The Money Problem: A Discussion Of Financial-Regulation Choices In The Form Of A Book Review

Jun. 13, 2016 12:30 PM ET38 Comments
Martin Lowy profile picture
Martin Lowy


  • The Money Problem by Morgan Ricks clarifies many of the thorniest issues about financial regulation.
  • Monetary design and preventing panics are at the heart of the Ricks analysis. His new "money" is an elegant construct.
  • Even if one does not agree with the Ricks solution (I think I don't), his contribution to thinking about financial regulation is enormous.
  • I have my own, less radical, idea about how to prevent panics, and I offer an outline here.

A couple of weeks ago, I asked Bob Litan of the Council on Foreign Relations, one of our best economic thinkers, whether he thought public policy ought to try to prevent debt-fueled financial bubbles. He responded that he was involved in reading Morgan Ricks' new book, The Money Problem: Rethinking Financial Regulation. It is the best book on finance in decades, he said. You have to read it. I admitted I had not read it, despite very interesting reviews, because I was annoyed at what University of Chicago Press charges for it, even as an eBook. But I swallowed my pride and bought it.

I will tell you that Bob was right. It is the best book on finance in decades, even though there have been many good ones. The reason it is the best is not because I agree with its conclusions (I think I am not persuaded), but because it is so clearly and sensibly written. It challenges a great deal of orthodoxy very straightforwardly.

If you are not a financial regulation junkie, you may not want to tackle The Money Problem, but if you do, you will be rewarded by excellent analysis and clear writing.

Financial panic as the source of deep recessions

The book's main point is that financial panic was the phenomenon that caused the greatest damage in The Great Recession and that financial panics almost always are the phenomenon that causes the greatest damage. In saying this, Ricks is echoing Gary Gorton in his excellent book Misunderstanding Financial Crises, and Ricks gives Gorton full credit.

Because it is panics that cause the greatest damage, Ricks reasons, it is panics, rather than debt-fueled bubbles or excessive leverage or the like, that financial regulation should seek to prevent. Ricks discusses the many ways in which financial regulation has sought to deal

This article was written by

Martin Lowy profile picture
I was trained as a lawyer and practiced in the fields of corporate law and bank regulation in large U.S. firms for 20 years, then decided to do other things. My career has included banking and being an entrepreneur. For seven years I was CEO of a high-tech sports business. I have retired from active business and spend full-time writing, mostly on economic subjects. My books include: InStAbILItY: Booms, Busts, the Fragility of Banks, And What To Do about It 2017 High Rollers: Inside the S and L Debacle (1991) Debt Spiral: How Credit Failed Capitalism (2009) Practical Handbook for Bank Directors (1995), second edition due 2012 Corporate Governance for Public Company Directors (2003) Capitalism for Democrats (2019) Capitalism for America (2019)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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