Joseph E. Stiglitz on the Causes of Our Financial Discontent

The other day, the Washington Post launched a new financial crisis blog called The Hearing:  Decoding the Economic Policy Debate with Simon Johnson and James Kwak.  It seems their main focus will be on the debate over Congressional efforts to reform the financial system, and the first post concerned a Joint Economic Committee hearing in which Johnson participated, along with Columbia University economist and Nobel Prize winner Joseph E. Stiglitz.      

Stiglitz recently penned an article for Vanity Fair in which he identified key mistakes leading to the current financial crisis.  Toping his list was Reagan’s appointment of free market proponent Alan Greenspan as Federal Reserve Board chairman in 1987, which, according to Stiglitz, effectively led to the abrogation of the FED’s role as a regulative body, creating an environment conducive to the development of the “housing bubble” and risky financial instruments such as credit default swaps

Greenspan’s spirit of deregulation eventually manifested itself in changes such as:  1) the repeal of the Glass-Steagall Act in 1999, which indirectly led to commercial banks taking on risks which had more typically been the domain of the investment banks; and 2) a Securities and Exchange Commission decision in 2004 to permit large investment banks to raise their dept-to-capital ratios from 12:1 to 30:1. 

If you’re interested in Greenspan, we may have some books for you.  Try some of these recent titles:  The Age of Turbulence:  Adventures in a New World by Alan Greenspan; Bernanke’s Test:  Ben Bernanke, Alan Greenspan, and the Drama of the Central Banker by Johan van Overtveldt; Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars by Peter Hartcher; Greenspan’s  Fraud:  How Two Decades of His Policies Have Undermined the Global Economy by Ravi Batra; and Panderer to Power:  The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession by Frederick J. Sheehan (this last title currently on order).

Greensboro Public Library also has a few books by Joseph Stiglitz, including:  The Economists’ Voice:  Top Economists Take on Today’s Problems, edited by Stiglitz and others (2008); Making Globalization Work (2006); and The Roaring Nineties:  A New History of the World’s Most Prosperous Decade (2003).

And this previous post includes a list of our recent titles pertinent to the financial crisis.

UPDATE:  Here’s an article from CNBC (including a video clip) in which Stiglitz argues that big banks should be allowed to fail.  This is much the same perspective as Simon Johnson — see this post from last week.

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