CHAPTER2

Banking, Regulation, and Financial Crises

What Went Wrong with Banking and Why

As human beings, we tend to understand the world around us through stories, or, to use a more formal term, narratives. Without these simplifying devices, it is very difficult to make sense out of the random events that constitute reality. Controlling the narrative is a key objective of political life because public opinion is formed at this basic level. What happened to the global financial system in the 1930s was highly complex and shaped by many random events, but the dominant narrative that emerged was extremely easy to grasp. Selfish “economic royalists,” to use Franklin Roosevelt’s phrase, had been allowed to have their way at the expense of the little ...

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