Crisis Economics

Chapter 10: Fault Lines.

225 some kind of conservatorship: See, for example, "The FDIC"s Role as Receiver," in FDIC, Resolutions Handbook (Washington, D.C.: FDIC, 2003), online at supervising TBTF inst.i.tutions: See, for example, William Buiter, "Too Big to Fail Is Too Big," Financial Times, June 24, 2009, online at Wessel, "Three Theories"; Daniel K. Tarullo, "Confronting "Too Big to Fail," " speech to Exchequer Club, Washington, D.C., October 21, 2009, online at unilaterally doubling the Basel capital ratio: Christine Seib, "UBS Unveils 2bn Capital Raising and Warns of Second-Quarter Loss," Times (London), June 26, 2009, online at Both UBS and Credit Suisse seem capable of meeting these demands without a breakup. See Sven Egenter, "Swiss Should Tighten Rules on UBS, CS Further-OECD," Reuters, January 15, 2010, online at Take Citigroup: Binyamin Applebaum, "Citi"s Long History of Overreach, Then Rescue," Washington Post, March 11, 2009; Andrew Martin and Gretchen Morgenson, "Can Citigroup Carry Its Own Weight?" New York Times, November 1, 2009.

228 "We"re very important . . .": Blankfein quoted in John Arlidge, "I"m Doing "G.o.d"s Work." Meet Mr Goldman Sachs," Times (London), November 8, 2009, online at reckless bets and obscene leverage: Kenneth Galbraith, The Great Crash, 1929 (Boston: Houghton Mifflin, 1954), 65-70; Matt Taibbi, "Inside the Great American Bubble Machine," Rolling Stone, July 2, 2009.

231 "When the capital development of a country . . .": Keynes, General Theory, 159.

233 Banishing Bubbles: This section relies heavily on information contained in Nouriel Roubini, "Why Central Banks Should Burst Bubbles," International Finance 9 (2006): 87-107.

234 writings . . . of Alan Greenspan and Ben Bernanke: See, for example, Ben S. Bernanke and Mark Gertler, "Should Central Banks Respond to Movements in a.s.set Prices?" American Economic Review 91 (2001): 253-57; Alan Greenspan, "Risk and Uncertainty in Monetary Policy," speech to the annual meeting of the American Economic a.s.sociation, San Diego, Calif., January 3, 2004, online at Regulation T: Peter Fortune, "Margin Requirements, Margin Loans, and Margin Rates: Practice and Principles," Federal Reserve Bank of Boston New England Economic Review (2000): 19-44.

237 a.s.set-Based Reserve Requirements: Thomas I. Palley, "a.s.set-Based Reserve Requirements: Rea.s.serting Domestic Monetary Control in an Era of Financial Innovation and Instability," Review of Political Economy 16 (2004): 43-58; Michael Holz, "a.s.set-Based Reserve Requirements: A New Monetary Policy Instrument for Targeting Diverging Real Estate Prices in the Euro Area," Intervention 4 (2007): 331-51.

Chapter 10: Fault Lines.

243 ran ever larger current account deficits: Nouriel Roubini and Brad Setser, "The US as a Net Debtor: The Sustainability of the US External Imbalances," August 2004, online at ~nroubini/papers/Roubini-Setser-US-External-Imbalances.pdf.

244 "sovereign debt crisis": Roubini and Setser, Bailouts or Bail-Ins?

247 The debate over current account imbalances: Nouriel Roubini, "Global Imbalances: A Contemporary "Rash.o.m.on" Saga," November 2006, online at This section draws on this paper.

248 "dark matter" explanation: Ricardo Hausmann and Federico Sturzenegger, "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" November 13, 2005, online at This argument has been challenged: Roubini, "Global Imbalances: A Contemporary "Rash.o.m.on" Saga," November 2006. See also Barry Eichengreen, "Global Imbalances: The New Economy, the Dark Matter, the Savvy Investor, and the Standard a.n.a.lysis," March 2006, online at ~eichengr/matter.pdf.

249 "global savings glut": Ben S. Bernanke, "The Global Savings Glut and the U.S. Current Account Deficit," Homer Jones Lecture, St. Louis, Mo., April 14, 2005, online at "exorbitant privilege": Giscard d"Estaing quoted in Richard A. Iley and Mervyn Lewis, Untangling the U.S. Deficit: Evaluating Causes, Cures and Global Imbalances (Northampton, Ma.s.s.: Edward Elgar, 2007), 106.

251 foreign investment in U.S. equities: James K. Jackson, "Foreign Direct Investment in the United States: An Economic a.n.a.lysis," CRS Report for Congress, August 15, 2008, online at nonresidents now hold about half: Justin Murray and Marc Labonte, "Foreign Holdings of Federal Debt," CRS Report for Congress, November 28, 2005, online at .; Financial Management Service, Treasury Bulletin, December 2009, online at Only 36 percent of China"s gross domestic product: Richard Dobbs, Andrew Grant, and Jonathan Woetzel, "Unleashing the Chinese Consumer," Newsweek, September 5, 2009, online at "balance of financial terror": Lawrence H. Summers, "The United States and the Global Adjustment Process," Third Annual Stavros S. Niarchos Lecture, Inst.i.tute for International Economics, Washington, D.C., March 23, 2004.

255 Robert Triffin: See Robert Triffin, Gold and the Dollar Crisis: The Future of Convertibility (New Haven, Conn.: Yale University Press, 1960).

256 "Bretton Woods II": See, for example, Michael Dooley, David Folkerts-Landau, and Peter Garber, "An Essay on the Revised Bretton Woods System," National Bureau of Economic Research Working Paper no. 9971, September 2003.

256 this uneasy arrangement: See and Ye Xie and Anchalee Worrachate, "Dollar Reaches Breaking Point as Banks Shift Reserves," Bloomberg.com, October 12, 2009, online at footsteps of Britain: Avinash Persaud, "When Currency Empires Fall," lecture at Gresham College, London, October 7, 2004, online at Barry Eichengreen, "Sterling"s Past, Dollar"s Future: Historical Perspectives on Reserve Currency Compet.i.tion," Tawney Lecture, Economic History Society, Leicester, U.K., April 10, 2005, online at ~eichengr/research/tawney_lecture2apr29-05.pdf.

258 The Almighty Renminbi?: See Nouriel Roubini, "The Almighty Renminbi," New York Times, May 13, 2009.

258 the renminbi or the yuan: The Chinese currency is called the renminbi, but the unit used for accounting purposes is called the yuan. For a concise explanation of the difference, see Paul Krugman, "What"s in a Name?" online at Zhou Xiaochuan: See Zhou Xiaochuan, "Statement on Reforming the International Monetary System," Council on Foreign Relations, March 23, 2009, online at "bancor": John Williamson, "Bancor and the Developing Countries: How Much Difference Would It Have Made?" in A. P. Thirlwall, ed., Keynes and Economic Development: The Seventh Keynes Seminar Held at the University of Kent at Canterbury, 1985 (New York: St. Martin"s Press, 1987).

262 The IMF has . . . its own problems: Edwin M. Truman, "Rearranging IMF Chairs and Shares: The Sine Qua Non of IMF Reform," in Edwin M. Truman, ed., Reforming the IMF for the 21st Century (Washington, D.C.: Inst.i.tute for International Economics, 2006), 201-32.

Conclusion

266 "resist a response . . .": See, for example, Lloyd C. Blankfein, remarks to the Council of Inst.i.tutional Investors, April 2009, online at "this time is different": Reinhart and Rogoff, This Time Is Different.

274 "There is no possibility . . .": Minsky, Stabilizing an Unstable Economy, 370.

Outlook

278 recent study by Alan Blinder: Alan Blinder, "How Many U.S. Jobs Might Be Offshorable?" Centre for European Policy Studies Working Paper no. 142, March 2007, online at ~ceps/workingpapers/142blinder.pdf.

278 savings rates rose above 4 percent: Evan Tanner and Ya.s.ser Abdih, "Rebuilding U.S. Wealth," Finance and Development 46, no. 4 (December 2009): 23-35, online at large stocks of public debt relative to their GDP: See, for example, charts at "pesification": Roubini and Setser, Bailouts or Bail-Ins? 271-75.

283 shoulders a gross public debt: See, for example, Organisation for Economic Co-Operation and Development, "Economic Survey of j.a.pan 2009," September 30, 2009, online at "an economy of the people": Ian Bremmer and Nouriel Roubini, "Why j.a.pan Needs a Hatobama," Wall Street Journal, December 30, 2009, online at robust medium-term growth: International Monetary Fund, World Economic Outlook, July 8, 2009, online at The BRICs-Brazil, Russia, India, and China: Nouriel Roubini, "Another BRIC in the Wall?" Project Syndicate, October 15, 2009, online at "mother of all carry trades": Nouriel Roubini, "Mother of All Carry Trades Faces an Inevitable Bust," Financial Times, November 1, 2009.

292 The threat of default now looms over advanced economies: Nouriel Roubini, "The Risky Rich," Project Syndicate, January 18, 2010, online at BIBLIOGRAPHY.

The literature on financial crises is vast. This bibliography of works covering various facets is not intended to be comprehensive, but many of the following books, articles, working papers, and speeches informed the writing of this book.

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Blanchard, Olivier, and Gian Maria Milesi-Ferretti. "Global Imbalances: In Midstream?" IMF Staff Position Note, December 22, 2009. Online at Adrian, et al. The Financial Crisis: Reform and Exit Strategies. Paris: Organisation for Economic Co-operation and Development, 2009. Online at Michael D. "The Lender of Last Resort: Alternative Views and Historical Experience." Federal Reserve Bank of Richmond Economic Review 76 (1990): 18-29.

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Bordo, Michael D., and Andrew Filardo. "Deflation in a Historical Perspective." Bank for International Settlements Working Paper no. 186, November 2005. Online at Michael D., Claudia Goldin, and Eugene N. White, eds. The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Chicago: University of Chicago Press, 1998.

Bordo, Michael D., and Harold James. "The Great Depression a.n.a.logy." National Bureau of Economic Research Working Paper no. 15584, December 2009. Online at John H., Sungkyu Kwak, and Bruce D. Smith. "The Real Output Losses a.s.sociated with Modern Banking Crises." Journal of Money, Credit, and Banking 37 (2005): 977-99.

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Caballero, Ricardo J. "The "Other" Imbalance and the Financial Crisis." National Bureau of Economic Research Working Paper no. 15636, January 2010. Online at Charles W. "Banking Crises and the Rules of the Game." National Bureau of Economic Research Working Paper no. 15403, October 2009. Online at Charles W., and Larry Schweikart. "The Panic of 1857: Origins, Transmission, and Containment." Journal of Economic History 51 (1991): 807-34.

Capie, Forrest, and Geoffrey E. Wood, eds. Financial Crises and the World Banking System. New York: St. Martin"s Press, 1986.

Case, Karl E., John M. Quigley, and Robert J. Shiller. "Comparing Wealth Effects: The Stock Market versus the Housing Market." Advances in Macroeconomics 5 (2005): 1-34.

Case, Karl E., and Robert J. Shiller. "Is There a Bubble in the Housing Market?" Brookings Papers on Economic Activity 2 (2003): 299-362.

Ca.s.sidy, John. How Markets Fail: The Logic of Economic Calamities. New York: Farrar, Straus and Giroux, 2009.

Cihak, Martin, and Erlend W. Nier. "The Need for Special Resolution Regimes for Financial Inst.i.tutions." VoxEU.org, January 7, 2010. Online at George. The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy. New York: Vintage, 2008.

Cottarelli, Carlo, and Jose Vinals. "A Strategy for Renormalizing Fiscal and Monetary Policies in Advanced Economies." IMF Staff Position Note, September 22, 2009. Online at James. "Structural Causes of the Global Financial Crisis: A Critical a.s.sessment of the "New Financial Architecture." " Cambridge Journal of Economics 33 (2009): 563-80.

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