It Takes a Village to Maintain a Dangerous Financial System

Forthcoming in "Just Financial Market? Finance in a Just Society," Lisa Herzog, Editor, Oxford University Press

Rock Center for Corporate Governance at Stanford University Working Paper No. 219

Stanford University Graduate School of Business Research Paper No. 16-26

27 Pages Posted: 2 Jun 2016 Last revised: 1 Aug 2017

Anat R. Admati

Stanford Graduate School of Business

Date Written: May 31, 2016

Abstract

I discuss the motivations and actions (or inaction) of individuals in the financial system, governments, central banks, academia and the media that collectively contribute to the persistence of a dangerous and distorted financial system and inadequate, poorly designed regulations. Reassurances that regulators are doing their best to protect the public are false. The underlying problem is a powerful mix of distorted incentives, ignorance, confusion, and lack of accountability. Willful blindness seems to play a role in flawed claims by the system’s enablers that obscure reality and muddle the policy debate.

Keywords: financial system; systemic risks; reforms; capital regulations, capture, conflicts of interest; ignorance; willful blindness; accountability

JEL Classification: D72, E58, H25, G21, G28, G32, G38, L51, M48, H81, K23

Suggested Citation

Admati, Anat R., It Takes a Village to Maintain a Dangerous Financial System (May 31, 2016). Forthcoming in "Just Financial Market? Finance in a Just Society," Lisa Herzog, Editor, Oxford University Press; Rock Center for Corporate Governance at Stanford University Working Paper No. 219; Stanford University Graduate School of Business Research Paper No. 16-26. Available at SSRN: https://ssrn.com/abstract=2787177

Anat R. Admati (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4987 (Phone)
650-725-6152 (Fax)

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