Professor Michael Mainelli and Bob Giffords

Published by
Centre for the Study of Financial Innovation (July 2009), ISBN: 978-0-9561904-4-4, 62 pages.

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The Road To Long Finance: A Systems View Of The Credit Scrunch

In "The Road to Long Finance: A Systems View of the Credit Scrunch", co-authors Michael Mainelli and Bob Giffords argue that only systemic wisdom will provide a long-term solution to the crisis. A return to "business as usual" will leave un-addressed such important problems as ‘too big to fail’; abusive risk-taking; perverse incentives; and a dangerous lack of diversity within the system. Simply tightening the current system of regulation will not work because the crisis was "not a failure of open markets but a failure of highly regulated markets due to unexpected consequences of regulation and private decisions". This publication laid out several directions for Long Finance research.

Regulators need to be more aware of the risks of homogenisation: the need is not just for more competitors but also for greater biodiversity to ensure long-term survival of financial systems. A clearer distinction between supervision (knowing what's going on) and regulation (saying what should go on) would enable regulators to focus on fraud, the intersection of systemic and idiosyncratic risks, and on encouraging trust between counterparties, rather than on the micro-prudential minutiae of process with accountability to central bureaucracies.
Professor Michael Mainelli & Bob Giffords

This free-to-download report was published as part of the Long Finance publications with the Centre for the Study of Financial Innovation (CSFI) in July 2009 (press release).

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