When Free Markets Fail Saving the Market When It Can't Save Itself

Acknowledgments.

About the Author.

Preface: In Defense of Regulation (and of Free Markets).

In the Beginning, There Was Adam.

The Shift from Philosophy to Math.

Can Markets Regulate Themselves?

Regulation versus Justice.

Conclusion.

Introduction: Why Regulatory Reform Matters to You.

The Structure of the Book.

Chapter 1: Meltdown in the Markets: Systemic Risk.

How Systemic Risk Works.

The Case for Government Intervention.

Why Hasn't the System Collapsed Before?

Conclusion.

Chapter 2: Can an Institution Be Too Big to Fail?

Policy Options.

Conclusion.

Chapter 3: Moral Hazard.

The Theory.

The Reality.

Punish the People, Not the Organization.

The Other Moral Hazard.

Conclusion.

Chapter 4: Toxic Assets.

What Are Toxic Assets, and Why Are They Toxic?

Building Low-Risk Assets Out of High-Risk Ones.

Credit Rating Agencies and Structured Finance Products.

Credit Default Swaps.

Conclusion.

Chapter 5: Should Regulation Stifle Innovation?

Policy Implications.

Conclusion.

Chapter 6: Rewarding Success, Rewarding Failure: Incentives and Compensation.

Big Brother is Paying You.

Regulating the Level of Pay.

Performance Goals and Risk.

Methods of Aligning Reward with Risk.

Who Matters?

The 2009 Federal Reserve Guidance.

Was Adam Smith Right?

Chapter 7: Who Protects the Consumer?

Were Existing Regulations Effective?

Is a Separate Consumer Regulator the Right Answer?

What Powers Would the Agency Have?

A Word about Consumer Protection and Systemic Risk.

Conclusion.

Chapter 8: Transparency: Letting the Sun Shine In, or Sipping Water from a Firehose?

Transparency as Regulation.

Degrees of Transparency.

What to Consider When Transparency is the Proposed Remedy.

Chapter 9: Rebuilding the Regulatory Structure.

Why So Many Regulatory Agencies?

The SEC and the Investment Banks.

The Federal Reserve.

Other Proposed Changes.

Consumer Protection.

Do We Need a Systemic Regulator?

To Concentrate or Not to Concentrate.

Chapter 10: Rating the Raters: The Role of Credit Rating Agencies.

NRSRO Status.

How Ratings Are Made.

What Really Keeps the Rating Agencies Up at Night (And It Is Not Your Mortgage).

The End of the NRSRO?

Conflicts in the Rating Agency Business Model.

Are Rating Agencies Utilities?

Conclusion.

Chapter 11: The Politics of Regulation.

The Political Process.

Chapter 12: Nice Law, Now Go Do It: Regulators and Compliance Officers.

The SEC.

Examinations and Inspections.

Conduct of Examinations.

FINRA.

Compliance Departments.

Conclusion.

Chapter 13: Cost-Benefit Analysis.

Basics of Cost-Benefit Analysis.

The Benefits of Cost-Benefit Analysis.

Government Use of Cost-Benefit Analysis.

Cost-Benefit Analysis as a Negotiating Tactic.

Conclusion.

Chapter 14: It's a Small World, After All.

Sunday Is the New Monday.

Overseas Regulators.

International Organizations.

Conclusion.

Chapter 15: Where Do We Go from Here? Conclusions, Obesrvations, and Recommendations.

Modern Markets Are Too Complex to Regulate Themselves.

Planning for the Next Crisis.

The Need for a Professionalized Regulatory Service.

Creating a Federal Regulatory Service.

Elevating the Compliance Profession.

Decisions are Made by Individuals, Not Organizations.

Keep the Rating Agencies…But on a Short Leash.

Put Down the Pitchforks.

Chapter 16: Judging for Yourself.

Conclusion.

Appendix 1: Summaries of Regulatory Concepts and Issues.

Moral Hazard, Too Big to Fail, Systemic Risk.

Unlevel Playing Fields.

Unintended Consequences.

Self-Regulation.

Regulatory Capture.

Information Asymmetries.

Conflicts of Interest.

One Size Fits All.

Appendix 2: Excerpt from Obama Administration's Reform Proposal, "Financial Regulatory Reform: A New Foundation."

Index.