“The Bankers’ New Clothes,” a book set to be released in March, examines arguments and rationalizations used by politicians, bankers and regulators against the need for reform.
Written by Anat Admati, a professor of finance and economics at Stanford University’s Graduate School of Business, and Martin Hellwig, an economics professor and director of the Max Planck Institute for Research on Collective Goods, the book maintains that a healthier banking system is possible without sacrificing any benefits to society or the financial system.
“Bankers and their supporters argued that not much was wrong with the banking system,” the authors said in the book’s preface. “Serious reform, they routinely said, would interfere with what banks do and harm the economy. If we wanted banks to lend and to support growth, they wanted us to believe, we had to accept this system pretty much the way it was. This made no sense to us.”
Admati and Hellwig said that they were “not surprised” by bankers’ lobbying in their own interests.
“But we were dismayed — and increasingly alarmed — to see that flawed narratives and invalid arguments were not challenged but instead seemed to be winning the debate on both sides of the Atlantic,” the authors said. “Reform efforts seemed to be stalling. Proposals were headed in the wrong direction. Simple opportunities to improve the system were being overlooked.”
The book has received praise from authors and regulators alike, including Sheila C. Bair, the former chairman of the FDIC, Mervyn King, the governor of the Bank of England and Neil Barofsky, the author of “Bailout.”