The Global Financial Crisis according to Richard Roll

Global Financial Crisis Survey

Richard Roll holds the Joel Fried Chair in Applied Finance at UCLA Anderson. He is also a principal of the consulting firm Compensation Valuation, Inc. He previously worked for Boeing (on the 727) and wrote the operating manual for the first stage booster of the Saturn moon rocket. He founded and directed the mortgage securities research group at Goldman Sachs in the mid 1980s, has consulted for many corporations, law firms, and government agencies, and has served on several boards. He has published multiple books and more than 100 articles in peer-reviewed journals (winning multiple awards). Prof. Roll is the past president of the American Finance Association and has been an associate editor of eleven different journals in finance and economics. His article The Possible Misdiagnosis of a Crisis in the March/April 2011 issue of the Financial Analysts Journal is publicly available at this link.

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

None of the views.

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?

None of these narratives.

3. The Global Financial Crisis is ongoing and will end in the year

2013 or beyond.

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

The reduction in the value of human capital that was precipitated by a decrease in the anticipated worldwide growth rate in wages, which was itself induced by a growing expectation that the public sector was growing globally relative to the private sector. This happened in early 2007, I think. The reduction in human capital value caused a decline in real estate values globally.

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

Reduce the size of the public sector relative to the size of the private sector (in most countries).

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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