Too Big to Save? How to Fix the US Financial System Robert Pozen
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[ CONTINUED FROM FRONT FLAP ] POZEN FOREWORDFOREWORD BYBY ROBERT J. SHILLER, YALEYALE UNIVERSITYUNIVERSITY $29.95 USA • $35.95 CAN Finally, he outlines what can and cannot be PRAISE FOR TOO BIG TO SAVE? achieved realistically through international fi nancial cooperation. For the United States, he “When Bob Pozen talks, people listen—with good reason. This book is full of wisdom proposes a concrete plan to address risks to the about the fl aws in our fi nancial system that let the crisis develop and, more important, entire fi nancial system and strengthen the func- detailed prescriptions for fi xing it. Read it. Then keep it on your desk as a reference.” TOO tional regulation of each segment of the fi nancial — Alan S. Blinder, former vice chairman, Federal Reserve Board, and Gordon S. services industry. Rentschler Memorial Professor of Economics and Public Affairs, Princeton University Mortgage defaults, together with excessive debt and weak regulation, ultimately led to Too Big to Save? will give you a sound framework “In an era of specialized books about the fi nancial crisis, Bob Pozen’s is a sparkling TO SAVE? BIG TOO a major fi nancial crisis in the United States to analyze the daily barrage of information about exception. In plain English, he explains to the intelligent reader how we got into in 2008. But how exactly did a steep drop in the fi nancial crisis. It offers a blueprint for restor- this fi nancial mess, assesses steps taken by government, and prescribes practical U.S. housing prices result in a severe fi nancial ing the fi nancial system without repeating the ways to prevent a future crisis. Bob Pozen is one of the nation’s most thoughtful crisis throughout the world? What did the U.S. mistakes of the past. and responsible fi nancial leaders. If you are looking for one book to sort out the government do right and what did it do wrong in fi nancial crisis, start here!” responding to this fi nancial crisis? And perhaps —David Gergen, Professor, Harvard Kennedy School, and Senior Political Analyst, CNN most importantly, what actions should be taken in the future to resolve this fi nancial crisis and ROBERT POZEN is Chairman “This book is not only a detailed yet thoroughly lucid and accessible study of the help prevent others from happening? In Too Big of MFS Investment Manage- fi nancial crisis; it is also, and more important, the best critique I have seen of the BIG to Save?, Robert Pozen answers these and other ment®, which manages over government’s responses to the crisis and its recent blueprint for fi nancial regula- key questions as he presents his vision for $150 billion in assets for tory reform.” repairing the U.S. fi nancial system. individual and institutional — Richard A. Posner, U.S. Circuit Judge and author of A Failure of Capitalism: TO investors. He currently The Crisis of ’08 and the Descent into Depression Each chapter of this timely book analyzes the is a senior lecturer at the impact of the fi nancial crisis on a major part of Harvard Business School the U.S. fi nancial system. Pozen fi rst explains and was chairman of the SEC advisory com- EXPERT INSIGHTS ON THE FUTURE OF U.S. FINANCE the globalization of the fi nancial crisis through mittee on improving fi nancial reporting, 2007 the sale of mortgage-backed securities around through 2008. In 2001 and 2002, Pozen served Bob Pozen not only identifi es the multiple factors causing the fi nancial crisis, but the world. He suggests how the securitization on President Bush’s Commission to Strengthen also evaluates the governmental responses so far to this crisis and suggests what process should be reformed, including new Social Security. In 2003, he served as Secretary of actions should be taken to prevent future crises. He focuses on four issues: approaches to credit rating agencies and credit Economic Affairs for Massachusetts Governor Mitt SAVE? default swaps. Romney. Pozen was also formerly vice chairman • Why revival of the loan securitization process is of Fidelity Investments and president of Fidelity important to the American recovery Second, he assesses the impact of the fi nancial FIX THE U.S. Management & Research Company. He has • How the Treasury should decide which fi nancial FINANCIAL crisis on the stock and bond markets. He criti- SYSTEM published a broad variety of articles in the Wall institutions should be recapitalized HOW TO HOW TO FIX THE cizes the broad government guarantees of bank Street Journal, the New York Times, and the • Why mega banks need a much smaller and stronger debt and money market funds, and calls for re- Financial Times of London. board of directors instating the incentives for large debt holders to • How the monitoring of systemic risks should be integrated U.S. FINANCIAL SYSTEM scrutinize the condition of fi nancial institutions. with an enhanced system of fi nancial regulation JACKET DESIGN: C. WALLACE Third, he evaluates the federal bailout of fi nan- JACKET IMAGE: BUILDINGS © 21/ISTOCKPHOTO cial institutions by buying their stock and toxic assets. He shows how these bailouts constitute “one-way capitalism” whereby taxpayers bear most of the losses but stand to receive little of ROBERT POZEN any potential gains. CHAIRMAN OF MFS INVESTMENT MANAGEMENT® [ CONTINUED ON BACK FLAP ] flast.indd xxii 9/24/09 9:58:22 AM Additional Praise for Too Big to Save? “Americans need to understand the fi nancial crisis shaking this country. Bob Pozen offers a great guide to inner workings gone wrong and a clear agenda for getting the system right again. Read this book and understand.” —Tom Ashbrook, Host of NPR’s On Point “Bob Pozen is among the most knowledgeable and thoughtful commentators on America’s fi nancial system today. Based on decades of practical experience and years of penetrating analysis, his book Too Big to Save? presents new ideas that should be essential reading for laymen and experts alike, especially our top policy makers.” —Jeffrey E. Garten, Juan Trippe Professor of International Finance and Trade, Yale School of Management; Former Undersecretary of Commerce, Clinton Administration “America’s fi nancial system is sorely in need of fundamental reform, and the after- math of the recent crisis represents a historic opportunity to do something about it. Too Big To Save? is full of the kind of knowledge-based common sense that only someone with Bob Pozen’s rich background of experience in the securities industry is likely to bring to today’s debate about what to do and who should do it. The country will stand a better chance of getting these reforms right if every- one pays attention to his thinking.” —Benjamin M. Friedman, William Joseph Maier Professor of Political Economy, Harvard University; Author, The Moral Consequences of Economic Growth “There will be many books written about the fi nancial crisis of 2007–2009. But if you want to read just one, read this book. Bob Pozen’s account of what went wrong and how to prevent future crises is a tour de force, clearly written for the nonexpert and powerfully argued.” —Robert E. Litan, Vice President for Research and Policy, The Kauffman Foundation; Senior Fellow, The Brookings Institution “Bob Pozen reviews some extremely complex concepts in a straightforward, easy- to-read manner for people to digest the sheer quantity of coverage about all the elements of the credit crisis. Using charts and summaries, he helps nonexperts understand what happened and gives them the tools needed to evaluate the most critical fi nancial issues.” —Peter Lynch, Former Portfolio Manager, Fidelity Magellan Fund ffirs.indd i 9/24/09 9:57:01 AM To my wife Liz, who has patiently endured months of obsessive writing, and from whom I have learned so much about life and love. ffirs.indd ii 9/24/09 9:57:02 AM Too Big to Save? How to Fix the U.S. Financial System Robert Pozen John Wiley & Sons, Inc. ffirs.indd iii 9/24/09 9:57:02 AM Copyright © 2010 by Robert Pozen. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. 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