An insightful look at how to reform our broken financial system The financial crisis that unfolded in September 2008 transformed the United States and world economies. As each day's headlines brought stories of bank failures and rescues, government policies drawn and redrawn against the backdrop of an historic Presidential election, and solutions that seemed to be discarded almost as soon as they were proposed, a group of thirty-three academics at New York University Stern School of Business began tackling the hard questions behind the headlines. Representing fields of finance, economics, and accounting, these professors-led by Dean Thomas Cooley and Vice Dean Ingo Walter-shaped eighteen independent policy papers that proposed market-focused solutions to the problems within a common framework. In December, with great urgency, they sent hand-bound copies to Washington. Restoring Financial Stability is the culmination of their work. Proposes bold, yet principled approaches-including financial policy alternatives and specific courses of action-to deal with this unprecedented, systemic financial crisis Created by the contributions of various academics from New York University's Stern School of Business Provides important perspectives on both the causes of the global financial crisis as well as proposed solutions to ensure it doesn't happen again Contains detailed evaluations and analyses covering many spectrums of the marketplace Edited by Matthew Richardson and Viral Acharya, this reliable resource brings together the best thinking of finance and economics from the faculty of one of the top universities in world.

An insightful look at how to reform our broken financialsystemThe financial crisis that unfolded in September 2008 transformedthe United States and world economies. As each day's headlinesbrought stories of bank failures and rescues, government policiesdrawn and redrawn against the backdrop of an historic Presidentialelection, and solutions that seemed to be discarded almost as soonas they were proposed, a group of thirty-three academics at NewYork University Stern School of Business began tackling the hardquestions behind the headlines. Representing fields of financeeconomics, and accounting, these professors-led by Dean ThomasCooley and Vice Dean Ingo Walter-shaped eighteen independent policypapers that proposed market-focused solutions to the problemswithin a common framework. In December, with great urgency, theysent hand-bound copies to Washington. Restoring FinancialStability is the culmination of their work.* Proposes bold, yet principled approaches-including financialpolicy alternatives and specific courses of action-to deal withthis unprecedented, systemic financial crisis* Created by the contributions of various academics from New YorkUniversity's Stern School of Business* Provides important perspectives on both the causes of theglobal financial crisis as well as proposed solutions to ensure itdoesn't happen again* Contains detailed evaluations and analyses covering manyspectrums of the marketplaceEdited by Matthew Richardson and Viral Acharya, this reliableresource brings together the best thinking of finance and economicsfrom the faculty of one of the top universities in world.

Foreword xiAcknowledgments xiiiPrologue: A Bird's-Eye ViewThe Financial Crisis of 2007-2009: Causes and Remedies 1Viral V. Acharya, Thomas Philippon, Matthew Richardson, and Nouriel RoubiniPart One Causes of the Financial Crisis of 2007-2009 57Matthew RichardsonChapter 1 Mortgage Origination and Securitization in the Financial Crisis 61Dwight Jaffee, Anthony W. Lynch, Matthew Richardson, and Stijn Van NieuwerburghChapter 2 How Banks Played the Leverage Game 83Viral V. Acharya and Philipp SchnablChapter 3 The Rating Agencies: Is Regulation the Answer? 101Matthew Richardson and Lawrence J. WhitePart Two Financial Institutions 117Matthew RichardsonChapter 4 What to Do about the Government-Sponsored Enterprises? 121Dwight Jaffee, Matthew Richardson, Stijn Van Nieuwerburgh, Lawrence J. White, and Robert E. WrightChapter 5 Enhanced Regulation of Large, Complex Financial Institutions 139Anthony Saunders, Roy C. Smith, and Ingo WalterChapter 6 Hedge Funds in the Aftermath of the Financial Crisis 157Stephen J. Brown, Marcin Kacperczyk, Alexander Ljungqvist, Anthony W. Lynch, Lasse H. Pedersen, and Matthew RichardsonPart Three Governance, Incentives, and Fair Value Accounting Overview 179Viral V. Acharya and Rangarajan K. SundaramChapter 7 Corporate Governance in the Modern Financial Sector 185Viral V. Acharya, Jennifer N. Carpenter, Xavier Gabaix, Kose John, Matthew Richardson, Marti G. Subrahmanyam, Rangarajan K. Sundaram, and Eitan ZemelChapter 8 Rethinking Compensation in Financial Firms 197Gian Luca Clementi, Thomas F. Cooley, Matthew Richardson, and Ingo WalterChapter 9 Fair Value Accounting: Policy Issues Raised by the Credit Crunch 215Stephen G. RyanPart Four Derivatives, Short Selling, and Transparency 229Viral V. AcharyaChapter 10 Derivatives: The Ultimate Financial Innovation 233Viral V. Acharya, Menachem Brenner, Robert F. Engle, Anthony W. Lynch, and Matthew RichardsonChapter 11 Centralized Clearing for Credit Derivatives 251Viral V. Acharya, Robert F. Engle, Stephen Figlewski, Anthony W. Lynch, and Marti G. SubrahmanyamChapter 12 Short Selling 269Menachem Brenner and Marti G. SubrahmanyamPart Five The Role of the Federal Reserve 277Thomas F. Cooley and Thomas PhilipponChapter 13 Regulating Systemic Risk 283Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon, and Matthew RichardsonChapter 14 Private Lessons for Public Banking: The Case for Conditionality in LOLR Facilities 305Viral V. Acharya and David K. BackusPart Six The Bailout 323Thomas F. Cooley and Thomas PhilipponChapter 15 The Financial Sector Bailout: Sowing the Seeds of the Next Crisis? 327Viral V. Acharya and Rangarajan K. SundaramChapter 16 Mortgages and Households 341Andrew Caplin and Thomas F. CooleyChapter 17 Where Should the Bailout Stop? 353Edward I. Altman and Thomas PhilipponPart Seven International Coordination 363Chapter 18 International Alignment of Financial Sector Regulation 365Viral V. Acharya, Paul Wachtel, and Ingo WalterAbout the Authors 377Index 381