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The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future

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Wouldn't you love to read a concise, entertaining explanation of the recent financial melt-down? Robert J. Barbera has written just such a book, an economic seminar that everyone will "get."

Finance usually comes across as Dull (that's dull with a capital D), but The Cost of Capitalism is not boring. For example, Barbera uses hypothetical home-buying twins, Hanna and Hal, to explain why the mortgage bubble burst after a relatively small drop in property values and how the resulting pop disabled the banking industry--the case of "a small set back delivering cataclysmic consequences."

Barbera believes that capitalism is the best economic system (no surprise there, he makes his living analyzing capitalism). He is also a disciple of Hyman Minsky. If you don't know who Minsky is, that's fine, because the book does a masterful job of placing Minsky in today's context, which lays the groundwork for a major theme of The Cost of Capitalism: Central financial planners must admit that players in the free market (from Main Street to Wall Street) make decisions based more on human nature than rational theory. The resulting behavior leads to booms and busts. The busts require government intervention--the cost of capitalism.

The book uses historical analysis to focus on cause-and-effect relationships that have somehow been missed by the Federal Reserve. Barbera writes, "From 1945 to 1985 there was no recession caused by the instability of investment prompted by financial speculation--and since 1985 there has been no recession that has not been caused by these factors." Yet, as Barbera shows, the Fed behaved as if inflation were the economy's only enemy. He argues persuasively that American capitalism needs "a new paradigm," one that recognizes the wisdom of Minsky and extracts our proverbial head from the sand.

The Cost of Capitalism is full of instructive charts and graphs, which simplify complex ideas as well as providing welcome visual breaks between analytical prose. My only complaint (any reviewer worth his/her salt has to have at least one) is that the notes and abbreviations with the graphs could have been better defined.

(R.O. Palmer is the author of three novels, including his newest release, "Darress Theatre.")

A humanities gal all my life, I knew little about economics nor did I fully comprehend the nature of the current economic crisis until I read Robert J. Barbera's The Cost of Capitalism. Not only a book that gains the understanding of "beginners" like myself, The Cost of Capitalism speaks to academics and finance experts alike.

Mr. Barbera's analysis, in my opinion, is pragmatic, accounting for human nature and its consequences in the context of the financial system. Additionally, he introduces his readers to a Mr. Hyman Minsky and how his theories directly relate to what the world is experiencing now. The confluence of logic and formal knowledge and work experience in the industry is Mr. Barbera's greatest strength. He captures the attention and curiosity of people like myself and dares to question and hold accountable our current system and its players. Most of all, he plants the seeds for a new capitalist mentality that accounts for the optimist in all of us and the reality of the market.

If you're interesting in a reader-friendly, funny book that gives you economics in a way you can understand and talk about over the dinner table, I absolutely recommend this book.

Loved this book! For an entertainment guy who knows more about the Rolling Stones and Scorsese than Keynes and Minsky, I weighed into this with trepidation. I shouldn't have - and that is the beauty of the book. It is interesting and relevant and irreverent even when dealing with classically reverent topics. I quoted the book several times in the last few weeks and recommended it as well. Explains in a simple and entertaining fashion the historic and current debates of our capitalist economy ups and downs. Well done and congrats!!

First of all, I thought this was a good book which offers much-needed perspective to current debates. The author's main point is that free-market capitalism is the best system we have, but that we should not allow ourselves to believe that it is infallible. Rather, economic crises are inevitable and we must learn to endure them in order to reap the benefits that the free market has to offer in allocating resources. Such crises form the titular cost of capitalism. The author also goes into detail on Hyman Minsky's instability hypothesis: the idea that stability itself breeds instability as many people grow complacent, expecting recent events to continue into the future, and in turn take on increasing risks. This idea goes a long way in explaining the housing boom and bust, and is explained clearly through examples.

I consider this book, along with Nouriel Roubini'sCrisis Economics: A Crash Course in the Future of Finance' to be a must read for just about anyone who wishes to understand the subject.

That being said, though it adds valuable perspective even to those who have studied the financial crisis, this book does not delve into technical details. This makes it useful to those who do either do not wish to learn about financial securities or who are interested, but just starting to study the wider subject. However, there is one small flaw that at the time I write this review has not been discussed by any other reviewers. In chapter 12, on pages 155-6, the author gives a short summary of credit default swaps (CDS). Again, this isn't a technical book, so the author only intended to give the reader a general overview, but throughout that small section he incorrectly uses the term 'collateralized debt obligation' (CDO). The latter are somewhat more complicated, and are not covered in this book.

This is only a small flaw, and I still strongly recommend this book, but readers should know that the author refers to credit default swaps in chapter 12, not CDOs

I'm a babe in the woods when it comes to

economics, so I fall into the "inquiring reader" category. Barbera's

conversational tone and amusing anecdotes make confusing concepts

accessible. He reveals his foibles (some of them hilarious) which put me at ease and actually made the book entertaining. That being said, there is plenty in here for readers who consider themselves well versed on the topics discussed. Barbera presents unconventional ways of looking at and digging out of our present financial crisis. Clearly, the old models need to be reconsidered. After reading this book, I feel more confident discussing the number one topic of our time. Highly recommended!

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic FutureBob Barbera has created a must read for anyone who wants to put the current economic decline into a broader context. The book is an easy enjoyable read, but it is densely packed with facts and explanations that shed light on the current crisis.

Fred Fraenkel

This book should be required reading for any investor large or small. Anyone planning to assume any amount of risk, be that in the financial markets, real estate, business, just about anything, will benefit from its lessons. The book provides a very helpful perspective on Wall Street and how its twists and turns affect our lives. In uncomplicated terms the cause-and-effect relationship between Fed policy and a capitalist economy is well illustrated by the author, and sound recommendations are offered for fundamental changes in Fed policy decision making going forward.

Not being a Wall Street practitioner or finance scholar, this book helped re-ground my general philosophies about risk, and I now feel better armed to make smarter choices about my own personal finances. The best part is the author has a wonderful sense of humor, turning a too often mundane subject into a fun, lively, and amusing narrative. The travails of Hal & Hannah and the mortgage mess are worth the price of admission alone! Interestingly, the author recognizes common intrinsic human errors of judgment that have played a big part in the current financial crises; lessons that translate for many of life's situations. This is a must read, and certainly suitable for those in their late teens/early twenties as a solid foundational guide.

Over the past 25 years financial market crises occurred with painful regularity due to errors and excesses. Meanwhile, our willingness to pretend that capitalism is infallible has grown. Wild Wall St. swings have included the 1987 Crash, the early 1990s S&L Crisis, the LTCM Meltdown, the dot-com crash of the late 1990s, and now the 2008 swoon in U.S. real estate. In addition, Asia had Japan's early 1990s collapse, followed by a panic several years later in emerging Asian economies.

Previously, recessions in the 1950s-1970s had followed spikes in inflation. Volker and globalization (including Asian devaluations) cured that. From 1945-1985 there was no recession caused by financial speculation; since 1985 they all were. Quiescence on Main St. (full employment) now invites businessmen and bankers to accept larger doses of debt financing; eventually, small stumbles become amplified and the cards fall. (Expressed alternatively - financial market mayhem is an inescapable part of capitalism, and our economy is not self-correcting.)

Cole also adds a bit of explanation about Japan's "lost decade." In the early 1990s, it faced our S&L problem on steroids. Stocks fell 65%, commercial real estate and land values dropped 80%. Banks were basically bankrupt, and curtailed their lending. Productivity investments did little to restore economic growth because Japan had already largely modernized. Devaluation spread across much of Asia, further holding down U.S. inflation.

Why the "Fresh" in quotes? Cole freely admits that most of his thinking came from Hyman Minsky, who died in 1996. However, Cole disagrees with Minsky's remedy - government-guided investment, and instead proposes that central and commercial bankers become more aware of the phenomena and act accordingly.

The author has done a commendable job in this book.He demonstrates the close connection and links that exist between the private commercial banking industry's penchant for loaning to Wall Street speculators,whose aim is to leverage their debt to the hilt in order to make money without producing any good or service,and the outbreak of problems of inflation and deflation.

The author is also correct to base his analysis of speculative finance on the work of Hyman Minsky.Minsky came very close to showing how Keynes was able to demonstrate that the neoclassical view ,based on Jeremy Bentham's 1789 claims that there is no uncertainty,only probablistic risk,is fatally flawed and is a special case at best.Minsky correctly connects the uncertainty of the GT with the weight of the evidence concept developed in chapter 6 of Keynes's 1921 A Treatise on Probability(TP).Unfortunately, Minsky overlooked Keynes's technical analysis in chapter 26 of the TP .This technical analysis centered on Keynes's conventional coefficient of risk and weight ,c.Keynes's analysis of c demonstrates that neoclassical analysis,which is basically Benthamite Utilitarianism dressed up in the latest mathematical and statistical garb borrowed from mathematicians and statisticians,is a special case of his general case.

Minsky improved upon Keynes's analysis of the process of speculation with his three stage approach of how Wall Street financial market speculation gradually becomes more and more dangerous over time .The third of Minsky's three stages-Ponzi finance-practically guarantees financial collapse since wide scale bankruptcy is by that time inevitable.The Madoff Ponzi scheme ,carried out over a 20 year period right under the noses of a Securities and Exchange Commission stuffed full of supporters of financial market deregulation, proved that the Ponzi finance stage was reached in the middle of 2008.

The author could have improved his book by linking Minsky's work to the extensive analysis of the dangers of allowing banks to make loans to speculators( Smith called them projectors) carried out by Adam Smith in 1776 in The Wealth of Nations and the 50 odd years of work published by Benoit Mandelbrot.His "wild risk " of the Cauchy distribution versus the " mild risk " of the normal distribution ,favored by neoclassical,Benthamite Utilitarian economists,would have also greatly supported the author's exposition.

I recommend that this book be purchased.

I personally met the author at a lecture. The book was an entertaining read. The analogies that the author used were very illustrative. He does not agree strictly with Minsky's work, but Minsky does have a place in informing macroeconomics today.