Gary Gorton – Slapped by the Invisible Hand: The Panic of 2007

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Exploring the Essential Features of “Gary Gorton – Slapped by the Invisible Hand: The Panic of 2007”

Slapped by the Invisible Hand: The Panic of 2007 (Financial Management Association Survey and Synthesis) 

by Gary B. Gorton (Author)

Originally written for a conference of the Federal Reserve, Gary Gorton’s “The Panic of 2007” garnered enormous attention and is considered by many to be the most convincing take on the recent economic meltdown. Now, in Slapped by the Invisible Hand, Gorton builds upon this seminal work, explaining how the securitized-banking system, the nexus of financial markets and instruments unknown to most people, stands at the heart of the financial crisis.

Gorton shows that the Panic of 2007 was not so different from the Panics of 1907 or of 1893, except that, in 2007, most people had never heard of the markets that were involved, didn’t know how they worked, or what their purposes were. Terms like subprime mortgage, asset-backed commercial paper conduit, structured investment vehicle, credit derivative, securitization, or repo market were meaningless. In this superb volume, Gorton makes all of this crystal clear. He shows that the securitized banking system is, in fact, a real banking system, allowing institutional investors and firms to make enormous, short-term deposits. But as any banking system, it was vulnerable to a panic. Indeed the events starting in August 2007 can best be understood not as a retail panic involving individuals, but as a wholesale panic involving institutions, where large financial firms “ran” on other financial firms, making the system insolvent.

An authority on banking panics, Gorton is the ideal person to explain the financial calamity of 2007. Indeed, as the crisis unfolded, he was working inside an institution that played a central role in the collapse. Thus, this book presents the unparalleled and invaluable perspective of a top scholar who was also a key insider.

Editorial Reviews

Review

“Think you know what caused the collapse of Wall Street? Gary Gorton, the Sherlock Holmes of the financial crisis, has news for you.”

–Robert Hahn, Founder of the AEI Center for Regulatory and Market Studies

“Slapped by the Invisible Hand is essential to understanding the deep weakness in the banking sector that led to the financial crisis. Like consumer banks before the Great Depression, the ‘shadow banking market’ is vulnerable to runs and panics and hysteria, and we are all, in turn, vulnerable to it. By looking beyond this financial crisis to the systemic flaws that make us vulnerable to all sorts of crises, Gary Gorton has created a necessary guidebook for what’s happened, and what needs to be done.”

–Ezra Klein

Book Description

Reveals how the securitized-banking system, the nexus of financial markets and instruments unknown to most people, stands at the heart of the recent financial crisis

About the Author

Gary B. Gorton is the Frederick Frank Class of 1954 Professor of Management and Finance at the Yale School of Management, and Research Associate at the National Bureau of Economic Research. He formerly taught at the Wharton School for twenty-four years and worked in the Federal Reserve System. He is also a former consultant to AIG Financial Products, where he worked on credit derivatives and commodity futures for over ten years.

Product details

Publisher ‏ : ‎ Oxford University Press; 1st edition (March 8, 2010)
Language ‏ : ‎ English

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