Casino Capitalism: How the Financial Crisis Came About and What Needs to Be Done Now

In Casino Capitalism 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. He argues that the crisis occurred because limited liability induced both Wall Street and Main Street to gamble with real estate properties. The process of lending to American homeowners is meticulously described, and Sinn provides a critique of the securitization process, the selling of mortgages, and the poor job rating agencies did in providing transparency. Ultimately, the American Dream ended once it became clear that it was built on improbable loans.

Sinn also asserts that the banking crisis has not yet been resolved. The discrepancy between actual write-offs of toxic debts and those estimated by the IMF suggests that substantial parts of the world debt have yet to be revealed. The banking systems of many countries remain on the brink of insolvency.

In view of this, he directs sharp criticism at the various rescue packages, arguing that the plans assume banks have a liquidity problem while, in fact, they suffer from a solvency crisis. Sinn identifies the inevitable conflict between the goals of rescuing banks in the short term, and inducing more prudent behaviour in the longer term, and supports governments helping banks (but not their shareholders) by becoming temporary co-owners. In addition, he calls for higher equity requirements, a worldwide return to more cautious accounting methods, and a ban on extremely speculative short selling, as well as strict regulations on conduits, hedge funds, and credit default swaps. This authoritative, accessible account will make fascinating reading for academics and the general reader alike; indeed, for anyone interested in understanding the unprecedented 2008 financial crisis.

Hans-Werner Sinn is Chair of Economics and Public Finance at the University of Munich, and President of the combined Ifo Institute for Economic Research and Center for Economic Studies. He has published numerous scholarly journals and books, and his work as a leading commentator on contemporary economic affairs in Germany has resulted in the publication of a number of best selling books that have appeal among a more general readership.