Slapped in the Face by the Invisible Hand: Banking and the Panic of +. Gary Gorton. Yale and NBER. Prepared for the Federal Reserve Bank of Atlanta's. The 'shadow banking system' at the heart of the current credit crisis is, in fact, a real banking system – and is vulnerable to a banking panic. Now, in Slapped by the Invisible Hand, Gorton builds upon this seminal work, explaining how the securitized-banking system, the nexus of financial markets and.
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Gary Gorton, the Sherlock Holmes of the financial crisis, has news for you.
Like consumer banks before the Great Depression, the 'shadow banking market' is vulnerable to runs and panics and hysteria, and we are all, slapped by the invisible hand turn, vulnerable to it. By looking beyond this financial crisis to the systemic flaws that make us vulnerable to all sorts of crises, Gary Gorton has created a necessary guidebook for what's happened, and what needs to be done.
Slapped By the Invisible Hand is not a conventional retrospective.
- EconPapers: Slapped by the Invisible Hand: The Panic of
- The Panic of 2007
Instead it is a real-time chronicle of what the authorities were told at key points in the drama by a practitioner who was steeped in the history of banking as well On the other hand, slapped by the invisible hand were no systemic crises from to The problem, as Gorton makes clear, is that the Quiet Period reflected a slapped by the invisible hand of deposit insurance and strong regulation-undermined by the rise of shadow banking.
But, as any banking system, it was vulnerable to a panic. Indeed the events starting in August can best be understood as a panic-a wholesale panic, rather than a retail panic-involving financial firms "running" on other financial firms, resulting in the system becoming insolvent. Gorton empirically examines two common hypotheses of the crisis and finds them wanting: Lender's increasingly lower lending standards created the problem.
This isn't backed up by the empirical evidence. Originate-and-distribute securitization created misaligned incentives that created the problem. Gorton points out that all the originators suffered major losses, many going bankrupt. All originators kept a great deal of risk on their slapped by the invisible hand.
The problem was, basically, the creation of assets that were a one-way bet on housing prices.
Slapped by the Invisible Hand - Gary B. Gorton - Oxford University Press
Once assets created from those started to rated well by rating agencies and considered riskless collateral, the system quickly spread soon-to-be-toxic risk all over the world. I take issue with people who in hindsight say "everyone knew housing prices would fall," because if everyone knew that they wouldn't have made the loans and willfully taken billions in losses and gone bankrupt, would they?
Gorton takes issue with a few recommendations in regards to regulation. He slapped by the invisible hand higher capital requirements as only effective in shrinking the banking sector, which may not be what a society really wants or needs. He also notes that until "banking" is better defined, we're always going to have a hard time policing banking activity.
Better to create a system that aligns incentives slapped by the invisible hand eliminates information assymetry problems. Mark-to-market accounting adherence during a crisis is ill-advised as well.
Slapped by the Invisible Hand – Adams Financial Concepts
There aren't any grand political statements in this book, or vilification of demons. Mostly facts and analysis and some stylized slapped by the invisible hand.
I only give it 4 stars out of 5 because a lot of the information is jumpy and overlapping. Some of it, like his letter at the end to someone in was also a little