financial system
composed of three separate and independent sectors: banking,
securities, and insurance. That system was stable and successful
for over four decades until the big-bank lobby persuaded regulators
to open loopholes in Glass-Steagall during the 1980s and convinced
Congress to repeal it in 1999. Congress did not adopt a new
Glass-Steagall Act after the Global Financial Crisis. Instead,
Congress passed the Dodd-Frank Act. Dodd-Frank's highly technical
reforms tried to make banks safer but left in place a dangerous
financial system dominated by universal banks. Universal banks
continue to pose unacceptable risks to financial stability and
economic and social welfare. They exert far too much influence over
our political and regulatory systems because of their immense size
and their undeniable "too-big-to-fail" status. In Taming the
Megabanks, Arthur Wilmarth argues that we must again separate banks
from securities markets to avoid another devastating financial
crisis and ensure that our financial system serves Main Street
business firms and consumers instead of Wall Street bankers and
speculators. Wilmarth's comprehensive and detailed analysis
demonstrates that a new Glass-Steagall Act would make our financial
system much more stable and less likely to produce boom-and-bust
cycles. Giant universal banks would no longer dominate our
financial system or receive enormous subsidies. A more
decentralized and competitive financial system would encourage
banks and securities firms to fulfill their proper roles as
servants - not masters - of Main Street businesses and consumers.
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