Misunderstanding Financial Crises: Why We Dont See Them Coming

Hardcover | October 11, 2012

byGary B. Gorton

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Before 2007, economists thought that financial crises would never happen again in the United States, that such upheavals were a thing of the past. Gary B. Gorton, a prominent expert on financial crises, argues that economists fundamentally misunderstand what they are, why they occur, and whythere were none in the U.S. from 1934 to 2007. Misunderstanding Financial Crises offers a back-to-basics overview of financial crises, and shows that they are not rare, idiosyncratic events caused by a perfect storm of unconnected factors. Gorton shows how financial crises are, indeed, inherent to our financial system. Economists, Gorton writes,looked from a certain point of view and missed everything that was important: the evolution of capital markets and the banking system, the existence of new financial instruments, and the size of certain money markets like the sale and repurchase market. Comparing the so-called "Quiet Period" of 1934 to 2007, when there were no systemic crises, to the "Panic of 2007-2008," Gorton ties together key issues like bank debt and liquidity, credit booms and manias, moral hazard, and too-big-too-fail-all to illustrate the true causes of financial collapse.He argues that the successful regulation that prevented crises since 1934 did not adequately keep pace with innovation in the financial sector, due in part to the misunderstandings of economists, who assured regulators that all was well. Gorton also looks forward to offer both a better way foreconomists to think about markets and a description of the regulation necessary to address the future threat of financial disaster.

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Before 2007, economists thought that financial crises would never happen again in the United States, that such upheavals were a thing of the past. Gary B. Gorton, a prominent expert on financial crises, argues that economists fundamentally misunderstand what they are, why they occur, and whythere were none in the U.S. from 1934 to 2007...

Gary B. Gorton is the Frederick Frank Class of 1954 Professor of Finance at the Yale School of Management. He is the author of Slapped by the Invisible Hand: The Panic of 2007.

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Slapped by the Invisible Hand : The Panic of 2007: The Panic of 2007
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Format:HardcoverDimensions:304 pages, 9.25 × 6.12 × 0.98 inPublished:October 11, 2012Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:019992290X

ISBN - 13:9780199922901

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Table of Contents

Preface1. Introduction2. Creating the Quiet Period3. Financial Crises4. Liquidity and Secrets5. Credit Booms and Manias6. The Timing of Crises7. Economic Theory without History8. Debt During Crises9. The Quiet Period and Its End10. Moral Hazard and Too-Big-To-Fail11. Bank Capital12. Fat Cats, Crisis Costs, and the Paradox of Financial Crises13. The Panic of 2007-200814. The Theory and Practice of SeeingBibliographic NotesNotesReferencesIndex