The Squam Lake Report

Fixing the Financial System

Princeton UP, 2010

15 min read

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What would happen if 15 renowned economists got together in one place? Ideas, lots of ideas

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This slim volume is named after the isolated New England resort where 15 renowned economists, academics and policy makers met in the fall of 2008 to devise solutions to the “World Financial Crisis.” That they convened amid fast-paced, seismic economic events adds to the star-chamber aspects of their collaboration. Still, these éminences grises – all nonpartisan, without commercial sponsorship or political axes to grind – developed their ideas by sharing their expertise. Their recommendations cover reforms in banking, financial products, regulation, compensation, pensions and hedge funds – all the named villains of the last crisis. Why did they issue these ideas? So they could educate political and fiscal leaders – if they would only listen – about possible laws that could help avert or lessen the likelihood and impact of future meltdowns. getAbstract recommends this sound advice to students of and participants in the global economy.

Summary

Squam Lake

Amid the raging economic storm of autumn 2008, 15 top economists assembled at tranquil Squam Lake, New Hampshire, to construct a series of recommendations. Their objective? To educate and assist politicians and policy makers on financial system reform. The 15 gurus especially wanted to mitigate the negative, “unintended consequences” that well-intentioned legislation often introduces.

Despite the rapid pace of events that fall, the economists focused on long-term issues and their solutions. They analyzed and concurred on nine major areas: banking regulation, financial transparency, pension reform, capital requirements, executive compensation, bank capitalization, moral hazard, and the “shadow banking system” of hedge funds, credit default swaps, brokerages and investment banks. They collaborated on reports, outlining their reasoning and conclusions on each topic. To insert their findings into “policy conversations in real time,” they subsequently conferred with members of the US Congress, the Federal Reserve, the European Central Bank, the Bank of England, the Banque de France and other global, high-level government institutions.

Two precepts underlie...

About the Author

The Squam Lake Group is a non-partisan, non-affiliated group of academics who offer guidance on the reform of financial regulation. Dartmouth Professor Kenneth R. French coordinated 15 contributors, including former, current and future American Finance Association presidents; an ex-Federal Reserve governor; a former IMF chief economist and several former Clinton and Bush Council of Economic Advisers members. They are: Kenneth R. French, Martin N. Baily, John Y. Campbell, John H. Cochrane, Douglas W. Diamond, Darrell Duffie, Anil K. Kashyap, Frederic S. Mishkin, Raghuram G. Rajan, David S. Scharfstein, Robert J. Shiller, Hyun Song Shin, Matthew J. Slaughter, Jeremy C. Stein and René M. Stulz.

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M. F. 1 decade ago

We must to avoid privatized gains and socialized the losses.
B. B. 1 decade ago

I agree with these premises as long as they stuck to connecting with and encouraging the market to show the way, to self-regulate, and to keep the government out. There are some great points but lets be honest, neither the government nor the companies involved can keep up with the already libraries full of "regulations" that apparently will save us all. Regulation hasn't worked....EVER. It simply gives a false sense of security to the public, which leads to weak open-market management and voids any sense of fiscal responsibility.

And lets not forget that the "crazy" financial instruments blamed for the crash were the simply result of lose-cannon monetary policy by the FED with controlled interest rates and their moves through the 2000s. These instruments were far from the cause but actually an attempt by the market to 'soak up' all the mess the fed was making. Many of the "intellectuals" introduced here and throughout need to quit playing 'god' and learn to teach individual responsibility (including to the the banks and government leaders).
- 1 decade ago
  
  @ Billy Bush : It's an opinion box, not a soap box. Thank you for rehashing yet again the Tea Party's talking points..
- 1 decade ago
  
  Billy Bush, I could easily state "total open markets haven't worked... EVER" and it's as true as your statement. Both open market and complete regulation won't work. You can claim that the U.S. is a strong economy with it's rather open market. I could claim that many european countries (esp. central + northern) have a much stronger economy by population and a lot less poor people and criminals than the U.S.
  
  I strongly believe that there is a need for regulation (what is the state for if not for this?). And also, that there can be too much of it. The hard thing about national or global economy is to find the narrow path that is successful, and that it will change over time as society, demography etc. change.

The Squam Lake Group