The recent financial crisis was an accident, a “perfect storm” fueled by an unforeseeable confluence of events that unfortunately combined to bring down the global financial systems. And policy makers? They did everything they could, given their limited authority. It was all a terrible, unavoidable accident. Or at least this is the story told and retold by a chorus of luminaries that includes Timothy Geithner, Henry Paulson, Robert Rubin, Ben Bernanke, and Alan Greenspan.
In Guardians of Finance, economists James Barth, Gerard Caprio, and Ross Levine argue that the financial meltdown of 2007 to 2009 was no accident; it was negligent homicide. They show that senior regulatory officials around the world knew or should have known that their policies were destabilizing the global financial system, had years to process the evidence that risks were rising, had the authority to change their policies--and yet chose not to act until the crisis had fully emerged.
The current system, the authors write, is simply not designed to make policy choices on behalf of the public. It is virtually impossible for the public and its elected officials to obtain informed and impartial assessment of financial regulation and to hold regulators accountable. Barth, Caprio, and Levine propose a reform to counter this systemic failure: the establishment of a “Sentinel” to provide an informed, expert, and independent assessment of financial regulation. Its sole power would be to demand information and to evaluate it from the perspective of the public--rather than that of the financial industry, the regulators, or politicians.
About the Authors
James R. Barth is Lowder Eminent Scholar in Finance at Auburn University and Senior Finance Fellow at the Milken Institute.
Gerard Caprio Jr. is William Brough Professor of Economics and Chair of the Center for Development Economics at Williams College.
Ross Levine is James and Merryl Tisch Professor of Economics and Director of the William R. Rhodes Center for International Economics and Finance at Brown University.
“This is a timely, well-written, and nontechnical book by established experts in the field.”—R. Grossman, Choice
“For those involved in policy formulation and regulation, whether at national or international level, in government or financial institutions, this is compulsory reading.”—Richard Parlour, Central Banking Journal
"This book will become a classic for those who want to learn what was behind the global financial crisisnot just what went wrong, but why current reforms won't work. Most important, it offers guidelines to prevent the next crisis by forcing regulators, the Guardians of Finance, to work for the public interest rather than for narrow elites."—Nouriel Roubini, Co-Founder and Chairman, Roubini Global Economics
"This book involves a strongly, even passionately, argued attack on financial regulators for having made a mess of financial regulation, prior to 2007. It is beautifully written, and very well designed to achieve a wide audience of readers who are interested in the crisis, but are not necessarily themselves expert. It is based on great academic expertise, but wears its deep scholarship lightly, with no maths and no equations."—Charles Goodhart, London School of Economics
"There have been plenty of books on the financial crisis. But this one is different. While acknowledging that private financiers did plenty of damage, the authors shine the spotlight on regulators across the world. They argue that the crisis did not just happen to policymakers, it happened because of them, and offer careful and well-reasoned arguments to support their case. Guardians of Finance should be read by everyone interested in the future of free enterprise."—Raghuram G. Rajan, The University of Chicago Booth School of Business
"Financial crises are not in the interests of bankers, regulators, or politicians. Yet all three groups did nothing as the U.S. financial system headed over a cliff. Why didn't they act? Why did their counterparts in other countries, such as Ireland and Iceland, also stick their heads in the sand? Is there a way to prevent the next crisis, or do we have to rely on the same groups that brought us the ongoing disaster of 2007? Read this meticulously researched and clearly argued book, and learn the answers."—Stephen Haber, Stanford University
Honorable Mention, 2012 American Publishers Award for Professional and Scholarly Excellence (PROSE Award) in Business, Finance & Management, presented by the Professional and Scholarly Publishing Division of the Association of American Publishers