By Luigi Zingales CHICAGO: Three years have now passed since the collapse of Lehman Brothers, which triggered the start of the most acute phase of the 2007-2008 financial crisis. Is the financial world a safer place today? Within days after the 9/11 terrorist attacks in 2001, the US had erected new and enormous security measures at …
By Luigi Zingales CHICAGO: In trying to understand the pattern and timing of government interventions during a financial crisis, we should probably conclude that, to paraphrase the French philosopher Blaise Pascal, politics have incentives that economics cannot understand. From an economic point of view, the problem is simple. When a sovereign borrower’s solvency has deteriorated sufficiently, …
By Luigi Zingales CHICAGO: The launch of two European antitrust investigations into the market for credit default swaps (CDS) might appear to be no more than a political vendetta against one of the alleged culprits behind the 2010 European sovereign-debt crisis. The negative perception that most people (especially in Europe) have of CDS has certainly played …
By Luigi Zingales CHICAGO: When Dominique Strauss-Kahn, a former French finance minister, was appointed Managing Director of the International Monetary Fund in 2007, many developing countries objected — not to him, but to the tradition that gave the IMF’s top job to a European, with the Americans installing one of their own at the World Bank. …
By Luigi Zingales CHICAGO: If you thought that America’s financial sector had gotten enough of bad publicity, think again. The insider-trading trial of Raj Rajaratnam, a billionaire hedge-fund manager, has now begun. It is likely to provide an especially lurid exposĂ© of the corrupt underbelly of the financial world. Rajaratnam’s trial is remarkable in many ways. …
By Luigi Zingales CHICAGO: It is universally recognized that a key factor underlying the 2007-2008 financial crisis was the diffusion of collateralized debt obligations (CDOs), the infamous special-purpose vehicles that transformed lower-rated debt into highly rated debt. As these structures lost popularity on Wall Street, however, they gained popularity on the other side of the Atlantic. …
