After The Fall Saving Capitalism From Wall Street—and Washington

Robust financial markets support capitalism, they don't imperil it. But in 2008, Washington policymakers were compelled to replace private risk-takers in the financial system with government capital so that money and credit flows wouldn't stop, precipitating a depression.

Washington's actions weren't the start of government distortions in the financial industry, Nicole Gelinas writes, but the natural result of 25 years' worth of such distortions.

In the early eighties, modern finance began to escape reasonable regulations, including the most important regulation of all, that of the marketplace. The government gradually adopted a "too big to fail" policy for the largest or most complex financial companies, saving lenders to failing firms from losses. As a result, these companies became impervious to the vital market discipline that the threat of loss provides.

Adding to the problem, Wall Street created financial instruments that escaped other reasonable limits, including gentle constraints on speculative borrowing and requirements for the disclosure of important facts.

The financial industry eventually posed an untenable risk to the economy—a risk that culminated in the trillions of dollars' worth of government bailouts and guarantees that Washington scrambled starting in late 2008.

Even as banks and markets seem to heal, lenders to financial companies continue to understand that the government would protect them in the future if necessary. This implicit guarantee harms economic growth, because it forces good companies to compete against bad.

History and recent events make clear what Washington must do.

First, policymakers must reintroduce market discipline to the financial world. They can do so by re-creating a credible, consistent way in which big financial companies can fail, with lenders taking their warranted losses. Second, policymakers can reapply prudent financial regulations so that markets, and the economy, can better withstand inevitable excesses of optimism and pessimism. Sensible regulations have worked well in the past and can work well again.

As Gelinas explains in this richly detailed book, adequate regulation of financial firms and markets is a prerequisite for free-market capitalism—not a barrier to it.

Nicole Gelinas, a Chartered Financial Analyst (CFA) charterholder, is a Manhattan Institute senior fellow and contributing editor to City Journal. She lives in New York City.

TELEVISION:

• CNBC, "The Kudlow Report," 4-22-10
• C-SPAN Book TV, 01-23-10, 01-24-10, 02-14-10, 02-19-10
• Fox Business Stuart Varney, 01-19-10
• Street Signs, CNBC, 01-15-10
• Fox Business Stuart Varney, 01-11-10
• GRITtv with Laura Flanders, 12-16-09
• CNN Tonight, 12-02-09
• Fox Business Daytime, 12-02-09
• CNN Tonight, 11-30-09
• Alhurra Television, 11-28-09

RADIO:

• WNYC, Brian Lehrer Show, 4-23-10 Listen to the discussion.
• The Small Business Advocate With Jim Blasingame, 4-23-10 Listen to the discussion.
• Talk Radio Network, America's Morning News, 4-21-10
• WBAL, Ron Smith Show, 4-21-10
• Talk Radio Network, Jerry Doyle Show, 4-16-10
• KSFO, Brian Sussman Show, 4-15-10
• American Family Radio, Nothing But Truth, 4-14-10
• KFTK, Randy Tobler Show, 4-10-10
• WBAL, Ron Smith Show, 4-06-10
• American Family Radio, Nothing But Truth, 3-24-10
• WNYC, Brian Lehrer Show, 3-12-10
• Salem Radio Network, The Paul Edwards Program, 3-08-10
• Blog Talk Radio, Matt LaBash Show, 2-24-10
• Australian Radio, Counterpoint, 2-24-10
• Salem Radio Network, “Dennis Prager Show,” 2-15-10
• American Family Radio, "Nothing But Truth", 02-03-10
• KTRH, Morning News with Lana Hughes & JP Pritchard, 02-01-10
• KURV, The Valley's Morning News, 02-01-10
• WCNY, "The Capitol Pressroom," 01-21-10
• Premiere Radio, Bill Cunningham Show, 01-17-10
• WTVN, "Bob Conners Show", 01-15-10
• KURV, "The Valley's Morning News", 01-15-10
• The Apple, "Curtis Sliwa Show", 01-15-10
• WHJJ, "Helen Glover Show", 01-15-10
• WSYR, "CNY Morning News with John Galuski", 01-15-10
• WKBN, "Robert Mangino Show", 01-15-10
• WSBA, "Gary Sutton Show", 01-15-10
• Westwood One, "Jim Bohannon Show", 01-13-10
• WBAL, "Ron Smith Show", 01-13-10
• KOA, "Mike Rosen Show", 01-13-10
• Talk Radio Network, "Jerry Doyle Show", 01-13-10
• American Family Radio, "Nothing But Truth", 01-13-10
• WTVN, "Bob Conners Show", 01-13-10
• KTRH, "Morning News with Lana Hughes & JP Pritchard", 01-13-10
• KFTK, "The Dave Glover Show", 01-13-10
• WKBN, "Robert Mangino Show", 01-13-10
• WILM, "Delaware This Morning", 01-13-10
• WOWO, Fort Wayne's Morning News with Charly Butcher, 01-05-10
• WKBN, Robert Mangino Show, 01-05-10
• KTRH, Morning News with Lana Hughes & JP Pritchard, 01-05-10
• WDUN, The Bill & Joel Morning Show, 01-05-10
• KOGO, Chip Franklin Mornings, 01-05-10
• KMOX, The Randy Tobler Show, 1-02-10
• WBAL, The C4 Show, 12-31-09
• WVON, The Other Side with Charles Butler, 12-29-09
• CNN Radio, The Wall Street Shuffle, 12-16-09
• American Family Radio Network, Nothing But the Truth, 12-15-09
• KNST, Andy Taylor and Tucson's Morning News, 12-14-09
• KOGO, Chip Franklin Show, 12-14-09
• KMJ, Morning News, 12-14-09
• WSBA, York's Morning News, 12-14-09
• WTAG, Morning News, 12-14-09
• WILM, Newstalk AM, 12-14-09
• WSYR, Joe Galuski's Show, 12-14-09
• WRVA, Jimmy Barrett's Show, 12-14-09
• KCOL, Mornings with Keith and Gail, 12-14-09
• The Small Business Advocate with Jim Blasingame, 12-11-09
• Westwood One, Jim Bohannon Show, 12-09-09
• WIND, John and Cisco Show, 12-08-09
• Premiere Radio, The Big Show with Bill Cunningham, 12-06-09
• WABC, Curtis Sliwa Show, 12-03-09
• Talk Radio Network, America's Morning News, 12-01-09
• KFNN, Business for Breakfast, 12-01-09
• KSFO, The Lee Rodgers Show, 12-01-09
• Talk Radio Network, Jerry Doyle Show, 11-30-09
• Salem Radio Network, Michael Medved Show, 11-30-09
• American Family Radio, Nothing But the Truth, 11-30-09

REVIEWS

Making America love free markets again, Nina Easton, Fortune, 04-01-10
Free Markets: The Cure for Future Falls, Steve Forbes, Forbes, 03-15-10
System Must Allow Broken Banks To Fail, Rebecca Walberg, Winnipeg Free Press, 02-20-10
Capitalism Depends on Regulation, Energy Metro Desk, Arthur Jones, 02-08-10 (page 21)
BOOK REVIEW: After the Fall by Nicole Gelinas, John Tamny, RealClearMarkets.com, 02-02-10
Publisher's Picks: Top Books of 2009, David DesRosiers, RealClearMarkets.com, 01-09-10
Required Reading, Billy Heller, New York Post, 12-27-09
After the Fall and "Too Big to Fail", Kevin Glass, Townhall.com, 12-10-09
Why 'Too Big to Fail' Leads to Costly Mistakes, Emily Esfahani Smith, The Weekly Standard, 11-23-09
The Right and Financial Regulation, Reihan Salam, NRO The Agenda, 10-28-09

PODCASTS

Nicole Gelinas, Manhattan Institute senior fellow and City Journal contributing editor, and City Journal editor Brian Anderson discuss Nicole's new book, After the Fall: Saving Capitalism from Wall Street—and Washington. Listen Here