BUGBEARS AND BANKING REFORM

Anat Admati & Martin Hellwig, The Bankers' New Clothes: What's Wrong with Banking and What to Do About It (Princeton & Oxford: Princeton U. Press, 2013) ("Banking experts, including many academics, seemed to believe that banks are so different from all other businesses that basic principles of economics and finance do not apply to them." Id. at x. "People like convenient narratives, particularly if those narratives disguise their own responsibility for failed policies." Id. at x. "Do not believe those who tell you that things are better now than they had been prior to the financial crisis of 2007-2009 and that we have a safer system that is getting better as reforms are put in place. Today's banking system, even with proposed reforms, is as dangerous and fragile as the system that brought us the recent crisis." Id. at xi-xii. "The English classical scholar Francis Cornford wrote in 1908, 'There is only one argument for doing something; the rest are arguments for doing nothing. The argument for doing something is that it is the right thing to do. Then, of course, comes the difficulty of making sure that it is right.' He goes on to explain how 'bugbears,' sources of dread or false alarms, are used to raise doubts or scare. If Cornford was writing today, he would surely talk about the bugbear of 'unintended consequences.'" Id. at 3. "[W]hat we refer to ask the bankers' new clothes, flawed and misleading claims that are made in discussions about banking regulation. Many of the claims resonate with basic feelings, yet they have no more substance than the emperor's fictitious clothes in Andersen's story." Id. at 9. "Borrowing is not the only topic of the book. Many more flawed claims are made in the debate on banking regulation. Most of these bankers' new clothes are also bugbears, warnings of unintended consequences meant to scare policymakers out of doing something without focusing properly on the issues or proposing how the actual problems should be solved." Id. at 9-10.).