Too Big to Save? How to Fix the U.S. Financial System.

• Author: Crouch, Robert D.
• Position: Book review

* Too Big to Save? How to Fix the U.S. Financial System

By Robert Pozen

Hoboken, N.J.: John Wiley and Sons, 2010.

Pp. 480. $29.95 cloth.

The contents of Robert Pozen's Too Big to Save? How to Fix the U.S. Financial System live up to its title; this book is above all a highly ambitious work. In nearly five hundred pages, Pozen compiles mountains of data and produces reams of analyses and recommendations meant to help policymakers and corporate chiefs "fix" a beleaguered global financial system. The book is clearly meant to be a practical guide more than a history or a case study, and coming from a senior lecturer at Harvard Business School and chairman of a $150 billion investment fund, it may well be read and applied by high-level decision makers in both government and private enterprise, neither of whom will be disappointed by the sheer volume of the author's suggestions. However, Pozen identifies so many "causes" of the financial crises at so many levels of society, business, and government and develops so many solutions, some of which seem incompatible, that we may well doubt whether the book will achieve its lofty objective.

Pozen identifies several major causes of the financial crises, starting with unsustainably low interest rates, excessive debt, and too many stratified, impotent regulators of the financial system. He then touches on the incentive problems caused by 100 percent Federal Deposit Insurance Corporation (FDIC) guarantees, the issue of systemic risk generally, the need for more powerful corporate boards of directors, the need to reform loan securitization, the need to help "underwater" borrowers, overly liberal and unscrupulous financing of homes, lack of personal responsibility, foreign ownership of U.S. treasuries, antideficiency laws (which prevent many foreclosures in California and Arizona), the moral hazard caused by zero-down financing, and a lack of effective lender regulation. Charles Calomiris of Columbia Business School has said, "A financial crisis is one event with twenty explanations." For Pozen, a financial crisis consists of dozens of events with hundreds of potential solutions.

Pozen admirably does not limit the scope of his book to the identification of problems; he proposes a solution for nearly all of them. If the FDIC insured 90 percent of deposits rather than 100 percent, depositors would perform more thorough checks on banks. Boards need "superdirectors" to act as watchdogs and to hold executives accountable. The Mortgage Reform and Anti-predatory Lending Act of...