55 de 63 personas piensan que la opinión es útil
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Formato: Tapa dura
This book was great in places and painful in others.
On the one hand, I think he does do some wonderful things in the way of reviewing history and certain distortions that have lead to crisis. Part 2 of the book of is fairly accurate.
On the other hand, in his search to put everything on Alan Greenspans doorstep, he left out some very important details. Further he also just got parts of finance, particularly the parts that are important to this crisis, just plain wrong. I can't get too mad at him, because if I had a nickel for every journalist, let alone finance professional that has gotten it wrong, half right, somewhat confused, or otherwise, I'd have a lot more than 1$.
So let's go through it a bit.
1 - While it's nice to blame Greenspan, you really can't just do so, particularly when you're writing a book about market regulation. I mean, while the FRB did create the laws which cover Home Ownership and Equity protection as well as the Equity Credit Opportunity Act, it's actually the FTC that regulates the Mortgage brokers NOT the Fed. Further the FED does not solely regulate the Banking Trusts (Investment banks), the SEC, does that job. Nor does the Fed regulate the ratings agencies or the the insurance companies (AIG). Hence, to put it all on the fed, kind of misses the other parties that were a bit asleep at the wheel and also obsconds one of the major problems in the dependancies of the argument he sets forth in Chapter 1, i.e. "increasing regulation" or seeing the Greenspan as a period of "laissez faire". This is not to say that Cassidy makes the argument that Greenspan's world was without regulation. However, if you're going to come out strong against the man, you really ought to have your facts straight about ALL the regulators that are to be blamed and allocate the blame pie around accordingly.
2 - While he starts to discuss his argument for why Glass–Steagall should not have been repealed, it's just not particularly well articulated. You can't just say, you need to not repeal glas-steagel because then the banks turn into investment banks. Why exactly do you think it's pernicious? Do you also want to address the aspects that are quite positive about re-pealing Glass–Steagall ? Do you understand why the banks might need a prop trading desk given what they are being asked to do as a function of the 20 years of finance that occurred from 1980's onward post the 2 debt crisis PLUS the Sarbanes–Oxley?
3- There were a few paragraphs that appeared to confuse CDS with CDO. Let's just clarify... a CDS stands for Credit Default Swaps. The issue for these is far more margin driven and less collateral driven. They are not really that different from IRS (interest rate swaps) or Repos in that way. The ONLY cavaet that (and this is true of all swaps) is that there are 3 counter-parties, BECAUSE these trade OTC and not on exchange. The 2 counter-parties in the transaction should be mar ginning and the 3rd counter party is the bank that holds the two pieces in custody. Now... definitely the bank needs to hold collateral as per guidelines dealing with banking regulation. This is why it's so problematic when a major investment bank goes under, i.e. this evokes a credit event and calls into question the swap despite that both of the other two parties who engaged in the transaction might still be fully capable of carrying out their sides of the trade.
CDO - stands for Collateralized Debt Obligation. Notice that Collatoral is part of the name. Most people did in fact collaterollize these debt obligations, but admittedly under-collatoralized. Hence, if you match that section of the book with this instrument and then do NOT try to carry similarities over to CDS (which incidentally is as different as if you were trying to say that a bond future is the same as a convertible bond or French is similar to Spanish), you should actually be able to keep reading this section with less confusion.
4- Most VaR calculation do not fail because of correlation. They fail because of historical data. You can kind of in a VERY round about way say they fail because of correlation increasing to one, if you use the positive feedback loop argument (and to do so would be VERY generous), but more likely, given the way the paragraph is written you are confusing calculating VaR with calculating default risk. It's actually a completely different calculation derived from a fairly different body of math and financial mathematicians.
There are a few other issues in the book, but I'll save that for other Amazon reviewers.
So why even give it 3? Why not give it 2 or 1 star? Well...
1) I have to compare him to his peers and as wrong as he is, he is still relative more right than others that have tried to explain this.
2) He's got some good points, if - and this is not an insignificant "if"-- if you work in the particular area of finance that knows this stuff cold - you can just get past parts of the book being wrong
3) I like the graph on page 257. Is the addition of 1 or 2 stars generous because of a good graph, perhaps, but hey... I like a good graph, this is my review and when you write your own review you can use whatever criteria you want to allocate stars :)....
I would however recommend over this book, The Myth of the Rational Market by Justin Fox. Also a journalist, I wasn't able to find anything that was wrong in his book. It was well written, accurate and fair. That said, he also doesn't try to make as strong a claim as Cassidy does; which is my biased preference for books of this nature.
5 de 5 personas piensan que la opinión es útil
- Publicado en Amazon.com
Formato: Tapa blanda
This book shows the cold hard facts of how a free market system can fail due to certain behaviors. It's an economics history lesson showing the situations where free markets fail and the "rational" behaviors that lead to that irrational outcome, and the book debunks the Utopian myth that free markets will always self-correct and never fail. The book explains what behaviors should not be allowed that can cause the economy to collapse.
It first explains the Utopian delusion that complete laissez faire markets always works. Then it explains a much better economic framework that the author calls "reality-based economics." Then the book explains what happened economically with the economic collapse of 2008, the worst since the Great Depression. This is a great book to understand the economic collapse of 2008. More important, it explains the underlying economic dynamics at work in history to show how laissez faire is a big mistake that can bring down our global economy, and there is a better way through sensible safeguards. The author seems to know economics extremely well and can explain this information in a way that does not make your head spin.
The Wall Street Journal called this book "a marvelous book."
The Economist called this book "Shrewd and entertaining... Thoroughly persuasive."
I want to emphasize that this books is NOT an overall attack on capitalism in favor of socialism or another order. He is simply explaining the instances when free markets failed and what behaviors need to be banned to make free markets work better. He does strongly disagree with those who argue for complete laissez faire policies (advocating no rules and that markets will always self-correct).
The philosophy of laissez faire is a Utopian delusion. The facts of economic history show that laissez faire has led to market disasters, and the author presents a convincing case that certain behaviors that are rational to one person are irrational to the economy as a whole and will bring down the economy. It's like if one person leaves a football game at a big stadium in the middle of the game it does not matter, but if everyone tries to leave, you have a problem. If one person withdraws his savings from a bank it does not matter. If everyone does in a bank run, the bank will fail. If one bank fails it's not a big deal. If huge parts of the financial system collapse, lending and money flow seizes up and contracts, bringing down everything. Some risk taking behavior can be damaging to the economy, and then when that happens markets will not always self-correct.
This book gives suggestions for what the author calls reality-based markets.
The weakness of this book is that it could have explained more about past economic history, especially the Great Depression. It does not say enough about what we learned from the Great Depression and what worked (and did not work) with Franklin Roosevelt's New Deal as far as creating decades of STABLE prosperity built upon the economic safeguards of the New Deal.
For example, originally, Franklin Roosevelt created the FHA to create modern 30 year mortgages that brought home ownership to millions for the first time. FDR gave home ownerships to millions, fueling the great post-war boom. The FHA back then required that borrowers show their credit worthiness, imposed lending rules, and required a certain amount of down payment (I think it was 20%) so people could not buy mortgages they could not afford and could not handle. Government back then with the New Deal was strict about financial security and worked to ensure the basic economic security of America. That era of post-war prosperity, built on the New Deal, was stable and not overly-speculative. The New Deal was designed to save and strengthen capitalism with pragmatic rules, and decades of stable middle class prosperity followed.
Then decades later when Bush Jr was president, some numb-skulls (certain members of congress, the ownership society president, and lobbyists) decided to make Fannie and Freddie give loans to people who could not handle them. Regulations were relaxed and liar loans were allowed where you did not even have to prove your income. Mortgage insurance secured this house of cards. Like climbers going up a mountain chained together, when the liar loans and mortgage-backed securities went bust, all the climbers fell together from the mountain. It seems that everyone had totally forgot about what happened to the financial system during the Great Depression.
I think people should go back and look at the parts of the New Deal that worked well, such as FDIC to insure bank deposits and forever end bank runs, SEC to require audited financial statements and securities regulation for information disclosure and bad fraud, FHA, Glass-Stegal Act to put firewalls in the financial system, the constant fiscal stimulus of social security when private sector spending plunges, and the clear understanding in society and government that extreme risk taking for for profit could bring down the economy and extreme risk was not allowed.
I want to concur with the review written by Mark V Anderson below. Yes, some self-interested behaviors in a free market system can cause the economic system to collapse and those behaviors should be banned. However, overall free markets (with sensible rules enforced fairly by referees) are better than communism or socialism or fascism or anything else. Also, governments can make mistakes.
We do need government to ban certain bad behaviors and extreme greed at the expense of those who work hard and play by the rules, but let's not only point the finger at what can go wrong with free markets. Free markets work best with sensible rules. Ronald Reagan was a New Dealer but then said that government went off track since then. Also, Reagan wrote in his autobiography that he supported a basic safety net for the elderly, disabled and orphans, but not the explosion in the cost and ineffectiveness of welfare.
There are four other books I would also recommend along with this book for a fuller picture:
1. Stabilizing an Unstable Economy. This is a landmark economics book explaining how a free market economy can become unstable and then how to stabilize it.
2. Lords of Finance: The Bankers Who Broke the World. This book won the Pulitzer Prize.
3. John Maynard Keynes. This debunks some myths about Keynes's general theory, explaining how Keynes showed that capitalism is unstable and what to do about it. Later Keynesian policies espoused by other were never articulated in Keynes General theory.
4. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Capitalist countries, including USA, Japan, Korea, and many others, have become prosperous through big government economic investments and protections of economics interests (not pure free markets).