In this work, Milne examines what went wrong in modern banking and offers solutions to repair the damage.
How was it possible for problems in one relatively small sector in the global financial system - the American sub-prime mortgage market - to lead to the most serious economic crisis in living memory? In this book, Alistair Milne untangles the complex world of modern banking and examines solutions to the crisis. He shows how the banks misused their ability to securitize loans and, by borrowing short and lending long, exposed themselves to exceptional risks when asset prices started to fall. But it has been above all a collapse in trust and confidence, rather than poor lending decisions, which has fuelled the crisis. Despite all the talk of 'toxic' assets, the book argues that most assets are sound and can be repaid. The imperative is to restore confidence through collective action involving asset purchases, guarantees and recapitalization. Failure to do so will mean that taxpayers will be carrying a crippling tax burden for generations to come.
List of figures; List of tables; List of boxes; Introduction; 1. Where did all the money go? An analysis of the causes and cure of the current global banking crisis; 2. Build up, meltdown and intervention; 3. We have been here before, haven't we?; 4. A basic funding tool - the tranched mortgage backed security; 5. Using tranching to make short term transaction profits; 6. Borrowing short and lending long: the illusion of liquidity in structured credit; 7. The levees break; 8. The flood of losses; 9. Central banks and money markets; 10. The run on the banks; 11. Conclusions: repairing the house of credit; Index.
How was it possible for problems in one relatively small sector in the global financial system - the American sub-prime mortgage market - to lead to the most serious economic crisis in living memory? In this 2009 book, Alistair Milne untangles the complex world of modern banking and examines solutions to the crisis.
Alistair Milne is Reader in Banking at the Cass Business School, City University, London. He has also worked for the Bank of England, HM Treasury, and the Government of Malawi.