Gambling with Other People's Money: How Perverse Incentives Caused the Financial Crisis Volume 692

What caused the Financial Crisis of 2008? While government mandates and private sector mistakes did contribute to the crisis and, as such, can be blamed at least in part for what happened, this book takes a different approach. Russ Roberts argues that these explanations miss the underlying cause of the mess: the past bailouts of large financial institutions that allowed these institutions to gamble carelessly because they were effectively using other people's money rather than their own. Both government and Wall Street are to blame--government for coddling the large banks and those banks for pushing for the policies that rescued them from their mistakes. Roberts shows that it was the use of other people's money--leverage--that turned a problem in the housing sector of the asset market into a broader problem that destroyed numerous financial institutions and derailed the economy. The author warns that despite the passage of Dodd-Frank, it is widely believed that we have done nothing to eliminate Too Big to Fail. That perception allows the largest financial institutions to continue to gamble with taxpayer money. This book makes the convincing case that a new approach to financial crisis management is necessary to avoid further damage when the next financial crisis occurs.