Financial Crisis

Preface

Acknowledgments

 

Chapter 1 An overview of the financial crisis  2007/8

Introduction

The good times

New models of lending

The time bomb ticks

The time bomb explodes

Why, oh why did no-one see it coming?

Escape

Timeline of the financial crisis 2007/8

 

Chapter 2 Governments and the financial crisis

Introduction

Externalities

Government regulation

Economic intervention

Government deficits

Demand management

Monetary policy

Fiscal policy

Lobbying

Summing up

 

Chapter 3 Personal finance, housing and the financial crisis

Introduction

Housing

Mortgage borrowing

Credit card and other personal debt

Pensions

The housing market strikes back

 

Chapter 4 The business of banking

Introduction

Banks in general

Commercial banks

Investment banks

Bank holding companies

Glass–Steagall act

Central banks

Asset–liability mismatch

The bank bonus culture

The bank bonus culture and declining standards

Risk/return implications of the bank bonus culture

Bank balance sheets

Moral hazard

Lender of last resort

The shadow banking system and non-bank financial institutions

 

Chapter 5 Subprime lenders and borrowers

Introduction

Community Reinvestment Act

The business of subprime lending

The dubious economics of subprime lending

Structured Instrument Vehicles (SIV) and conduits

Repackaging mortgages

Rating agencies

 

Chapter 6 Credit default swaps and toxic assets

Introduction

How do credit default swaps work?

Drivers of the CDS market

Correlations and credit ratings

The unwinding

 

Chapter 7 Bank lending and control systems

Introduction

Normal commercial bank lending criteria

Lending control systems

Value at Risk and risk management

Bank capital adequacy

 

Chapter 8 Regulation

Introduction

The need to regulate financial services

Capital adequacy and liquidity

Lender of last resort

Deposit insurance

Tight versus loose regulation

The US system of financial regulation

The UK system of financial regulation

Eurozone regulation

International regulation

Too big to fail

Mark-to-market accounting

 

Chapter 9 The business cycle, booms, busts, bubbles and frauds

Introduction

Booms, busts and bubbles

Frauds and swindles

Charles Ponzi

Bernard Madoff

What makes Ponzi schemes crash?

 

Chapter 10 Finance theories

Introduction

Earnings versus cash flow

Market efficiency

The efficient markets hypothesis

The capital asset pricing model

Risk and uncertainty

Risk management models and the normal distribution

Options

Behavioural finance

Conclusion

 

Chapter 11 Other academic theories

Introduction

Culture and conformity

Self-interest

Bonuses

Mathematical economics

Creative destruction

The insights of Hyman Minsky

The Austrian School of Economics

An eclectic view

Final words on self-interest

 

Chapter 12 Bank failures in the USA

Introduction

Case 12.1 Bear Stearns

Introduction

Recent history

Into the abyss

J.P. Morgan to the rescue

Case 12.2 Lehman Brothers

Introduction

Bankruptcy

Repo 105

Property

The CEO

Case 12.3 American International Group (AIG)

Introduction

AIG Fina