Customer Reviews

Debt, Financial Fragility, and Systemic Risk

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Having re-read this book for the second time,I have to confess that I still have severe doubts about the validity of the underlying assessments. The fundamental problem of the book is its pre-occuptation with the anglo-saxon shorttermist mentality which leads to ultimately misleading conclusions regarding monetary policy. Ultimately a firm orientation of monetary policy towards the medium-term objective of price stability - in the context of an 'ordnungspolitische' well-based broader economic and social framework - it the best guarantor of the financial and economic stability which is essential to reap the full fruits of economic progress. The experience of Germany over the last 30 years - which, in contrast to the poor record of the anglo-saxon economies, is characterised by a solid track record of price stability combined with the absence of notable financial fragility - is powerful evidence of the enduring truth of this proposition. While this view may not be en vogue with many financial commentators - especially those in the anglo-saxon presse - I am convinced that this will change radically in the near future, as events unfold in the US and reveal the inherent weakness of monetary policies orientated to cyclical fine-tuning and the support of stock marktes.

This book - authored by E.P. Davis the foremost expert in the study of financial crises - provides a comprehensive overview of the theory of financial fragility together with a review of a detailed review of a number of case studies. These range from the Herstatt crisis of the 1970s to the housing booms/busts in the UK and Scandanavia in the 1980s/1990s. It is essential reading for all economists seeking to understand the underlying factors at work in generating financial fragility. It should be required reading for those responsible for the supervision of financial institutions.