AFTER THE FALL: Saving Capitalism from Wall Street and Washington
May 11, 2010: 6:00 PM - 9:00 PM
Nicole Gelinas presents her new book, AFTER THE FALL: SAVING CAPITALISM FROM WALL STREET-- AND WASHINGTON.
May 11, 2010: 6:00 PM - 9:00 PM
In After the Fall, Nicole Gelinas shows how the financial crisis that began in 2008 was not a failure of markets, but a failure of government to understand its proper role in markets. Washington helped bring on the crisis in two ways; Nicole argues: first, through its “too big to fail” policy, which has kept free markets from adequately disciplining banks and other financial institutions, and second, by its failure to apply proven, prudent regulatory principles – including limits on borrowing and requirements to disclose risks—to modern financial markets and firms. In the absence of market discipline and prudent regulation, the government is now deciding which companies and people should receive investment capital, and on what terms—harming our economic competitiveness. But it doesn’t have to be this way: Nicole's reading of financial history and of current events reveals that the problems were predictable, and the solutions straightforward.
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Robust financial markets support capitalism, they don’t imperil it. But in 2008, Washington policymakers were compelled to replace private risk-takers in the financial system with government capital so that money and credit flows wouldn’t stop, precipitating a depression.
Washington’s actions weren’t the start of government distortions in the financial industry, Nicole Gelinas writes, but the natural result of 25 years’ worth of such distortions.
In the early eighties, modern finance began to escape reasonable regulations, including the most important regulation of all, that of the marketplace. The government gradually adopted a “too big to fail” policy for the largest or most complex financial companies, saving lenders to failing firms from losses. As a result, these companies became impervious to the vital market discipline that the threat of loss provides.
Adding to the problem, Wall Street created financial instruments that escaped other reasonable limits, including gentle constraints on speculative borrowing and requirements for the disclosure of important facts.
The financial industry eventually posed an untenable risk to the economy — a risk that culminated in the trillions of dollars’ worth of government bailouts and guarantees that Washington scrambled starting in late 2008.
Even as banks and markets seem to heal, lenders to financial companies continue to understand that the government would protect them in the future if necessary. This implicit guarantee harms economic growth, because it forces good companies to compete against bad.
History and recent events make clear what Washington must do.
First, policymakers must reintroduce market discipline to the financial world. They can do so by re-creating a credible, consistent way in which big financial companies can fail, with lenders taking their warranted losses. Second, policymakers can reapply prudent financial regulations so that markets, and the economy, can better withstand inevitable excesses of optimism and pessimism. Sensible regulations have worked well in the past and can work well again.
As Gelinas explains in this richly detailed book, adequate regulation of financial firms and markets is a prerequisite for free-market capitalism — not a barrier to it.
“A powerful analysis of how the too-big-to fail policy has undermined public trust in markets.”
-Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance, University of Chicago Booth School of Business and author of Saving Capitalism from the Capitalists
"A very timely book as the U.S. and other major countries debate new regulations for the financial industry . . . In the critical area of too-big-to-fail, the author's proposals are serious and substantive enough to possess considerable merit."
— Steve Forbes, in Free Markets: The Cure for Future Falls, Forbes, 03-15-10
6:00 PM-6:30 PM: Registration, Networking, Hors D'oeuvres, Cash Bar
6:30 PM-8:00 PM: Author Presentation and Q&A
8:00 PM-9:00 PM: Continued Discussion and Book Signing
Nicole Gelinas (Speaker)
Senior Fellow, Manhattan Institute
Nicole Gelinas is the Searle Freedom Trust Fellow at the Manhattan Institute and a contributing editor of City Journal. Gelinas writes on urban economics and finance, municipal and corporate finance, business issues, and crime. She is a Chartered Financial Analyst (CFA) charterholder and a member of the New York Society of Securities Analysts. Her new book, After the Fall: Saving Capitalism from Wall Street—and Washington was published on November 30, 2009 by Encounter Books.
Gelinas has published analysis and opinion pieces on the op-ed pages of The New York Times, The Wall Street Journal, the Los Angeles Times, the San Diego Union Tribune, the New York Sun, the New York Daily News, the New York Post, the Dallas Morning News, the New Orleans Times-Picayune, and the Boston Herald. She has also written for Crain's New York Business and National Review Online.
Before coming to City Journal, Gelinas was a business journalist for Thomson Financial in New York, where she covered the international syndicated-loan and private-debt markets. She also wrote a regular op-ed column for the New York Post.
Gelinas graduated from the Newcomb College of Tulane University with a Bachelor of Arts in English literature. She and her husband live in Manhattan.
Chair, Business Book Roundtable