Reforming U.S. Financial Markets: Reflections Before and Beyond Dodd-Frank (Alvin Hansen Symposium on Public Policy at Harvard University)

171 Pages·2011·0.46 MB·English

by  Randall S. Kroszner

Reforming U.S. Financial Markets

Reforming U.S. Financial Markets
Refl ections Before and Beyond Dodd-Frank
Randall S. Kroszner and Robert J. Shiller
The Alvin Hansen Symposium on Public Policy
Harvard University
edited and with an introduction by Benjamin M.
Friedman
The MIT Press
Cambridge, Massachusetts
London, England
© 2011 Massachusetts Institute of Technology
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Library of Congress Cataloging-in-Publication Data
A lvin Hansen Symposium on Public Policy (5th : 2009 : Harvard University)
Reforming U.S. fi nancial markets : refl ections before and beyond Dodd-
Frank / Randall S. Kroszner and Robert J. Shiller ; the Alvin Hansen Sympo-
sium on Public Policy, Harvard University ; edited and with an introduction
by Benjamin M. Friedman.
p. cm.
Papers and discussions presented at the fi fth Alvin Hansen Symposium on
Public Policy, held at Harvard University on April 30, 2009.
Includes bibliographical references and index.
ISBN 978-0-262-01545-5 (hbk. : alk. paper)
1. Finance—United States—Congresses. 2. Financial crises—United
States—Congresses. 3. Global Financial Crisis, 2008–2009—Congresses.
4. United States—Economic policy—21st century—Congresses.
I. Kroszner, Randy. II. Shiller, Robert J. III. Friedman, Benjamin M.
IV. Title.
HG181.A575 2009
332.0973—dc22
2010036380
10 9 8 7 6 5 4 3 2 1
In memorium
James S. Duesenberry

Contents
Introduction ix
Benjamin M. Friedman
1 Democratizing and Humanizing Finance 1
Robert J. Shiller
2 Making Markets More Robust 51
Randall S. Kroszner
3 Comments 85
Benjamin M. Friedman
George G. Kaufman
Robert C. Pozen
Hal S. Scott
4 Responses 119
Robert J. Shiller
Randall S. Kroszner
5 Rejoinder 131
Robert J. Shiller
Contributors 133
Index 135

Introduction
Benjamin M. Friedman
The fi nancial crisis that began in 2007 and the economic down-
turn that it triggered together constitute one of the most signif-
icant economic events since World War II. In many countries
the real economic costs—costs in terms of reduced produc-
tion, lost jobs, shrunken investment, and foregone incomes
and profi ts—exceeded those of any prior p ost-w ar decline.
In the United States the p eak-t o-t rough decline in real output
was 3.8 percent, slightly greater than the previous p ost-w ar
record set in 1957–1958; unemployment did not reach the
level that followed the 1981–1982 recession, but as of the time
of writing it seems likely to remain abnormally high for much
longer than it did then. To a signifi cantly greater extent than
is usual, the decline also affected countries in nearly all parts
of the world.
I t is in the fi nancial sector, however, that this latest episode
primarily stands out. The collapse of major fi nancial fi rms,
the decline in asset values and consequent destruction of pa-
per wealth, the interruption of credit fl ows, the loss of confi -
dence both in fi rms and in credit market instruments, the fear
of default by counterparties, the intervention by governments
and central banks—all were extraordinary both in scale and
in scope, and often in form as well. As the U.S. experience