This is the Cato Daily Podcast for Monday, February 13th,

2003. I'm Caleb Brown. The conventional narratives about the

financial crisis of 2008 are badly flawed, according to Cato's Norber Michelle.

His new book, Why Shadow Banking Didn't Cause the Financial Crisis and why regulating contagion

won't help.

Aims to detail the evidence regarding Shadow Banking's role in the crisis and

why regulators and lawmakers broadly do not appear to have learned the proper lessons from the

crisis.

What is the conventional narrative about what gave us the financial crisis?

I know there are multiple, but in terms of the popular one that people who ought to know better believe what is it?

The popular narrative that you hear all the time now still is that these

unregulated so-called shadow banks of Wall Street took all this wild speculative risk and

none of the financial regulators knew anything about it and that's what caused the crisis.

Okay, so when we talk about Shadow Banking, of course it's the title of your book, why Shadow Banking didn't cause the financial crisis and why regulating

contagion won't help. When we talk about Shadow Banking, is that a process or is

this a set of institutions? It's generally a set of is

people like Elizabeth Warren and Sherry Brown and to be fair even Republicans so I'm not trying to pick on Democrats here.

They refer to the non-banking sector as the shadow banking sector. And the implication is sort of like that

conventional story, right? It's these we have all these banks that are these very

sound solid highly regulated financial institutions and then we have all these other things on Wall Street that aren't regulated and murky and in the shadows and nobody knows what they're doing.

And those are the dangerous ones and what we need to do

of course is regulate those like we do the commercial banks that's the only way

...