The Maze of Banking: History, Theory, Crisis

The Maze of Banking: History, Theory, Crisis

The Maze of Banking: History, Theory, Crisis

The Maze of Banking: History, Theory, Crisis

Synopsis

Financial crises are devastating in human and economic terms. To avoid the next one, it is important to understand the recent financial crisis of 2007-2008 and the financial eras which preceded it. Gary Gorton has been studying financial crises since his 1983 PhD thesis, "Banking Panics." The Maze of Banking contains a collection of his academic papers on the subjects of banks, banking, and financial crises. The papers in this volume span almost 175 years of U.S. banking history, from pre-U.S. Civil War private bank notes issued during the U.S. Free Banking Era (1837-1863); followed by the U.S. National Banking Era (1863-1914) before there was a central bank; through loan sales, securitization, and the financial crisis of 2007-2008. Banking changed profoundly during these 175 years, yet it did not change in fundamental ways. The forms of money changed, resulting in associated changes in the information structure of the economy. Bank debt evolved as an instrument for storing value, smoothing consumption, and transactions, but its fundamental nature did not change. In all its forms, it is vulnerable to bank runs without government intervention. These papers provide the framework for understanding how the financial crisis of 2007-2008 developed and what can be done to promote a stabile banking industry and prevent future economic crises.

Excerpt

There are few subjects on which there is more loose theorizing than
that of the origin and remedy of panics. These crises are commonly
spoken of as accidental freaks of the markets, due to antecedent reck
less speculation, controlled in their progress by the acts of men and
banks who have lost their senses, but quite easily prevented, and
as easily cured when they happen. These are the notions of surface
observers.

—HENRY clews, Fifty Years on Wall Street (1908)

You would not be reading this sentence were it not for the financial crisis of 2007–2008. Sadly, it is the reality of that event that perhaps makes this book relevant. This book collects many of the research papers on banks, banking, and financial crises which I worked on over the past 30 or so years, papers which gave me the framework for understanding the financial crisis of 2007–2008. By collecting these papers in one place I hope to convince the reader of the necessity of a historical vantage point for understanding the economics of banking and banking crises. the papers in this volume span almost 175 years of U.S. banking history, from pre–U.S. Civil War private bank notes issued during the U.S. Free Banking Era (1837–1863), followed by the U.S. National Banking Era (1863–1914) before there was a central bank, through loan sales, securitization, and the financial crisis of 2007–2008. During these 175 years, banking changed profoundly and yet did not change in fundamental ways. the forms of money changed, with associated changes in the information structure and infrastructure of the economy. Bank debt evolved as an instrument for storing value, smoothing consumption, and for transactions, but its fundamental nature did not change. in all its forms, it is vulnerable to bank runs, without government intervention. That did not change.

The message that short-term bank debt, in all its forms, is vulnerable to bank runs is delivered by financial history. the idea that financial crises are . . .

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.