Reference no: EM132283794

Book Review Assignment

Choose one of the four following books to read:

The Age of Turbulence: Adventures in a New World, Alan Greenspan

The Courage to Act: A Memoir of a Crisis and Its Aftermath, Ben S. Bernanke

Stress Test: Reflections on Financial Crises, Timothy F. Geithner

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, Henry M. Paulson, Jr.

Overview

All of the authors of these books played prominent roles in the US financial system and its regulation. They also served the government as either Federal Reserve chair, US Secretary of the Treasury or both. Bernanke, Geithner and Paulson were prominently and directly involved in the 2007-2009 Global Financial Crisis (2007-09 GFC). Greenspan faced several crises and challenges, though none not quite so severe as the 2007-09 GFC, crisis during his 19-year tenure as Fed chairman.

The purpose of this assignment is not only to get an inside view of how the Fed, Treasury and the US government’s complex regulatory structure generally manage their mission to maintain financial stability during financial crises, but also to develop a deeper understanding of the concepts that we studied in class.

These concepts include, among others: moral hazard and its role in macroprudential regulation, the fundamental tradeoff of regulation, the role of politics in regulatory decision-making, Bagehot’s dictum and Federal Reserve independence. These books also offer their respective authors’ personal views about these topics. Furthermore, the anecdotes from these book proffer insights into how the authors’ political philosophies and leanings may have influenced their decision-making when under pressure.

You should prepare a MS-Word document, no longer than 8 pages double-spaced (12 point font), that responds to the following questions and topics. A concisely written assignment could conceivably be much shorter than eight, though it would be difficult to respond completely with fewer than four pages. There is no specific length required for each response. The If you work with a partner (not more than two students per submission), then please submit the MS-Word document only once, under one student ,and make sure to list both contributors on the title page.

You have significant leeway into how you structure your responses, though I expect that most of you will prepare a short essay response to each question/topic. Strive to make your answers concise and well-supported, with a few solidly supported key points.

Questions/Topics

Question 1 -- Childhood, Family and Early Years Influence on Decision-Making

Each book has a chapter or sections where the author describes his early years (i.e. his background, upbringing, family and childhood influences). Did your authors’ background and childhood influence his decision-making and actions during periods of crisis? If so, how and in
what ways? Did their backgrounds significantly predispose them to certain political philosophies or leanings? If so, how did this influence their decision-making? Strong responses to this question will provide specific examples.

Question 2 – The 2007-09 Global Financial Crisis in Hindsight

Based on your author’s arguments, as well as anything you glean through research, what do you think your author believes, in hindsight, about the wisdom. and efficacy of the responses and actions of US agencies during the height of the crisis. You should probably focus on the Fed and Treasury when constructing your response, though you may also want to comment about other agencies or branches of government (e.g. FDIC, Congress, POTUS, OCC, SEC, etc.). Another way to look at this question is: “knowing what we know now, would your author, retrospectively, recommend a different course of action?

Specifically focus on the period of the crises when the financial system was at a risk of panicinduced collapse in the wake of impending insolvencies as systemically important financial institutions (mostly 2008).

As part of this discussion be certain address whether you believe that your author is satisfied with Lehman’s failure or that more could have, and/or should have, been done to rescue Lehman Brothers. Considering that some of the steps taking during the crisis involved lending to
systemically important non-bank financial institutions, comment on your author’s views of the role of Section 13(3) as a tool for financial stability, as well as its use to rescue Bear, AIG, etc..

Question 3 – Author’s Views on Post GFC Reforms

Based on what you learned from reading the book, what do you believe about the author's view of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act? Is this the right regulation or was it spoiled by politics? From the perspectives laid out by your author: If DoddFrank were in place as of 2007, would it have averted the 2007-09 GFC and thereby reduce the number and size of interventions, rescues and exstraordinary liquidity provisions carried out by the Fed and the Treasury.

Do you think your author would recommend changes to, or revocation of, Dodd-Frank to address any shortcomings?

Question 4 – Your Views on Regulating for Financial Stability

Drawing largely from what you read, please formulate and describe your opinion of how well, past and present, the US regulatory  environment addresses the need for financial stability. Comment on whether the book changed your opinion on how this should be handled. Feel free to comment on those aspects of the the regulatory framework, generally, and Dodd-Frank, specifically, that you believe are most compelling. At a minimum, you should state your views on the efficacy of macroprudential regulation via the Financial Stability Oversight Council (FSOC) and the concept of FDIC’s Orderly Liquidation Authority. Do you think it will diminish the Fed’s reliance on Section 13(3) of the Federal Reserve Act in future crises, as intended?

Question 5

What is your key takeaway from the book? In other words, what is the most memorable or suprising thing you learned from it?