The recent financial crisis was an accident, a perfect storm fueled by an unforeseeable confluence of events that collided and brought down the global financial system. And policymakers? They did everything they could, given their limited authority.
At least that's the story that's been fed to the American people.
But Milken Institute banking and regulatory expert James Barth, along with his co-authors Ross Levine and Gerard Caprio, debunk that version of events in a provocative new book, "Guardians of Finance: Making Regulators Work for Us." In it, they argue that the financial meltdown was no accident. It was negligent homicide.
The authors show that senior regulatory officials around the world knew (or should have known) that their policies were destabilizing the global financial system. They had years to process the evidence that risks were rising and the authority to change their policies - but they chose not to act until it was too late.
Barth and his co-authors maintain that the current system is simply not designed to work on behalf of average citizens. It is virtually impossible for the public and its elected officials to make an informed and impartial assessment of financial regulation and to hold regulators accountable.
But there's a potential solution at hand: the establishment of a "Sentinel" empowered to demand information and evaluate it in terms of the public interest - rather than that of the financial industry, the regulators or politicians.
Praise for "Guardians of Finance":
"This book will become a classic for those who want to learn what was behind the global financial crisis-not just what went wrong, but why current reforms won't work. Most important, it offers guidelines to prevent the next crisis by forcing regulators, the Guardians of Finance, to work for the public interest rather than for narrow elites."
Nouriel Roubini, Co-Founder and Chairman, Roubini Global Economics
"This book involves a strongly, even passionately, argued attack on financial regulators for having made a mess of financial regulation prior to 2007. It is beautifully written, and very well designed to reach a wide audience of readers who are interested in the crisis, but are not necessarily themselves expert. It is based on great academic expertise, but wears its deep scholarship lightly, with no maths and no equations."
Charles Goodhart, London School of Economics
"There have been plenty of books on the financial crisis. But this one is different. . . . 'Guardians of Finance' should be read by everyone interested in the future of free enterprise."
Raghuram G. Rajan, University of Chicago Booth School of Business
About the Authors:
James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University and the Senior Finance Fellow at the Milken Institute. Gerard Caprio Jr. is the William Brough Professor of Economics and Chair of the Center for Development Economics at Williams College. Ross Levine is the James and Merryl Tisch Professor of Economics and Director of the William R. Rhodes Center for International Economics and Finance at Brown University. The three are coauthors of "Rethinking Banking Regulation: Till Angels Govern."