Casino Capitalism

In <em>Casino Capitalism</em> Hans-Werner Sinn examines the causes of the banking crisis points out the flaws in the economic rescue packages and presents a master plan for the reform of financial markets. Sinn argues that the crisis came about because limited liability induced both Wall Street and Main Street to gamble with real estate properties. He meticulously describes the process of lending to American homeowners and criticizes both the process of securitizing and selling mortgage claims to the world as well as the poor job rating agencies did in providing transparency. He argues that the American Dream has ended because the world now realizes that this dream was built on loans that are never likely to be repaid. <p/>Sinn also asserts that the banking crisis has not yet been resolved because the necessary write-offs of toxic assets have largely been swept under the carpet. Comparing actual worldwide write-offs with those estimated by the IMF estimates he concludes that substantial parts if not most of the true losses have yet to be revealed and that the banking systems of many countries are on the brink of insolvency. <p/>In view of this Sinn directs sharp criticism at the various economic rescue packages arguing that the plans assume that banks have a liquidity problem while in fact they suffer from a solvency crisis. Sinn points out that the conflict between the goals of rescuing banks in the short term and inducing more prudent behaviour in the long term requires the government to help the banks but not their shareholders by becoming a temporary co-owner. In addition he calls for higher equity requirements a worldwide return to more cautious accounting methods a ban on extremely speculative short selling and strict regulations on conduits hedge funds and credit default swaps. <p/>This authoritative account provides an invaluable overview for academics students policymakers politicians and all those with an interest in the unprecedented 2008 banking crisis.<br>