It Takes a Village to Maintain a Dangerous Financial System

Just Financial Market: Finance in a Just Society, Lisa Herzog, Editor, Oxford University Press, 2016, Forthcoming

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 Feb 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). Just Financial Market: Finance in a Just Society, Lisa Herzog, Editor, Oxford University Press, 2016, Forthcoming; 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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