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HISTORY AND CHARACTERISITCS OF FINANCIAL CRISES: Discussion Tassos Malliaris

HISTORY AND CHARACTERISITCS OF FINANCIAL CRISES: Discussion Tassos Malliaris. The 10 th Biennial Athenian Policy Forum Conference at the Duetsche Bundesbank, Frankfurt, July 28-31, 2010. Two Papers. Financial Regulatory Reforms to Cope With the Crisis in the US and the EU ( Zestos )

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HISTORY AND CHARACTERISITCS OF FINANCIAL CRISES: Discussion Tassos Malliaris

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  1. HISTORY AND CHARACTERISITCS OF FINANCIAL CRISES: DiscussionTassosMalliaris The 10th Biennial Athenian Policy Forum Conference at the Duetsche Bundesbank, Frankfurt, July 28-31, 2010

  2. Two Papers • Financial Regulatory Reforms to Cope With the Crisis in the US and the EU (Zestos) • A Descriptive Analysis of the 2007 U.S. Financial Crisis: Its Origin, Problem, and Solution (Choi)

  3. The Zestos Paper • Comprehensive • Begins with Origins of Banking in 1850’s: National Bank Act of 1863 • Emphasis on Glass-Steagall Act of 1933 • Role of Gramm-Leach-Bliley Act of 1999

  4. The Zestos Story • Deregulation • Easy Monetary Policies • Housing Boom • Financial Innovations • Crisis begins in the U.S. then EU • 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act: U.S. Regulation • EU to Follow

  5. Discussion • Well Written • Focused on Regulation, Deregulation, New Regulation • Also Focused on U.S. vs. EU • Similar Crisis but Dissimilar Developments

  6. Discussion • Need to Contrast a Dynamically Evolving Economy vs. Static Regulation • Need to Address Regulatory Arbitrage Between U.S. and EU • Optimal Regulation, Financial Innovation and Economic Growth

  7. The Choi Paper 1. The Origin of the 2007 U.S. Financial Crisis 2. The Problem with Policies Instituted - identifies the players : The Treasury, Fed, FDIC - describes 3 major policies: Lehman, Increasing Capital and AIG 3.The Possible Solutions to the Problem - The Small Business Administration Loans - Better Management of Securitization - Elimination of Mortgage-Related Speculation - Formation of Better Regulatory Structure

  8. Discussion • Very Detailed and Informative • What is Presented is Presented Well • “Too Big to Fail” by Andrew Ross Sorkin • Emphasis on Events vs. Personalities: Hank Paulson, Ben Bernanke, Jamie Dimon, Richard Fuld, Tim Geithner and several others

  9. Discussion • In a High Frequency Analysis What is “Signal” and What is “Noise”? • If There is a “Signal” is There Also a Theory? • Theory Plays a Double Role: It is Both Lens and Also a Blinder

  10. Discussion • Lesson Learned From Major Crises: Act Quickly, Decisively and Forcefully • The Need to Recapitalize • “If to do Were as Easy as to Know What Were Good to do, Chapels would have Been Churches and Poor Men’s Cottages Princes’ Palaces” Merchant of Venice • Lender of Last Resort

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