The Bankers' New Clothes by Anat Admati and Martin Hellwig Princeton University Rewind to the global financial crisis of 2008. Then, it seemed clear that dramatic reform was needed to clear up the mess triggered by the collapse of global financial services firm Lehman Brothers. But, say Anat Admati and Martin Hellwig in The Bankers' New Clothes , little happened. Yes, governments and central banks stopped the panic through mammoth intervention. Still, the global economy sank into a tailspin. "We hoped for a serious investigation and discussion of what had gone wrong and what would have to be done to avoid a recurrence of such a crisis. We hoped the lessons of the crisis would be learned," the authors write. "But we were disappointed. There was no serious analysis of how the financial system might be made safer." One reason for the lack of progress is political: lobbyists backing the low-capital banking system have outmanoeuvred reform campaigners by exploiting a dodgy advantage, they say. "A major reason for the success of bank lobbying is that banking has a certain mystique. There is a pervasive myth that banks and banking are special and different from all other companies and industries in the economy. Anyone who questions the mystique and the claims that are made is at risk of being declared incompetent to participate in the discussion," the authors say, adding that bankers consciously cloud the issues. "The jargon of bankers and banking experts is deliberately impenetrable. This … helps them confuse policymakers and the public, and it muddles the debate." Their solution is winningly simple: force banks to fund up to 30 per cent of their assets with solid capital. Given that, as at the time of the crisis, some banks' equity is as low as 3 per cent of total assets, the suggestion seems drastic. But the authors say sweeping change is vital because the reforms applied so far lack teeth: the post-crisis accord meant to strengthen capital regulation, Basel III, only purges some abuses. Basel III fails to address banks' ability to game the regulation with ease, they say - a momentous assertion. Already, critics are comparing the authors' scathing critique to documentary-maker and software entrepreneur Charles Ferguson's 2011 exposé of the links between politicians, regulators and bankers, Inside Job . The question is whether - if banks are forced to put more skin in the game, as Admati and Hellwig want - that will sharply raise the cost of borrowing. The authors say the reverse is true because more equity will give banks a firmer foundation from which to lend. The consensus is that Admati and Hellwig are right. Certainly, their case that the banking industry still needs a shake-up is persuasive. And you have to admire their nerve in tackling the lobby head-on because, like the emperor in the Hans Christian Andersen fairytale, it wears a smokescreen of competence and confidence. Attacking the illusion takes courage.