Why Shadow Banking Didn’t Cause the Financial Crisis

And Why Regulating Contagion Won’t Help

By: Norbert J. Michel

Narrated by: Michael Lyons

Most American adults easily recognize the following description of the 2008 financial crisis. Unregulated Wall Street firms (so-called shadow banks) made too many risky bets with derivatives, causing the housing bubble to burst. The contagious run through the financial system was only stopped by bailouts from the federal government and major regulatory changes. But what if the record demonstrates that the core of this story is misleading and that the resulting regulations are misguided?

Now, almost 15 years later, the Biden administration is using this same story to promote more regulations for money market mutual funds (a key part of the supposedly dangerous shadow banking system) and even to justify allowing only federally insured banks to issue stablecoins (a type of cryptocurrency that didn’t exist in 2008). But most of the post-2008 regulatory efforts were concentrated in the traditional banking sector—not the shadow banking sector—which warrants skepticism toward the conventional story of the 2008 crisis and any new regulations based on that story.

This book explores the main problems with the conventional story about the 2008 crisis and explains why it does not justify expanding bank-like regulations throughout financial markets to mitigate systemic risks.

©2022 Cato Institute (P)2023 Cato Institute

Articulate and informative

Well researched and informed.

I think the author could have done more to address the concerns of those who argue for regulation more targeted at protecting and alleviating real human investors who were wiped out by opaque financial vehicles that they were assured were safe.

The arguments of those more generally concerned with regulation to protect the soundness of the financial system were well addressed and thoroughly examined and rebutted, but this former class less so.

Overall very worth reading. Audio is perhaps not the best format for SOME readers due to the highly technical nature of the material that may require more intense focus, review, and analysis.

Written and performed very well with no errors, mispronunciations, or other issues. Very articulate and scholarly, though this would qualify as dry to some. Highly recommended for those interested in the topic.