NYU Stern: April 2011 Archives

Webinar by Ingo Walter: "Inside Job"

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Regulating Wall Street Co-Editor Ingo Walter presented a live webinar on March 31, 2011, titled "Inside Job: Reputational Risk and Conflicts of Interest in Banking and Finance."

Reshaping the banks has only just begun

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The US media has been buzzing with reviews and comments about William D Cohan's new 670-page blockbuster Money and Power, How Goldman Sachs Came to Rule the World, his third Wall Street "history" in just three years.

by Roy C. Smith

Charles D Ellis spent 10 years writing The Partnership, his much praised 2008 effort to capture the "culture" of Goldman Sachs, and so Cohan's latest effort seems a rush job to catch the last of the lingering public rage against the big banks that played so rough during the financial crisis.

Cohan interviewed former senior partners, who turned out to be much more loquacious than expected for a firm known for its secretive ways.

The glitzy New York version in Vanity Fair included a lengthy, pre-publication excerpt covering 1989-1999 when the firm had five chief executives. This was truly a messy period in the firm's history, full of juicy bits for gossips to savour.

But the piece never mentioned that these were very difficult times in both Wall Street and the City of London, when firms changed their business models drastically to survive and a great many distinguished names either failed or disappeared into mistaken or unwanted mergers.

Goldman is one firm that sailed through this period, despite its management changes and other tumultuous events, without slowing down much at all. Indeed, it emerged after its initial public offering in 1999 as the unquestioned leader of the global capital markets industry.

read the full opinion-editorial on efinancialnews.com

Dinallo Revisits the Financial Crisis

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Eric Dinallo, Debevoise & Plimpton partner, and former New York
superintendent of insurance, discusses how the government handled the
AIG part of the financial crisis.




Watch the interview on CNBC.com

Preventing the Next Crisis

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The FDIC says the Dodd-Frank Act would have allowed Lehman Brothers to wind down and sell its assets without government assistance. Would such legislation prevent another financial crisis from happening? Thomas Cooley, NYU Stern School of Business discusses.





Watch the interview on CNBC.com
IA-Forum: Your book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, provides a detailed analysis of the Act by you and your economic colleagues. What is your overall assessment of the Bill?

Dr. Acharya: The Dodd-Frank Act is clearly the largest regulatory overhaul of the financial sector in the United States since the Great Depression. What it does for the first time, at least as far as financial regulation in the US is concerned, is to take on the issue of systemic risk, the risk that a large number of financial sectors may collapse at the same time, freezing intermediation to households and the corporate sector. The Act requires that the regulators - in particular, a "Council" of regulators - designate a set of institutions as systemically important financial institutions (SIFIs) and then regulate these institutions with better capital and liquidity requirements. The Act also gives the Council the legislative authority to break them up as last resort. In this sense, given that it shifts the focus away from supervising and managing the risk of an individual institution to thinking about the risk of a system as a whole, I would say the Act is a very important step forward. On this it certainly has its heart in the right place.

But if I could pick one big issue with the Act, it's with its lack of addressing government guarantees. Dodd-Frank believes the primary problem with systemic risk and its creation is the existence of systemically important financial institutions, and their propensity to become too big to fail institutions; but it doesn't pay as much attention to the fact that in many cases this kind of behavior, of institutions to become excessively large or that they are herding, arises in the first place because there are government guarantees in place.

Read the full interview on ia-forum.org

The Wall Street Leviathan

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by Jeff Madrick

Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance
edited by Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter Wiley, 573 pp., $49.95

One refreshing sign of hope for constructive change is that economists, some of whose theories had much to do with a light regulatory approach toward derivatives and the housing bubble, are increasingly producing research calling for stricter guidelines than Dodd-Frank or the Obama administration. Regulating Wall Street presents a wide range of new research supporting stronger regulations than Dodd-Frank recommends, such as the tax proposals I mentioned earlier. In Reforming US Financial Markets, Robert Shiller also describes new economic theories that take into account more realistic appraisals of how Wall Street works and demonstrates why more effective regulation is necessary. The old theory of rational markets, which laid the groundwork for light regulation, "is one of the most remarkable errors in the history of thought," Shiller writes. He believes that regulators can and should decide to raise capital requirements during periods of excessive speculation.

In the prologue of Regulating Wall Street, the editors, hardly known as progressives, remind financiers how useful strong regulations were in the past:

Many players on Wall Street and in corporate America in the 1930s hated the new regulatory regime imposed on them.... But in the long run...the new regulatory regime was one of the best things that ever happened for Wall Street and corporate America. Why? Because it created confidence among investors--then and in the decades to follow--that Wall Street finally had become a level playing field.
We would be far better off if the powers on Wall Street would remember this lesson.

Read the full review from the New York Review of Books

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors