PECN 6000

Political Economy of the 2007/8 Financial Crisis



Professor: Douglas Nelson

Office: Tilton 108 (Murphy Institute), Phone: 865-5317

Office Hours: Tuesday and Thursday, 3:30-5:30

Phone: 865-5317

email: dnelson@tulane.edu

Webpage: http://www.tulane.edu/~dnelson/



The 2007/8 financial crisis is unarguably one of the most important economic events in era since the Great Depression of the 1930s. Footnote In addition to being the deepest recession since the Great Depression (in fact, it is often called “the Great Recession”), like the Great Depression the crisis was global, it’s effects have been exceptionally long-lived (most countries are still struggling to return to pre-crisis levels of employment and economic activity); and these struggles have led to widespread concerns with both existing political and economic arrangements as well as with the intellectual frameworks we use to understand those arrangements. In this seminar, we will read a number of major attempts to understand the causes of the crisis, the responses to the crisis, and suggestions for dealing with future crises.


Readings for the course will be drawn from:

 

Alan Blinder (2013). After the Music Stopped: The Financial Crisis, the Response and the Work Ahead. New York: The Penguin Group.

 

Gary Gorton (2012). Misunderstanding Financial Crises: Why We Don’t See Them Coming. New York: Oxford University Press.

 

Charles Calomiris (2014). Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press.

 

Simon Johnson & James Kwak (2010). 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. New York: Pantheon Books.

 

Noam Scheiber (2012). The Escape Artists: How Obama's Team Fumbled the Recovery. New York: Simon and Schuster.

 

Nolan McCarty, Keith Poole & Howard Rosenthal (2013). Political Bubbles: Financial Crises and the Failure of American Democracy. Princeton: Princeton University Press.

 

Ian Goldin & Mike Mariathasan (2014). The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It. Princeton: Princeton University Press.

 

Daniel Drezner (2014). The System Worked: How the World Stopped Another Great Depression. New York: Oxford University Press.


In addition to these, a number of very useful books cover essential elements of the economics of the crisis. You might want to look at:

 

Charles Kindleberger & Robert Aliber (2011). Manias, Panics & Crashes. New York: Palgrave Macmillan.

 

Viral Acharya & Matthew Richardson (2009). Restoring Financial Stability: How to Repair a Failed System. Hoboken, NJ: John Wiley & Sons.

 

Carmen Reinhardt & Kenneth Rogoff (2009). This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.

 

Gary Gorton (2010). Slapped by the Invisible Hand: The Panic of 2007. New York: Oxford University Press.

 

Raghuram Rajan (2010). Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton: Princeton University Press.

 

Alan Blinder, Andrew Lo & Robert Solow (2012). Rethinking the Financial Crisis. New York: Russell Sage Foundation.

 

Anat Admati and Martin Hellwig (2013). The Bankers’ New Clothes. Princeton: Princeton University Press.

 

Stijn Claessens, M. Ayhan Kose, Luc Laeven & Fabián Valencia, eds. (2014). Financial Crises: Causes, Consequences & Policy Responses. Washington, DC: IMF.

 

Nancy Bermeo & Jonas Pontusson (2012). Coping with Crisis: Government Responses to the Great Recession. New York: Russell Sage Foundation.

 

Miles Kahler & David Lake (2013). Politics in the New Hard Times: The Great Recession in Comparative Perspective. Ithaca: Cornell University Press.

 

Jean Pisani-Ferry (2014). The Euro Crisis and its Aftermath. New York: Oxford University Press.


Some particularly interesting journalistic accounts and/or memoirs are:

 

Gillian Tett (2009). Fools Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. New York: Free Press.

 

Andrew Ross Sorkin (2010). Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the FinancialSystem--and Themselves. New York: Penguin Group.

 

Martin Wolf (2010). Fixing Global Finance. Baltimore: Johns Hopkins University Press.

 

Bethany McLean & Joe Nocera (2011). All the Devils Are Here: The Hidden History of the Financial Crisis. New York: Penguin Group.

 

Henry Paulson, jr. (2013). On the Brink: Inside the Race to Stop the Collapse of the Global Financial System. Hachette Book Group.

 

Timothy Geithner (2014). Stress Test: Reflections on Financial Crises. New York: Crown Publising.


Capstone courses. This course is a senior seminar for the Murphy Institute. 1) Prerequisites. In addition to the exposure to a broad range of perspectives in the Murphy core courses, I will presume familiarity with microeconomics at the intermediate level (i.e. Economics 3010) and a level of familiarity (and comfort) with formal and statistical analysis at the same level. 2) Participation. This course will be run as a seminar which means attendance and active participation are mandatory. I will expect all members of the seminar to have read, and be prepared to discuss, all the assigned readings before the date on which we discuss them. The analytical comments (see below) are an aid to this.


Evaluation: Your performance in this course will be evaluated on the basis of 10 analytical comments (worth 100 points total); and 1 analytical review essay (worth 100 points). To receive an A, you must earn at least 90 percent of the points available. To pass the course you must earn at least 60 percent of the points available. Grades between these limits will be determined on the basis of your performance relative to that of the class as a whole.


Policy on analytical comments. The analytical comments are written assignments consisting of two parts: a comment on the assigned reading for the week (7 of 10 points); and 5 questions raised by the assigned reading for the week (3 of 10 points). The comment should be about 3 double-spaced pages long. Do not waste time summarizing the reading. The goal is to identify some aspect of the reading that strikes you as particularly interesting and to explain why you find it interesting. The questions should identify things you would like to see discussed in class. The comments are due on, or before, the start of the class in which the material is discussed. Late comments will not be accepted.


Review essays. Every member of the class is required to produce a review essay on one of the major topics in the political economic analysis of the 2007/8 financial crisis, I expect papers in the 15-20 page range [if you have picked a topic that can be effectively exhausted in 10 pages, you have picked too narrow a topic; if you need 50 pages to do the job, not narrow enough]. Beyond the assigned reading on the topic, I expect you to do additional reading so that you can present a broader perspective. A grade in the A-B range [i.e. 80-100] can only be earned by a paper that provides a synthesis of the literature under review. That is, if you only summarize the literature the best grade you can earn will be a C [note well: this is a maximum, you can earn a lower grade by doing a bad job of summarizing.]

            To ensure that topics are well-established and suitable for the course, I require a proposal due no later than 23 September. Late proposals will result in a 10 point penalty to be assessed on the paper’s final score. If you change your paper topic without my approval, 20 points will be deducted from your final mark. Review essays are due at the last regular meeting of the course (2 December). Late papers will not be accepted, and will earn a score of 0 points.

            These papers must be original work, plagiarism will not be tolerated. This includes: unattributed appropriation of someone else’s work; and excessive use (whether or not attributed) of a secondary source [including, in particular, any of the above survey articles.] If you are unclear as to what constitutes plagiarism, consult the Tulane University Honor Code on plagiarism.





SACS-Related Material


I am aware that Tulane students are able to read a standard university syllabus and determine the content of the course and its relation to the major and the individual student’s course of study. However, the administration of Tulane University, along with the Southern Association of Colleges and Schools (SACS–which “accredits” primary and secondary schools as well as all varieties of 2 and 4 year undergraduate programs [with very little in the way of adjustment in rubrics, metrics, etc.]), has determined that you require additional information. I collect this material in a separate section so that you can refer to it, or discard it, as you consider appropriate.


STUDENT OBJECTIVES/OUTCOMES: By the end of the course, the student should be able to think, speak, and write fluently and competently about the ideas and issues covered in the course (as reflected in the course description and the syllabus). The student should have a solid understanding of the social, political, economic, and philosophical significance of ideas and concepts in the analysis of social networks and they should be familiar with major ideas and theories regarding explanations, interpretations, applications, and criticisms of work on social networks. The student should be able to formulate critical views concerning these issues and respond fluently and competently to questions concerning these views.


1. Students will be able to identify and recognize major themes, ideas, and concepts.

2. Students will analyze, interpret, and discuss these ideas in a scholarly and coherent manner.

3. Students will construct, formulate, and develop creative and critical scholarly assessments.

4. Students will appraise, evaluate, and appreciate the values and consequences of these ideas.



PECN 6000                                    SYLLABUS                                        Fall 2014


Topic I. What Happened?

 

Alan Blinder (2013). After the Music Stopped: The Financial Crisis, the Response and the Work Ahead. New York: The Penguin Group. [summer reading]


Topic II. A Bit of History

 

Gary Gorton (2012). Misunderstanding Financial Crises: Why We Don’t See Them Coming. New York: Oxford University Press.

 

Charles Calomiris (2014). Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press.


Topic III. Political Economy of the Crisis: Mostly the US

 

Simon Johnson & James Kwak (2010). 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown. New York: Pantheon Books.

 

Noam Scheiber (2012). The Escape Artists: How Obama's Team Fumbled the Recovery. New York: Simon and Schuster.

 

Nolan McCarty, Keith Poole & Howard Rosenthal (2013). Political Bubbles: Financial Crises and the Failure of American Democracy. Princeton: Princeton University Press.


Topic IV. Political Economy of the Crisis: Global Perspective

 

Ian Goldin & Mike Mariathasan (2014). The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do about It. Princeton: Princeton University Press.

 

Daniel Drezner (2014). The System Worked: How the World Stopped Another Great Depression. New York: Oxford University Press.