Conference pre-reading
Markets are facing the biggest challenge in recent history and vital questions are being asked by many. What is the future of capitalism? How much regulation do financial markets need? Should bank executives' pay be restricted?
Gary Becker, Gene Fama, Kevin Murphy, and Raghuram Rajan are just a few of our world-class faculty who have weighed in on these and other equally pressing issues in news media and other outlets across the globe. Their debate-shaping ideas have expanded Chicago Booth's intellectual capital and culminated into a thought-provoking dialogue about the future of markets at Management Conference.
Gary Becker
How much regulation do financial markets need?
"The severity of this recession has stimulated calls for greatly increased regulation of the financial sector, and for changes in some of the present regulations. Some new regulations are desirable, but the type of new regulations must be in response to a recognition that regulators failed in this crisis because they did not use the authority they had to rein in some of the investor exuberance." (from The Becker-Posner Blog)
Marianne Bertrand
Will the CEO labor market change?
"The current debacle on Wall Street could set stage for a larger institutional reversal, with more regulation on and outside of Wall Street, and a return to social norms in the U.S. that are less accepting of unequal outcomes, all of which could have important repercussions on the CEO labor market." (from a Chicago Booth working paper; PDF file)
Steven Kaplan
Should bank executives' pay be restricted?
"As a philosophical matter, it is generally not a good idea for the government to limit pay. Anytime the government sets the prices of something below market value, it is sure to reduce the supply of that something. Top executives, particularly executives of financial companies who are generally highly motivated by money, are no exception." (from The Wall Street Journal)
Anil Kashyap
What new regulation is needed now?
"An improved framework for resolving bank holding company undercapitalization should be devised as soon as possible. Without such a framework there is no way to impose some of the losses on anyone except common equity or the taxpayer. In a bankruptcy procedure the bond holders would share in losses if the equity holders were wiped out. Existing bankruptcy rules do not work for complex bank holding companies." (from a Chicago Booth working paper; PDF file)
Kevin Murphy
What is the future of capitalism?
“Capitalism has been wounded by the global recession, which unfortunately will get worse before it gets better. As governments continue to determine how many restrictions to place on markets, especially financial markets, the destruction of wealth from the recession should be placed in the context of the enormous creation of wealth and improved well-being during the past three decades. Financial and other reforms must not risk destroying the source of these gains in prosperity.” (from the Financial Times)
Raghuram Rajan
Is cycle-proof regulation possible?
"To have a better chance of creating stability through the cycle-of being cycle-proof-new regulations should be comprehensive, contingent and cost-effective. [...] Regulations should also be contingent so that they have most force when the private sector is most likely to do itself harm, but impose fewer restrictions at other times. This will make regulations more cost-effective and so less prone to arbitrage or dilution." (from The Economist)
