Financial Crisis: Causes, Context and Consequences

✍ Scribed by Adrian Buckley

• Publisher: Financial Times/ Prentice Hall
• Year: 2011
• Tongue: English
• Leaves: 357
• Category: Library

✦ Synopsis

Financial Crisis, penned by Adrian Buckley, offers a fascinating close-up analysis of the causes of the 2007/8 financial crisis and its consequences placing the world of finance under the microscope, bringing together evidence of the involvement of banks, governments and regulators. It questions some of its most dangerous and dubious practices, witnessed while searching for the answer to the question:

What really caused the financial crisis?

✦ Table of Contents

Cover
Financial Crisis
Contents
Preface
Acknowledgements
An overview of the financial crisis of 2007/8
Introduction
The good times
New models of lending
The time bomb ticks
The time bomb explodes
Why, oh why did no one see it coming?
Escape
Timeline of the financial crisis 2007/8
Governments and the financial crisis
Introduction
Externalities
Government regulation
Economic intervention
Government deficits
Demand management
Monetary policy
Fiscal policy
Lobbying
Summing up
Personal finance, housing and the financial crisis
Introduction
Housing
Mortgage borrowing
Credit card and other personal debt
Pensions
The housing market strikes back
The business of banking
Introduction
Banks in general
Commercial banks
Investment banks
Bank holding companies
Glass-Steagall Act
Central banks
Asset-liability mismatch
The bank bonus culture
The bank bonus culture and declining standards
Risk/return implications of the bank bonus culture
Bank balance sheets
Moral hazard
Lender of last resort
The shadow banking system and non-bank financial institutions
Subprime lenders and borrowers
Introduction
Community Reinvestment Act
The business of subprime lending
The dubious economics of subprime lending
Structured Instrument Vehicles (SIV) and conduits
Repackaging mortgages
Rating agencies
Credit Default Swaps And Toxic Assets
Introduction
How do credit default swaps work?
Drivers of the CDS market
Correlations and credit ratings
The unwinding
Bank Lending And Control Systems
Introduction
Normal commercial bank lending criteria
Lending control systems
Value at Risk and risk management
Bank capital adequacy
Regulation
Introduction
The need to regulate financial services
Capital adequacy and liquidity
Lender of last resort
Deposit insurance
Tight versus loose regulation
The US system of financial regulation
The UK system of financial regulation
Eurozone regulation
International regulation
Too big to fail
Mark-to-market accounting
The business cycle, booms, busts, bubbles and frauds
Introduction
Booms, busts and bubbles
Frauds and swindles
Charles Ponzi
Bernard Madoff
What makes Ponzi schemes crash?
Finance theories
Introduction
Earnings versus cash flow
Market efficiency
The efficient markets hypothesis
The capital asset pricing model
Risk and uncertainty
Risk management models and the normal distribution
Options
Behavioural finance
Conclusion
Other academic theories
Introduction
Culture and conformity
Self-interest
Bonuses
Mathematical economics
Creative destruction
The insights of Hyman Minsky
The Austrian School of Economics
An eclectic view
Final words on self-interest
Bank failures in the USA
Introduction
Case 12.1 Bear Stearns
Introduction
Recent history
Into the abyss
J. P. Morgan to the rescue
Case 12.2 Lehman Brothers
Introduction
Bankruptcy
Repo 105
Property
The CEO
Case 12.3 American International Group (AIG)
Introduction
AIG Financial Products Corporation
The end is nigh
Case 12.4 Fannie Mae and Freddie Mac
Introduction
Mortgage securitisation
Political pressure
The financial crisis
Bank failures in the UK
Introduction
Case 13.1 Northern Rock
Introduction
Risky business model
Crunch time
Britain’s first bank run since 1866
Why did things go so wrong?
Case 13.2 HBOS
Introduction
A changed business model
Days of reckoning
The takeover and the bailout
Risk management
What went wrong?
Case 13.3 Royal Bank of Scotland (RBS)
Introduction
The NatWest takeover
Investment banking
The ABN Amro acquisition
2008 financial crisis
What went wrong?
Bank failures in Europe
Introduction
Case 14.1 Fortis
Introduction
The ABN Amro takeover
Fortis Problems in the wake of ABN Amro takeover
Case 14.2 UBS
Introduction
Dubious practices
The financial crisis hits UBS
Case 14.3 Icelandic banks
Introduction
The root of the problem
Accident
Cronyism
Kaupthing leaked documents
The unravelling
Case 14.4 Irish banks
Introduction
Banking background
Anglo Irish Bank
Irish Nationwide
The bailout
The Great Depression
Introduction
The Roaring Twenties
The Wall Street Crash
The Great Depression unfolds
The gold standard
Franklin D. Roosevelt
Summing up
Government responses to the crisis
Introduction
US responses
British responses
Eurozone responses
The extent of total bailouts
Lessons and major issues
Introduction
Financial crises
Lessons for governments
Lessons for banks
Lessons for regulators
Lessons for household borrowers
Lessons for academics
Major issues
Afterword
Introduction
The Dodd–Frank Act
European bank stress tests
Basel III capital requirements
Ireland’s banks updated
Eurozone crisis
Final words
Notes
Glossary
Index