Below is TED talk by Anat Admati based on her book The Banker's New Clothes, which is a must-read for anyone interested in understanding how banking works and how it can be reformed. Admati argues that bankers need more 'skin in the game', but she is somewhat sceptical that reform of the banking system is possible. In my new book, Banking in Crisis, I share Admati's scepticism regarding reform and I also agree with her that bankers need more 'skin in the game'.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...