The Global Financial Crisis according to James Kwak

Global Financial Crisis Survey

James Kwak is an Associate Professor at the University of Connecticut School of Law, and a fellow at the Harvard Law School Program on Corporate Governance. Kwak coauthored (with Simon Johnson) the bestseller 13 BANKERS: The Wall Street Takeover and the Next Financial Meltdown. They blog at The Baseline Scenario.

1. Which FCIC View best represents the causes of the Financial Crisis?

Majority Conclusions

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

It was Wall Street's fault. If I can have a little more nuance, I would say mainly Wall Street, some Government. I think "Everyone" is too broad.

3. The Global Financial Crisis ended (or will end) in the year

I don't think "Global Financial Crisis" has enough of a precise definition to say when it ended or will end, but in its broadest sense I would say 2013 or beyond.

4. What were the primary causes of the Global Financial Crisis?

The Global Financial Crisis was caused by the combination of an unstable financial system and a credit bubble, which resulted from long-term shifts in the financial sector toward greater innovation and risk-taking. Traditional prudential regulation was unable to cope with the risks presented by this new system, in part because financial institutions innovated around existing regulatory structures and in part because the industry used its political power to dismantle existing regulations and block new ones.

5. What still should change as a result of the crisis?

The financial system needs to become more focused on intermediating credit flows from savers into the real economy and less focused on maximizing the volume of derivative or ancillary transactions and financial assets that provide small benefits (liquidity, price discovery, etc.) for the risk that they introduce. How to do this is an open question.

Compiled by Gary Karz, CFA
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Global Financial Crisis Survey

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