Download Connectedness and Contagion: Protecting the Financial System by Hal S. Scott PDF

By Hal S. Scott

The Dodd–Frank Act of 2010 used to be meant to reform monetary guidelines with a purpose to hinder one other great situation akin to the monetary meltdown of 2008. Dodd–Frank is essentially premised at the analysis that connectedness used to be the most important challenge in that crisis—that is, that monetary associations have been overexposed to each other, leading to a potential chain response of disasters. during this booklet, Hal Scott argues that it's not connectedness yet contagion that's the most vital part of systemic danger dealing with the economy. Contagion is an indiscriminate run via momentary collectors of monetary associations which may render differently solvent associations bancrupt. It poses a significant danger simply because, as Scott explains, our economy nonetheless depends upon nearly $7.4 to $8.2 trillion of runnable and uninsured momentary liabilities, 60 percentage of that are held via nonbanks.

Scott argues that efforts via the Federal Reserve, the FDIC, and the Treasury to forestall the contagion that exploded after the financial ruin of Lehman Brothers lessened the industrial harm. And but Congress, spurred via the public's aversion to bailouts, has dramatically weakened the facility of the govt to reply to contagion, together with boundaries at the Fed's powers as a lender of final hotel. supplying uniquely certain forensic analyses of the Lehman Brothers and AIG mess ups, and suggesting substitute regulatory ways, Scott makes the case that we have to restoration and boost our guns for battling contagion.

Show description

Read Online or Download Connectedness and Contagion: Protecting the Financial System from Panics PDF

Similar economic policy & development books

Housing Policy Reforms in Post Socialist Europe: Lost in Transition

The ebook offers certain insights into the method of housing reforms in post-socialist Europe in the course of its transition to markets and democracy. It explores the relationships among housing coverage and housing method functionality in 9 international locations: Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Former Yugoslav Republic of Macedonia, Romania, Republic of Moldova, Serbia and Montenegro.

Child Welfare in Developing Countries

What elements have an effect on baby welfare? How can coverage increase baby welfare? In constructing international locations, there was really little empirical paintings at the research and dimension of kid poverty. additional, poverty has many dimensions, together with mortality, morbidity, starvation, illiteracy, loss of mounted housing and shortage of assets, and can't be assessed with a unmarried size strategy.

Rational Extremism: The Political Economy of Radicalism

Extremists are humans whose rules or strategies are considered as open air the mainstream. checked out this fashion, extremists will not be unavoidably twisted or evil. yet they are often, specially once they are illiberal and violent. What makes extremists flip violent? This ebook assumes that extremists are rational: given their ends, they decide upon the easiest potential to accomplish them.

Neoliberal Hegemony and the Pink Tide in Latin America: Breaking Up With TINA?

Chodor examines the struggles opposed to neoliberal hegemony in Latin the US, less than the 'Pink Tide' of leftist governments. using a serious overseas Political financial system framework derived from the paintings of Antonio Gramsci, he appears to be like at its such a lot widespread individuals – Venezuela lower than Hugo Chávez and Brazil lower than Lula and Dilma Rousseff.

Additional info for Connectedness and Contagion: Protecting the Financial System from Panics

Sample text

55 One potential weakness of this theory is that it may be challenging to construct empirical tests for the presence of multiple equilibria. However, Hortacsu et al. (2011)56 constructed a testable model in which companies face a negative feedback loop between their perceived financial health and demand for their products. In this model, financial distress can reduce the demand for a firm’s products by, for example, reducing the expected value of the company’s warranties. In the banking sector, a warranty corresponds to a bank’s promise to convert deposits to cash on demand.

The fall of housing prices in the period prior to the 2008–2009 financial crisis). Correlation can also refer to the herding instinct of asset managers that can result in market crashes and instability, or in irrational asset bubbles. In addition the academic literature discussing “indirect” connectedness is really discussing correlation. 3 Herding behavior involves the tendency of asset managers to move out of a particular security or asset class in a correlated manner. The concern is that if most large asset managers sell at the same time, the market for that security or asset class may collapse, putting stress on all holders of such assets.

26 Chapter 4 the time of the Lehman bankruptcy. This subsection therefore focuses on the magnitude and nature of third-party exposures to LBHI and its Chapter 11 affiliates and, to some degree, the recoveries that third parties expected or had reason to expect from the estate, concluding that the potential exposure of $150–250 billion was not destabilizing and that creditors could have reasonably expected to recover on a nonnegligible portion of their claims. The claims data from the Initial and Modified Third Amended Plans provide a clear picture of the magnitude and sources of potential thirdparty exposure to Lehman.

Download PDF sample

Download Connectedness and Contagion: Protecting the Financial System by Hal S. Scott PDF
Rated 4.33 of 5 – based on 11 votes