Across the Great Divide

Across the Great Divide

New Perspectives on the Financial Crisis

Editors: Martin Neil Baily, John B. Taylor
ISBN: 978-0-8179-1784-5
Publication Date: 11/1/2014

Five Years After the Financial Crisis of 2008: Where Do We Stand?

The financial crisis of 2008 devastated the American economy and caused U.S. policymakers to rethink their approaches to major financial crises. More than five years have passed since the collapse of Lehman Brothers, but questions still persist about the best ways to avoid and respond to future financial crises. In Across the Great Divide, contributors  from academia, industry, and government analyze the financial crisis of 2008: its causes, effects on the U.S. economy, and the way ahead.

The expert contributors consider post-crisis regulatory policy reforms and emerging financial and economic trends, including the roles played by highly accommodative monetary policy, securitization run amok, government-sponsored enterprises (GSEs), large asset bubbles, excessive leverage, and the Federal funds rate, among other potential causes. They discuss the role played by the Federal Reserve and examine the concept of “too big to fail.” And they review and assess resolution frameworks, considering experiences with Lehman Bros. and other firms in the crisis, Title II of the Dodd-Frank Act, and the Chapter 14 bankruptcy code proposal.

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John B. Taylor

John B. Taylor is the George P. Shultz Senior Fellow in Economics at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University. He chairs the Hoover Working Group on Economic Policy and is director of Stanford’s Introductory Economics Center.

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Martin Neil Baily

Martin Neil Baily is a senior fellow in the Economic Studies Program at the Brookings Institution and the Bernard L. Schwartz Chair in Economic Policy Development. He is also the director of the Business and Public Policy Initiative. Baily rejoined Brookings in September 2007 to develop a program of research on business and the economy. He is studying growth, innovation, and how to speed the recovery. He is a senior adviser to the McKinsey Global Institute, a senior director of Albright Stonebridge Group, a member of the Squam Lake Group of financial economists, co-chair of the Bipartisan Policy Center’s Financial Reform Initiative, and a director of the Phoenix Companies of Hartford, Connecticut. Baily earned his PhD in economics in 1972 at the Massachusetts Institute of Technology. After teaching at MIT and Yale, he became a senior fellow at the Brookings Institution in 1979 and a professor of economics at the University of Maryland in 1989. He is the author of many professional articles and books, testifies regularly to House and Senate committees, and is often quoted in the press.




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Contents


Introduction
Martin Neil Baily and John B. Taylor

PART I      Causes and Effects of the Financial Crisis
Chapter 1    How Efforts to Avoid Past Mistakes Created New Ones: Some Lessons from the Causes and Consequences of the Recent Financial Crisis
                    Sheila C. Bair and Ricardo R. Delfin
Chapter 2    Low Equilibrium, Real Rates, Financial Crisis, and Secular Stagnation
                    Lawrence H. Summers
Chapter 3    Causes of the Financial Crisis and the Slow Recovery: A Ten-Year Perspective
                    John B. Taylor
Chapter 4    Rethinking Macro: Reassessing Micro-foundations
                    Kevin M. Warsh

PART II      The Federal Reserve's Role
Chapter 5    The Federal Reserve Policy, Before, During, and After the fall
                    Alan S. Blinder
Chapter 6    The Federal Reserve's Role: Actions Before, During, and After the 2008 Panic in the Historical Context of the Great Contraction
                    Michael D. Bordo
Chapter 7    Mistakes Made and Lesson (Being) Learned: Implications for the Fed's Mandate
                    Peter R. Fisher
Chapter 8    A Slow Recovery with Low Inflation
                    Allan H. Meltzer

PART III      Is Too Big to Fail Over? Are We Ready for the Next crisis?
Chapter 9    How Is the System Safer? What More Is Needed?
                    Martin Neil Baily and Douglass J. Elliot
Chapter 10    Toward a Run-free Financial System
                    John Cochrane
Chapter 11    Financial Market Infrastructure: Too Important to Fail
                    Darrell Duffie
Chapter 12    "Too Big to Fail" from an Economic Perspective
                    Steve Strongin

PART IV      Bankruptcy, Bailout, Resolution
Chapter 13    Framing the TBTF Problem: the Path to a Solution
                    Randall D. Guynn
Chapter 14    Designing a Better Bankruptcy Resolution
                    Kenneth E. Scott
Chapter 15    Single Point of Entry and the Bankruptcy Alternative
                    David A. Skeel Jr.
Chapter 16    We Need Chapter 14 - And We Need Title II
                    Michael S. Helfer

Remarks on Key Issues Facing Financial Institutions
Paul Saltzman

Concluding Remarks
George P. Shultz

Summary of the Commentary
Simon Hilpert

Glossary
Contributors
Index



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