- Hardcover: 416 pages
- Publisher: Princeton University Press; unknown edition (February 24, 2013)
- Language: English
- ISBN-10: 0691156840
- ISBN-13: 978-0691156842
- Product Dimensions: 7 x 1.2 x 10 inches
- Shipping Weight: 1.3 pounds (View shipping rates and policies)
- Average Customer Review: 88 customer reviews
- Amazon Best Sellers Rank: #886,627 in Books (See Top 100 in Books)
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The Bankers' New Clothes: What's Wrong with Banking and What to Do about It Hardcover – February 24, 2013
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Shortlisted for the 2013 Deutsche Wirtschaftsbuchpreis (German Business and Economics Book Award), sponsored by Handelsblatt, the Frankfurt Book Fair, and Goldman Sachs.
Shortlisted for the 2013 Spear's Book Award in Business
Insightful.---Floyd Norris, New York Times
From the Inside Flap
"More than four years after the financial meltdown devastated the economy, our banking system remains resistant to reform and riddled with risk. The Bankers' New Clothes challenges us to question the status quo and to think anew about the transformative changes in banking that are needed to serve the public interest. This work should spur a long-overdue debate on real banking reform."--Phil Angelides, chairman of the Financial Crisis Inquiry Commission
"Providing a sound analysis of the role of banking and its regulation in the public interest, The Bankers' New Clothes is free of technical jargon and widely accessible to all policymakers and all who are concerned about banking's future, which is virtually everybody. The book's clear exposition conveys a deep understanding of the pervasive place of banking in the economy and stands in opposition to the self-interested forces of obscurity."--Kenneth J. Arrow, Nobel Laureate in Economics
"The Bankers' New Clothes underscores that there is perhaps no reform more important and central to a stable financial system than capping the ability of financial institutions to take excessive risks using other people's money."--Sheila C. Bair, author of Bull by the Horns and former chairperson of the U.S. Federal Deposit Insurance Corporation (FDIC)
"The Bankers' New Clothes accomplishes the near impossible by translating the arcane world of banking regulation into plain English. In doing so, it exposes as false the self-serving arguments against meaningful financial reform advanced by Wall Street executives and the captured politicians who serve their interests. This revelatory must-read shreds bankers' scare tactics while offering commonsense reforms that would protect the general public from unending cycles of boom, bust, and bailout."--Neil Barofsky, author of Bailout
"Anyone interested in the past, present, or future of banking and financial crises should read The Bankers' New Clothes. Admati and Hellwig provide a forceful and accessible analysis of the recent financial crisis and offer proposals to prevent future financial failures. While controversial, these proposals--whether you agree or disagree with them--will force you to think through the problems and solutions."--Michael J. Boskin, former chairman of the President's Council of Economic Advisers
"With extraordinary clarity, Admati and Hellwig explain why the banking system is reckless and distorted, what can be done to tame it, and how the politics of banking has failed the public. A must-read for all, The Bankers' New Clothes educates and empowers citizens to demand a better system and tells policymakers how to deliver it."--Jeff Connaughton, author of The Payoff: Why Wall Street Always Wins
"This entertaining book is an accessible exposé of the myths that financial firms use to perpetuate the advantages they get from government guaranties of their debt. A must-read for concerned citizens, The Bankers' New Clothes should be studied and memorized by lawmakers and regulators so they won't be duped by these false claims in the future."--Eugene F. Fama, University of Chicago
"Bankers have sold us a story that their risky practices are the necessary cost of a dynamic system. Admati and Hellwig expose this as a misguided and dangerous lie, and show how banks can be made more stable--if less profitable for the bankers themselves--without sacrificing economic growth. This brilliant book demystifies banking for everyone and explains what is really going on. Investors, policymakers, and all citizens owe it to themselves to listen."--Simon Johnson, coauthor of 13 Bankers
"At last! Two eminent economists explain in plain English what is wrong with banks and what needs to be done to make them safer."--Mervyn King, governor of the Bank of England
Top customer reviews
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The only real cure is to both reduce the size of the current behemoths, like Citi-group and Morgan Chase, and bring back a strengthened Glass Steagall Act.
I deducted one star because of the authors' failure to integrate the wisdom of Adam Smith regarding how banks should be dealt with.Smith had the answers back in 1776.Simply prevent the banks from speculating with the public's deposits and do not allow any bank loans to be made to such banks or individuals that seek to make a profit without production through the use of bank financed leveraged buyouts and financial derivatives, which should be banned.
The book is very well written, and clear. Not everyone is interested in knowing about this topic - I wish people were more aware of this book and more about the way the financial industry works in our world. The financial crisis bill is something that everyone will have to pay for - perhaps the knowledge here can help prevent it occurring again.
Ms. Admati and Mr. Hellwig bluntly challenge the invalid reasons behind which bankers, politicians, and regulators hidden themselves to justify the absence of a more thorough reform of this essential industry. The authors rightly focus the core of their argumentation on the necessity to increase bank equity (called capital in the banking industry) to 20 percent to 30 percent of banks' total assets from the 3 percent lower limit for equity as a fraction of total assets as permitted in the recent Basel III agreement on capital regulation.
This significant increase in bank equity has several benefits:
1) Better capitalized banks will have a lower probability of falling into financial distress or becoming insolvent as a result of recognizing losses immediately on their non-performing loans.
2) Less leveraged banks will be more inclined not to take excessive risks in lending and not to stop lending during a sharp economic downturn.
3) Better bank capitalization will reduce the sizes and distortive effects of guarantees and subsidies that make it possible to allow debt to fund up to 97 percent of bank assets.
4) Higher equity requirements could push the largest banks to break up without being forced to do so by law or regulation under the pressure of their shareholders asking for compensation reflective of the risks assumed.
Ms. Admati and Mr. Hellwig recommend that banks reduce the dividends that they pay to their shareholders and / or raise fresh capital in the capital markets to fund this sharp increase in bank equity. Furthermore, banks can temporarily reduce the bonuses granted to their staff to help fund this increase in bank equity. In addition, the authors advocate for a change in the tax treatment of interest paid on debt to make capital funding through equity more attractive than it currently is.
The authors convincingly refute the claim that sharply increasing bank equity will undermine economic growth. Higher financial stability prior to 2007 would not have given rise to the sharp decline in output in 2009 and the resulting loss of output valued in the trillions of dollars. Furthermore, a better capitalized banking industry would not have resulted in the anemic economic recovery that the U.S. has had to endure since 2009.
In summary, Ms. Admati and Mr. Hellwig systematically reduce to rubble the convenient rationalizations that bankers, politicians, and regulators use to justify the unfinished business of reforming the banking industry thoroughly.
Book very informative about banking system and reasonably easy for a lay person to understand. Somewhat repetitive, but that's a minor flaw.
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