From the Editor: Getting Back on Track

John Taylor’s Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis argues that the Federal Reserve Board botched monetary policy and then mistakenly treated a liquidity problem when it should have been dealing with a crisis in confidence resulting from counterparty risks. Excerpts from this book comprise our first contribution for this issue.

Taylor is a Stanford Professor and Hoover Fellow who has held many senior economic policy positions in Washington, beginning with the Carter Administration. He was the Under Secretary of the Treasury for International Affairs from 2001 to 2005. For further details readers may listen to Taylor discuss his book and answer questions in a Webinar available on FinReg21.com's Pundit Pit on Channel 21.

Government efforts to help dig us out of the crisis are controversial and their success uncertain as John Buchman, e-Trade’s general counsel, reminds us. He questions whether the Treasury’s Public-Private Investment Program can do the job of moving toxic assets off the bank’s books. The problem he sees is that the accounting treatment of these assets provides banks with strong incentives not to sell them at this time.

Professor Emilios Avgouleas, a law professor at the University of Manchester and a Lombard Street co-editor, then examines the role of disclosure in regulation. He argues that it was mistaken to believe that requiring disclosure would be enough and that one could count on market participants to self-regulate themselves. But he sees an important and growing role for regulation going forward.

Finally, Satya Thallem, at George Mason’s Mercatus Center, examines the debate over mark-to-market accounting and efforts to return to historical accounting approaches. He cautions against making a quick leap back to historical accounting noting that no accounting approach is perfect or works well in every crisis.

We would like to thank all of our contributors, but especially Professor Taylor and the Hoover Institution Press for granting us permission to publish the excerpts from his book.