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Financial Crisis

Financial Crisis

Causes, Context and Consequences

Adrian Buckley

Feb 2011, Paperback, 360 pages
ISBN13: 9780273735113
ISBN10: 027373511X
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Financial Crisis, penned by Adrian Buckley, offers a fascinating close-up analysis of the causes of the 2007/8 financial crisis and its consequences placing the world of finance under the microscope, bringing together evidence of the involvement of banks, governments and regulators. It questions some of its most dangerous and dubious practices, witnessed while searching for the answer to the question:

What really caused the financial crisis?

Preface

Acknowledgments

Chapter 1 An overview of the financial crisis 2007/8

Introduction

The good times

New models of lending

The time bomb ticks

The time bomb explodes

Why, oh why did no-one see it coming?

Escape

Timeline of the financial crisis 2007/8

Chapter 2 Governments and the financial crisis

Introduction

Externalities

Government regulation

Economic intervention

Government deficits

Demand management

Monetary policy

Fiscal policy

Lobbying

Summing up

Chapter 3 Personal finance, housing and the financial crisis

Introduction

Housing

Mortgage borrowing

Credit card and other personal debt

Pensions

The housing market strikes back

Chapter 4 The business of banking

Introduction

Banks in general

Commercial banks

Investment banks

Bank holding companies

Glass–Steagall act

Central banks

Asset–liability mismatch

The bank bonus culture

The bank bonus culture and declining standards

Risk/return implications of the bank bonus culture

Bank balance sheets

Moral hazard

Lender of last resort

The shadow banking system and non-bank financial institutions

Chapter 5 Subprime lenders and borrowers

Introduction

Community Reinvestment Act

The business of subprime lending

The dubious economics of subprime lending

Structured Instrument Vehicles (SIV) and conduits

Repackaging mortgages

Rating agencies

Chapter 6 Credit default swaps and toxic assets

Introduction

How do credit default swaps work?

Drivers of the CDS market

Correlations and credit ratings

The unwinding

Chapter 7 Bank lending and control systems

Introduction

Normal commercial bank lending criteria

Lending control systems

Value at Risk and risk management

Bank capital adequacy

Chapter 8 Regulation

Introduction

The need to regulate financial services

Capital adequacy and liquidity

Lender of last resort

Deposit insurance

Tight versus loose regulation

The US system of financial regulation

The UK system of financial regulation

Eurozone regulation

International regulation

Too big to fail

Mark-to-market accounting

Chapter 9 The business cycle, booms, busts, bubbles and frauds

Introduction

Booms, busts and bubbles

Frauds and swindles

Charles Ponzi

Bernard Madoff

What makes Ponzi schemes crash?

Chapter 10 Finance theories

Introduction

Earnings versus cash flow

Market efficiency

The efficient markets hypothesis

The capital asset pricing model

Risk and uncertainty

Risk management models and the normal distribution

Options

Behavioural finance

Conclusion

Chapter 11 Other academic theories

Introduction

Culture and conformity

Self-interest

Bonuses

Mathematical economics

Creative destruction

The insights of Hyman Minsky

The Austrian School of Economics

An eclectic view

Final words on self-interest

Chapter 12 Bank failures in the USA

Introduction

Case 12.1 Bear Stearns

Introduction

Recent history

Into the abyss

J.P. Morgan to the rescue

Case 12.2 Lehman Brothers

Introduction

Bankruptcy

Repo 105

Property

The CEO

Case 12.3 American International Group (AIG)

Introduction

AIG Financial Products Corporation

The end is nigh

Case 12.4 Fannie Mae and Freddie Mac

Introduction

Mortgage securitisation

Political pressure

The financial crisis

Chapter 13 Bank failures in the UK

Introduction

Case 13.1 Northern Rock

Introduction

Risky business model

Crunch time

Britain’s first bank run since 1866

Why did things go so wrong?

Case 13.2 HBOS

Introduction

A changed business model

Days of reckoning

The takeover and the bailout

Risk management

What went wrong?

Case 13.3 Royal Bank of Scotland (RBS)

Introduction

The NatWest takeover

Investment banking

The ABN Amro acquisition

2008 financial crisis

What went wrong?

Chapter 14 Bank failures in Europe

Introduction

Case 14.1 Fortis

Introduction

The ABN Amro takeover

Fortis problems in the wake of ABN Amro takeover

Case 14.2 UBS

Introduction

Dubious practices

The financial crisis hits UBS

Case 14.3 Icelandic banks

Introduction

The root of the problem

Accident

Cronyism

Kaupthing leaked documents

The unravelling

Case 14. 4 Irish banks

Introduction

Banking background

Anglo Irish Bank

Irish Nationwide

The bailout

Chapter 15 The great depression

Introduction

The Roaring Twenties

The Wall Street Crash

The Great Depression unfolds

The gold standard

Franklin D. Roosevelt

Summing up

Chapter 16 Government responses to the crisis

Introduction

US responses

British responses

Eurozone responses

The extent of total bailouts

Chapter 17 Lessons and major issues

Introduction

Financial crises

Lessons for governments

Lessons for banks

Lessons for regulators

Lessons for household borrowers

Lessons for academics

Major issues

Notes

Glossary

Index

Every chapter contains the following

  • FT article vignettes.
  • Summary
  • Key points and concepts
  • References and further reading
  • URL addresses for websites
  • End of chapter questions

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