I'd like to start by thanking
Dean Sundaram for that warm welcome, and
to thank all of you for coming to this
extraordinary gathering, reasons for which I'm going to
describe in just a few minutes. So I'd like to also join
Dean Sundaram in thanking a number of people for
making this possible, and I'd like to,
of course, start with all of the sponsors
for this gathering-- the Annual Reviews,
an organization I'm going to be telling you about
in a few minutes, the MIT Golub Center for Finance and
Policy, the NYU Stern School, and particularly,
the Solomon Center, and of course, the
CFA Institute, who's going to be responsible
for the live stream, and all of you in the
audience and online for participating
in this gathering. I also want to single out
one individual who has just gone above and beyond
to make this happen, and that's Jenny Rankin. Jenny's in the back, so please
join me in thanking her. [APPLAUSE] And I also want to thank
our local hosts, of course-- NYU for this lovely
venue, and Matt Richardson for really being an
extraordinary partner in organizing this event. It's a pleasure and an honor
for me to be part of this. And as you can tell from
the list of participants and speakers, we really have
all of the relevant parties and all the stakeholders
represented. To quote a former
treasury secretary, we have all the folks who are
in the room where it happened. I was not even in
the hallway connected to the room where it happened,
so I'm absolutely fascinated and want to get right to
the core of this meeting. But I want to start with a
little bit of background, though, of what gave us the
impetus to create this event, And it really has to
do with Annual Reviews. This is the journal that Bob
Merton and I are co-editors of. The Annual Reviews
is an organization that most of you, I
suspect, have not heard of. It's a non-profit organization
that was started in 1932 to collect information-- research-- about biochemistry. So the very first Annual
Reviews is the Annual Review of Biochemistry,
published once a year. And it was basically
review articles that were curated by the
editors and the editorial board to summarize all the
things that were going on in that field at that time, a
very fast-moving field that's actually only gotten
faster, as you can imagine. Since that time, there are now
51 different Annual Reviews denominated by
various disciplines, including the Annual Review of
Financial Economics that Bob and I co-edit. And the idea behind
these reviews is really
crowd-sourcing, but it's crowd-sourcing of a
very specific kind, bringing together
various kinds of research and distilling them to provide
some kind of an overview of a subject,
particularly those that are moving very quickly
where it's just not possible for any
one individual to be able to read all of the
relevant research on that topic. Now, if this sounds like
a bit of a book report, that's really not the intention. It's not really just
summarizing research, but it's also providing the
appropriate interpretation. That's often the difference, I
find, between massive amounts of data versus information. It's really interpretation. And the co-editor of the
Annual Review of Psychology, Susan Fiske, calls this
reviews with attitude. We want authors to be able to
use their own perspective to be able to shape the narratives
that are summarized by these different reviews. Now, the editorial board
members play a critical role, and certainly in our field,
there's no exception. We have an amazing
editorial board that helps us to collect all
of these various different reviews, commissioning
various authors to distill these
different ideas. And in addition to the
editorial board members, we have, of course, the support
of the entire Annual Reviews organization, which
is extraordinary. So I want to recognize
in particular Sam Gubins, the former president
and editor-in-chief. He was the individual
who originally worked with Bob and me to create
the Annual Review of Financial Economics, and the current
president and editor-in-chief, Richard Gallagher, who you'll
be hearing from a little bit later on. But the entire
Annual Review staff that support all of the
different 51 subjects do an amazing job of allowing us
to focus on what we like to do, which is research,
and everything else they take care of. So volume 1 was
2009, 10 years ago. That was a rather
strange period for us to launch an Annual Review
of Financial Economics. A few interesting
things happened in that year and
the year before, and so our very first
volume was obviously developed in that context. And if you read the preface
to that first volume, you'll read that we
talk specifically about the ongoing crisis. And out of the first few papers,
you can see that three of them are actually focused
on the crisis, including one by Franklin Allen,
Ana Babus, and Elena Carletti titled "Financial Crises-- Theory and Evidence." I think Franklin is in
the audience here today. And it was one of
the first articles that we published about
the financial crisis. Obviously, at the time, things
were just getting started, so many of us had no
idea what was going on, and we were really
trying to understand all of the various different
narratives that were happening. At that time, we actually were
really concerned about what the public reception would be
to an Annual Review of Financial Economics, given that
finances was getting dragged through the mud. But we decided that actually,
this was the perfect time to launch because what
this crisis indicated was the need for more knowledge
about finance, not less. Shortly after that
first volume, I was contacted by another
journal in economics, a journal of
economic literature, and I was invited to write a
book review about the crisis. They asked me to pick my
favorite book on the crisis and write a review of it. And so, naturally, I was very
interested in the subject, so I agreed. And so I started looking around
for what my favorite book would be, and I started with The
Squam Lake Report, which is a group of
financial economists and macro-economists--
got together to come up with their own
narrative of what happened. But pretty soon, I realized
that they had missed out on a number of
aspects, including the historical
context, so then I looked at Carmen Reinhart and
Ken Rogoff's wonderful book, This Time is Different, which
is a retrospective of 800 years of history of financial crisis. And after reading
that book, I realized that there were certain
institutional details that were missed, so
I started reading other books about the crisis. And after a couple
of years of reading, the editor of the
journal finally said, if we don't
get your report in, we're going to just skip
it and go to somebody else. So finally, I decided
to submit my report, and it was a review of 21
books on the financial crisis. Now, what I got
out of that process was that there are many
different narratives, and here are some narratives
that I came across. The crisis was all about
sub-prime mortgage lending. It was the sub-prime borrowers
that really caused the crisis, and it was a combination
of government policy-- the Community Reinvestment Act
and lower lending standards-- that ultimately caused
these sub-prime borrowers to start defaulting
at massively higher rates than the rest
of the population, and that bankers were at fault,
too, because they did not have enough skin in the game. They were playing
with house money, and they really weren't
involved as they should be in the risk-bearing. Nobody saw the crisis
coming, and if there was any issues regarding
the theoretical framework around the crisis, it was the
efficient markets hypothesis. People had this utter
devotion to market efficiency, and that's what caused it. And finally, changes
in SEC regulation allowed huge
increases in leverage among the investment banks. How many people here have
come across at least one of these narratives? Show of hands. How many people believe at
least one of these narratives? Well, you've come
to the right place because these narratives are
busted, and a number of them you will hear about over the
course of the next two days. Every one of these
narratives can be challenged and have been challenged,
and you will hear about them in more detail. I'd like to give you an example
of that from one of the talks you're going to hear today. I don't want to steal
anybody's thunder, but fortunately, our speakers
have a lot of thunder, so I don't have
to worry about it. But I want to highlight
one particular article that is in volume 10, and
it's by Antoinette Shore and her collaborators, Manuel
Adelino and Philippe Severino. You're going to hear
from Antoinette later on this afternoon, so I will
not spend too much time on this. But I want to give you a sample
of what an Annual Reviews article is like and why this
conference is so unusual. So the title of the
article is "The Role of Housing and Mortgage Markets
in the Financial Crisis. And Antoinette
and her co-authors take on the question
of what was, in fact, at the root of the crisis. Was it these sub-prime borrowers
that we seem to want to blame? So the Annual Review
article basically goes through the literature, and
I mean a lot of the literature. So here's an example. They start with a question
about mortgage leverage. Did mortgage leverage
actually increase during the crisis period? Yeah, actually, it did--
lots more mortgages, lots more leverage. You'll notice that there
are these highlighted boxes in the texts. This is the online version
that I'm showing you. Each of these highlighted
boxes is an article that they refer to. You can click on it,
get the exact reference. In some cases, you
can actually click on that to get the link
to the article itself. So what the authors are
doing is distilling all sorts of different theses coming
from various different sources to construct a
particular narrative. How did lending standards
change in the boom? Was it true that we lowered our
lending standards dramatically? I'll let Antoinette tell
you later on this afternoon, but you're going to be surprised
to see what the evidence shows. What about home
ownership expansion among the lower middle class? Did the Community
Reinvestment Act really increase home ownership
widely in the post-2000 period? And is that the cause? Well, again, lots of papers
have been written about it, and they provide citations
to that literature. And once more, they
burst another myth. And in case you are interested
in getting a look at the data yourself, they provide
tables and figures. You can click on
them and actually take a look for yourself
at the specific data they bring to bear to support
or refute certain arguments. And finally, they get to
the question of defaults. Were the defaults concentrated
in the lower middle class? Was it the sub-prime
loans that were at fault? And again, the answer that they
provide is absolutely shocking. And this answer is not
just a matter of debate. It actually has incredible
impact when it comes to policy. And what they show is that
the popular interpretation, the popular narrative
on which policy has been and is currently
being based is simply wrong. It's just not true. Now, they show a list of
references at the end. So this is their bibliography,
and this, and this, and this-- 93 references to the literature. And unlike many other
forums where you just put a whole bunch of references
down so that referees seeing their own citations will be
perfectly happy to accept your paper, in the
Annual Reviews, you are not allowed to cite an
author unless you specifically refer to that author
in your article because you'll see from
the online version, there's a link to every
reference that will bring you to the particular part of the
article in which that author and that work is cited. And so the point
of this review is to bring together the
very best thinking, but with an attitude,
with a specific conclusion about how all these
pieces fit together. Unlike my book
report of 21 books of the crisis that
came to no conclusion, these review articles-- they all have conclusions. Now, are they the
correct conclusions? I'm not sure we
want to say that. Certainly, they are
in Bob and my opinion, the best thinking we have today. But it's constantly
changing, and that's one of the beauties
of the review process. It is a Darwinian
process where only the very best and most
compelling arguments survive. Does it mean that
they're always correct? Certainly not. But the interesting
thing about academia, for those of you who are not
part of the academic game-- there are two ways that you
can make a name for yourself in academia. You can come up with
a brilliant theory, or you can destroy somebody
else's brilliant theory. Both are perfectly acceptable
ways of becoming famous, and that Darwinian process is
highlighted and facilitated in Annual Reviews. So fast-forward to
the 10th volume, 2008. We now have 10 articles
about the financial crisis, each of them as
thorough, detailed, and with an attitude
as Antoinette's. You're going to hear from
many of these speakers over the next couple
of days, and that's one of the reasons why this
conference is so unusual. By now, many of you
have attended all sorts of 10-year anniversary
milestone conferences for the financial crisis. The Brookings had one. Council on Foreign Relations-- but I dare say that
this gathering is unique because what
we bring to the table, in addition to the people
who were in the room where it happened-- we
bring together the academics and the very best thinking of
what happened, how it happened, why it happened, and
maybe, just maybe, what we might be
able to do to make sure it doesn't happen again. So one of the things that
we wanted to leave you with is a gift. This little stocking
stuffer here-- five pounds. And by the way,
thanks again to Jenny and her husband who came in
here with 350 copies of this and put it out on
all of the seats. This is a collection of
articles from all 10 volumes-- not necessarily
the greatest hits. We don't want to put
it in those terms, but rather, a sampling of
articles from each of the 10 issues of Annual Reviews. Take a look at it and see the
kind of quality scholarship that is represented by
our amazing authors, and you'll see that
over the course of the next couple of days. So I urge you all to get
access to the Annual Reviews. From now until the
end of December, the Annual Reviews
organization has graciously agreed to make all of
the articles of all 10 volumes of Annual Reviews
of Financial Economics available to anybody who is
interested in having access to it. So please feel free to
peruse the many articles that have come out by
our amazing authors. Only by understanding narrative
in a materially substantive way, pushing aside the
politics, the polemics, and focusing on the
underlying substance crowd-sourced through
this laborious process of sifting through thousands,
if not tens of thousands, of articles, can we learn how
to avoid crisis in the future. Thank you. [APPLAUSE] So we have two
speakers this morning. Really excited to
introduce them. The first is Harold
James, who is going to be talking about
deglobalization post-crisis. And one of the
interesting things is the interplay between
politics and finance. For most of us in
academic finance, we generally shy away
from discussing politics. But in fact, there's a very
deep connection between the two specifically around
the financial crisis. Harold is going
to draw that out, and I hope he'll make a few
comments about what happened the day before yesterday. So please join me in
welcoming Harold James. [APPLAUSE]
