It has been almost a decade since the outbreak of the Great Recession, and its causes are still being debated. This uncertainty over why it occurred does not bode well for the prevention of future recessions. Fortunately, former Treasury official Morgan Ricks’s new book provides a fresh take on the crisis that sharpens our understanding of it. It does so by looking at the design of our monetary system and considering its implications for financial stability. This novel approach is useful not only for thinking about the prevention of future recessions, but also for better understanding what exactly money is.
Ricks begins the book by arguing that the reason we still have financial crises is that monetary assets are still susceptible to bank runs. This susceptibility was realized in 2007–08 during a massive bank run that, according to Ricks, triggered the Great Recession. This observation may seem odd to some observers, since there were no bank runs by households and small businesses during this time, of the kind that there had been during the Great Depression. This focus on retail investors, however, overlooks the fact that institutional investors, such as corporate treasurers, pension managers, and money-market-fund managers, did run on their banks in 2007. So to truly understand the origins of the crisis, one has to understand this part of the monetary system.
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