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New Directions in Financial Services Regulation$
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Roger B. Porter, Robert R. Glauber, and Thomas J. Healey

Print publication date: 2011

Print ISBN-13: 9780262015615

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262015615.001.0001

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Comments by Harvey J. Goldschmid

Comments by Harvey J. Goldschmid

Chapter:
(p.59) Comments by Harvey J. Goldschmid
Source:
New Directions in Financial Services Regulation
Author(s):

Roger B. Porter

Robert R. Glauber

Thomas J. Healey

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262015615.003.0005

This chapter takes on a similar view as that of the previous chapter: that the underlying cause of the crisis in 2008 was due to private-sector failures. It maps out what was wrong about the view that Susan Bies set forth early 2009: the view that interest rates were not raised faster, and that mortgage underwriting was not strengthened enough. The chapter then notes that according to Alan Greenspan, banks were not simply giving away money to people who couldn’t pay it back. Instead, the chapter adds, banks and mortgage companies were not holding on to the responsibility for getting paid back, a responsibility that was passed on in a form of collateralized debt obligations (CDOs). The formulas these CDOs used were considered to be weak, according to credit rating agencies. In the end, the chapter suggests that there was a basic breakdown in the management and governance of large Wall Street firms, banks, and other institutions.

Keywords:   private-sector failures, Richard Zeckhauser, Susan Bies, mortgage underwriting, Alan Greenspan, collateralized debt obligations, CDO, credit rating agencies

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