Understanding Financial Crises: The Economics, Politics, and Greed of the Most Spectacular Bubbles and Crises of the Past Century

227 Pages·2014·11.513 MB·English

by  Haim Kedar Levy

A CRITICAL HISTORY OF
FINANCIAL
CRISES
Why Would Politicians and
Regulators Spoil Financial Giants?
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A CRITICAL HISTORY OF
FINANCIAL
CRISES
Why Would Politicians and
Regulators Spoil Financial Giants?
Haim Kedar-Levy
Ben-Gurion University of the Negev, Israel
Imperial College Press
ICP
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Published by
Imperial College Press
57 Shelton Street
Covent Garden
London WC2H 9HE
Distributed by
World Scientific Publishing Co. Pte. Ltd.
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USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601
UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE
Library of Congress Cataloging-in-Publication Data
Kedar-Levy, Haim, author.
A critical history of financial crises : why would politicians and regulators spoil
financial giants? / Haim Kedar-Levy.
pages cm
Includes bibliographical references and index.
ISBN 978-1-908977-46-5 (alk. paper)
1. Financial crises--History. 2. Finance--Government policy--History. 3. Financial
institutions--Government policy--History. I. Title.
HB3722.K43 2015
338.5'4209--dc23
2015021091
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2016 by Imperial College Press
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or
mechanical, including photocopying, recording or any information storage and retrieval system now known or to
be invented, without written permission from the Publisher.
For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center,
Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from
the publisher.
In-house Editors: Mary Simpson/Chandrima Maitra
Typeset by Stallion Press
Email: [email protected]
Printed in Singapore
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b2092 A Critical History of Financial Crises — Why would Politicians and Regulators Spoil Financial Giants
To Naama, for lifelong love and friendship
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b2092 A Critical History of Financial Crises — Why would Politicians and Regulators Spoil Financial Giants
Contents
Acknowledgements ix
Preface — Regulatory Capture xi
1. What are Bubbles and Financial Crises? 1
2. Key Properties of the Financial System and Financial Securities 13
3. Commercial Banking and Banking Crises 25
4. The Roaring Twenties and the US Bubble of 1929 35
5. The ‘Great Depression’ in the US 43
6. The Crisis of Confidence in Corporate America, 2001–2004 55
7. The Internet Bubble 71
8. When Banks Manipulate their Stock Prices: Israel’s Systemic
Banking Crisis 83
9. The Tequila Crisis and its Hangover 97
10. Japan and the East Asian Tigers 111
11. The US Real Estate Bubble 127
12. Incentives, Regulatory Capture and Collapse 139
13. Shadow Banking, the Collapse of Investment Banking
and the Rescue of AIG 159
14. New Regulations 171
15. Global Implications of the Credit Crisis 179
16. Regulatory Capture and Corruption vs. Integrity and Stability 187
Bibliography 201
Index 207
vii
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b2092 A Critical History of Financial Crises — Why would Politicians and Regulators Spoil Financial Giants
Acknowledgements
I am thankful to Dr. Hagai Boas, editor of the Galai-Tzahal University on Air
for many insightful discussions and helpful comments.1 I thank Prof. Avri
Ravid, for inviting me to a sabbatical at Yeshiva University (YU) in New York
City, and to the supportive YU faculty and staff, who together allowed me to
focus on writing about and teaching financial crises. Many thanks to
Dr. Ilanit Madar-Gavious and to CPA Meir Bitan for their helpful comments
on accounting issues. I further thank students and colleagues at Ben Gurion
University, the Hebrew University in Jerusalem, Ono Academic College, and
YU, especially to Gil Elmalem, Orit Milo-Cohen, Benny Naot, and Reuven
Ulmansky, for helpful remarks and conversations. From YU, where drafts of
this book served as course material on financial crises, I thank Sason Gabay,
Ayelet Haymov, Tamar Hochbaum, Judah Isaacs, Desiree Kashizadeh, Shira
Leff, Ari Margolin, Akiva Neuman, Aaron Robinow, Penina Rosen, Ilana
Schwartz, Dani Weinberger, Michelle Widger, Debbie Wiezman and Aaron
Zuckerman. Last but not least, I am indebted to Tamar Lehman and Yaara
Levy for outstanding editorial and PowerPoint presentation skills. Thanks to
Tamar and Yaara, teachers and students have excellent learning materials.
1 Dr. Boas was the editor of another book of mine: Kedar-Levy, H. The Major Financial Crises
of the Past Century, Modan Publishing Co., Israel, 2013.
ix
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