Robert F. Bruner, Dean of the Darden School of Business at the University of Virginia, discusses the importance of financial crises. Dean Bruner discusses the 2008 crisis through the historical lens of a financial economist. Bruner focuses on the importance of studying past crises in order to better understand and mitigate future crises.
How exactly does one "hedge" a book of commercial loans — JPMorgan’s traditional banking business — by writing protection on other companies’ paper, thereby gaining loss exposure to these other loans? Here's why calling the trades complex, poorly monitored, and poorly understood is an understatement.
Modern banking system bailouts fly in the face of the ancient capitalist philosophy of losses signaling market risks. In addition, financial bailouts tend to escalate in size and damaging effects with time.
A major and ancient tenet of capitalism is the importance of losses to preserving the efficiency of markets. Yet modern banking system bailouts fly in the face of this perennial philosophy.
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