Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Tue, 01 Feb 2011

Why does the US government write a financial crisis book?

During the financial crisis, as many parts of the financial sector broke down, the government stepped in to perform the function normally performed by banks, markets or other private players. But there is no market failure at all in the business of publishing books on the financial crisis. As I noted in a blog post four months ago, this business is booming and there is no shortage of well-written books on the crisis.

But, writing a book on the financial crisis is exactly what the US government or rather the Financial Crisis Inquiry Commission (FCIC) has done in its report published last week. By sheer coincidence, when the report came out, I had just finished reading All the Devils are Here by Bethany McLean and Joe Nocera. It struck me that the FCIC report was quite similar to this book in terms of narrative, racy style, reliance on interesting anecdotes and juicy quotes.

I was looking forward to the FCIC producing an investigative report comparable to the outstanding reports produced for example by the Special Investigative Commission set up by the parliament of Iceland or the Examiner appointed by the bankruptcy court for Lehman Brothers. Unfortunately, that has not happened. Indeed, I found very little that is new in the FCIC report except for this interesting excerpt from a closed-door interview with Fed Chairman Ben Bernanke:

As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression. If you look at the firms that came under pressure in that period ... only one ... was not at serious risk of failure. So out of maybe the 13, 13 of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two. (page 354)

Another quote from the same closed-door session suggests that the one exception was JP Morgan Chase:

[Like JP Morgan,] Goldman Sachs I would say also protected themselves quite well on the whole. They had a lot of capital, a lot of liquidity. But being in the investment banking category rather than the commercial banking category, when that huge funding crisis hit all the investment banks, even Goldman Sachs, we thought there was a real chance that they would go under. (page 362)


Another bit of self-promotion: onlineaccountingcolleges.com has listed my blog in the Top 50 Blogs By Accounting Professors, Students and Professionals. It looks like 50 is becoming my lucky number.

Posted at 15:09 on Tue, 01 Feb 2011     2 comments     permanent link

Comments...

Krishna Kumar wrote on Thu, 03 Feb 2011 12:22

top 50 blogs

Dr Varma,

Please keep it up. Very engaging blog.

Regards

ketan wrote on Fri, 04 Feb 2011 15:07

Re: Why does the US government write a financial crisis book?

Dear Sir,

Very Apt analysis!

Big Ben studied the 1929 Global Depression for 20 years and couldn't stop one.

In the midst of a crisis, they were ruminating how one fine company managed to "save" itself despite widespread failures in financial regulation; dramatic breakdowns in corporate governance; excessive borrowing and risk-taking by households and Wall Street!!!

Penny-wise pound-foolish, perhaps??

They missed the following six lines in their spirit, this petty world, that we live in:

"May the good belong to all the people in the world. May the rulers go by the path of justice. May the best of men and their source always prove to be a blessing. May all the world rejoice in happiness. May rain come in time and plentifulness be on Earth. May this world be free from suffering and the noble ones be free from fears" ---- Vedic blessing