Professor of Finance and Economics
No business in the economy has the easy money that banks get to play with.... The existence of banks with single digit amounts of equity is a completely unhealthy existence -- that is not only a risk for the banks, but for all of us.
ANAT ADMATI
Deutsche Welle, Jan. 23, 2014
The politics of banking is bad everywhere, including UK. Eurozone has more problems, unhealthy symbiosis.
ANAT ADMATI
Twitter post, Apr. 21, 2014
Is this complicated, risky [banking] system the best we can have?
ANAT ADMATI
Time Magazine, May 5, 2014
Typical reaction to scrutiny: attack and mock messenger and message, minimize the problem, hope attention dies down.
ANAT ADMATI
Twitter post, Apr. 1, 2014
Borrowing can be addictive, especially if the borrower benefits from guarantees.
ANAT ADMATI & MARTIN HELLWIG
The Bankers' New Clothes: What's Wrong with Banking and What to Do about It
If a company can count on being bailed out by the government when it cannot pay its debts and its creditors do not worry much about its defaulting, creditors will be happy to lend to the company. The company will therefore find that borrowing is cheap and, by comparison, other ways to fund investments, such as equity, are expensive. The interest that the company has to pay on its debt will not reflect its true default risk because that is partly borne by the taxpayer. From the perspective of the banks, therefore, borrowing is cheap. But this is true only because the costs of bank borrowing are partly borne by taxpayers.
ANAT ADMATI & MARTIN HELLWIG
The Bankers' New Clothes: What's Wrong with Banking and What to Do about It
Most investments involve risks. If investments are funded by borrowing, the risks are borne not just by the borrowers but also by the lenders, and possibly by others. The borrowing itself magnifies risk, and it creates fundamental conflicts of interest that can also lead to inefficiencies. These conflicts of interest and inefficiencies explain what is wrong with banking.
ANAT ADMATI & MARTIN HELLWIG
The Bankers' New Clothes: What's Wrong with Banking and What to Do about It
Beware of economists who hide assumptions.
ANAT ADMATI
Twitter post, May 10, 2014
The present situation is perverse. It is as if we were to subsidize the chemical industry to intentionally pollute rivers and lakes. Such subsidies would encourage additional pollution. If the industry were asked to limit the pollution, it would complain that its costs would increase. Would such complaints make us tolerate the pollution? Subsidizing banks to borrow excessively is just like subsidizing and encouraging companies to pollute when they have clean alternatives.
ANAT ADMATI & MARTIN HELLWIG
The Bankers' New Clothes: What's Wrong with Banking and What to Do about It
Quite simply, banks are as indebted and fragile as they are only because they want to be and not because of any benefit this brings to society. Nothing that banks do require that they borrow as much as they do or as much as they lobby to be allowed to do.
ANAT ADMATI & MARTIN HELLWIG
The Bankers' New Clothes: What's Wrong with Banking and What to Do about It