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181 of 196 people found the following review helpful
on March 3, 2010
Format: HardcoverVerified Purchase
I've written quite a bit about the financial crisis, and God knows I've read nearly every book on the subject, and I have no hesitation in saying that if there is one book that gets it whole, and gets it right, and is THE book for the intelligent, thoughtful reader to turn to, it is ECONNED. This is not an anecdotal recitation of deal gossip (like, for example, Sorkin's book); it's not "source-based" journalism reflective of the way certain participants in the dire events that unfolded in 2007-2009 wish themselves to be seen. It lays out, in what is easily as clear, as direct, as smart and with as much force of fact as any financial writing today how exactly the fun and games that have nearly wrecked our economy and the lives of so many of us went down. Yves Smith is, unlike so many other writers feeding off the crisis, writing about it from the inside: with an unfailing grasp of where the details (where the devil lurks) fit into the larger pattern of financial perfidy and destruction, in this Doomsday Machine that Wall Street put together. The intelligent reader will understand that if you want to know why you're suffering from acute ptomaine, you have to understand what went into the sausage you got it from. And then you have to be made to see plain the kind of restaurant or market that serves up this toxic offal. And then the regulatory failures that allow such places to be licensed. We have undergone one of the great crises in this nation's history. It needs to be seen plain and understood. Deadline-driven blahblahblah won't get the job done. But ECONNED does. I cannot recommend it highly enough.
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99 of 109 people found the following review helpful
Format: Hardcover
I have been a huge fan of author Yves Smith's Naked Capitalism blog for years now, and this book is a major triumph, putting in one place and fully developing the major themes that Smith has explored on her blog over the course of the recent financial crisis. While this might appear to be well-plowed territory, Smith tells it as an economics story that is really a story of a failed democracy. The linchpin of her work is the ascendant power of Wall Street over Main Street during the Greenspan era and now the Bernanke era. Complicit with politicians, financial regulators, and the revolving door of government service, the big Wall Street firms and banks have, according to Smith, seized the political process to serve their narrow, financial interests instead of those interests that serve a well-functioning polity. However, despite the seemingly inflammatory thesis, this book is no rant. Smith, an industry insider, is one of the smartest and expert observers of the flawed process that we now have, and the book is loaded with incisive explanations that pull it all together for the average reader in clear and at times thrilling language. In the broadest sense, this is a moral tract as much as an economics and political one. The moral outrage, while controlled and polite, is palpable on every page. In essence, this is a deeply informed book that does what economics and political tracts almost never do: it tugs at the heart as well as at the mind.
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74 of 83 people found the following review helpful
on March 3, 2010
Format: Hardcover
I was skeptical that we needed another book on the current financial crisis. But Econned provides a different and invaluable take on the issues. The book shows how corporate and governmental misunderstanding -- coupled with misuse of free market ideology -- enabled predatory practices in the financial services industry, and how current systems can't correct the problems. The book held my interest more than most economics and business books with its anecdotes, historic perspective, and Smith's engaging (sometimes irreverent) writing style.

While Econned covers technical points on economics and financial instruments, it's jargon-free enough that I can share this one with my non-business friends. And I plan to share it, since the explanations enable the author to build the case by Chapter 9 of how one company in particular structured operations to maximize its own profits while devastating major economic sectors. The book achieves a hat-trick of sorts: cogently explaining how and why the current policies are flawed, naming names and revealing exactly how some players took advantage of the flaws, and showing how current reform proposals need to be changed to fix the problem.
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35 of 41 people found the following review helpful
on September 25, 2010
Format: Hardcover
There are many good reviews of the book published already and I don't want to repeat them. But I think there is one aspect of the book that was not well covered in the published reviews and which I think is tremendously important and makes the book a class of its own: the use of neoclassical economics as a universal door opener for financial oligarchy. I hope that the term "econned" will became a new word in English language.

Neoclassical economics has become the modern religion with its own priests, sacred texts and a scheme of salvation. It was a successful attempt to legitimize the unlimited rule of financial oligarchy by using quasi-mathematical, oversimplified and detached for reality models. The net result is a new brand of theology, which proved to be pretty powerful in influencing people and capturing governments("cognitive regulatory capture"). Like Marxism, neoclassical economics is a triumph of ideology over science. It was much more profitable though: those who were the most successful in driving this Trojan horse into the gates were remunerated on the level of Wall Street traders.

Economics is essentially a political science. And politics is about perception. Neo-classical economics is all about manipulating the perception in such a way as to untie hands of banking elite to plunder the country (and get some cramps from the table for themselves). Yves contributed to our understanding how "These F#@king Guys" as Jon Steward defined them, economics professors from Chicago, Harvard, Columbia, Princeton and some other places warmed by flow of money from banks for specific services provided managed to serve as a fifth column helping Wall Street to plunder the country. The rhetorical question that a special counsel to the U.S. Army, Joseph Welch, asked Senator McCarthy: "Have you no sense of decency?" applies.

The main effect of neoclassical economics is elevating unregulated ( "free" in neoclassic economics speak) markets into the key mechanism for distribution of the results of economic activity with banks as all-powerful middlemen and sedating any opposition with pseudo-mathematical mumbo-jumbo. Complexity was used as a powerful smoke screen to conceal greed and incompetence. As a result financial giants were able to loot almost all sectors of economics with impunity and without any remorse, not unlike the brutal conquerors in Middle Ages.

The key to the success of this nationwide looting is that people should be brainwashed/indoctrinated to believe that by some alchemical process, maximum level of greed results in maximum prosperity for all. Collapse of the USSR helped in this respect driving the message home: look how the alternative ended, when in reality the USSR was a neo-feudal society. But the exquisite irony here is that Bolsheviks-style ideological brainwashing was applied very successfully to the large part of the US population (especially student population) using neo-classical economics instead of Marxism (which by-and-large was also a pseudo-religious economic theory with slightly different priests and the plan of salvation ;-). The application of badly constructed mathematical models proved to be a powerful tool for distorting reality in a certain, desirable for financial elite direction. One of the many definitions of Ponzi Scheme is "transfer liabilities to unwilling others." The use of detached from reality mathematical models fits this definition pretty well.

The key idea here is that neoclassical economists are not and never have been scientists: much like Marxist economists they always were just high priests of a dangerous cult -- neoliberalism -- and they are more then eager to stretch the truth for the benefit of the sect (and indirectly to their own benefit). All-in-all this is not unlike Lysenkoism: state support was and still is here, it is just working more subtly via ostracism, without open repressions. Look at Shiller story on p.9.

I think that one of lasting insights provided by Econned is the demonstration how the US society was taken hostage by the ideological views of the neoclassical economic school that has dominated the field at least for 30 or may be even 50 years. And that this ideological coup d'état was initiated and financed by banking establishment who was a puppeteer behind the curtain. This is not unlike the capture of Russia by Bolsheviks supported by German intelligence services (and Bolshevics rule lasted slightly longer -- 65 years). Bolsheviks were just adherents of similar wrapped in the mantle of economic theory religious cult, abeit more dangerous and destructive for the people of Russia then neoclassical economics is for the people of the USA. Quoting Marx we can say "History repeats itself, first as tragedy, second as farce".

That also means that there is no easy way out of the current situation. Ideologies are sticky and can lead to the collapse of society rather then peaceful evolution.
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27 of 32 people found the following review helpful
on April 17, 2010
Format: HardcoverVerified Purchase
The basic premise of the book is that economic theory facilitated the current pathology of Wall Street that lead to the 2008 meltdown. This cannot really be true.

Why? Because we have had sociopaths extracting money from people via the financial markets a lot longer than economics as a study even existed, and certainly before the post WWII "mathefication" of economics. If economics did not exist, you would still see much of the behavior that we see today. [Read "This Time is Different" to get a history of banking crises and panics on a global scale]. However, one could certainly see economists as the "useful fools" that facilitated the emergence of a market based, rather than rules based financial system, that allowed the predatory behavior to occur again, by providong the rationale to remove the regulations put in place after the banking collapses in the Great Depression.

That aside, where this book truly excels, is the explanation of what CDOs and CDSs are, and how their development was a, if not the, proximate cause of the 2008 meltdown. The story that Smith weaves is cogent and well written. If main street read this book widely, politicians doing the bidding of Wall Street would be seriously reconsidering their actions to wrist slap the banks and instead put in some serious regulations to control the industry. The only thing that politicians fear more than loss of funding for their elections is an electorate that is mad as hell and going to sweep them out of office for not attending to the needs of their constituents, rather than special interests.

Read this book just for the clear explanation of what happened in the previous decade and use it to understand how Congress is [or more accurately insn't] dealing with the problem.
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26 of 31 people found the following review helpful
on March 7, 2010
Format: Hardcover
"The result has been a massive transfer of wealth, with its centerpiece the greatest theft from the public purse in history. This campaign has been far too consistent and calculated to brand it with the traditional label, "spin". This manipulation of public perception can only be called propaganda. Only when we, the public, are able to call the underlying realities by their proper names--extortion, capture, looting, propaganda--can we begin to root them out." -- Yves Smith, Econned

Econned is the story of how our financial system has become a mass ruse, allowing Wall Street and the largest banks to become predatory, treating their clients as lambs to be fleeced and fatted calves to be slaughtered. It is the story of how a very small group of people gained complete control over the American, and much of the global economy, driving it into the ground, then walking away with trillions of more dollars, while the economy remains on life-support.

Econned is an excellent read and needs to be read by all. It is the story of a criminal class, who have separated themselves from the majority to seek their own profits. It is the story of how our political economy is broken. In the end, it is a call to the American people, in the great tradition of this republic, to step-up and fix it.
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21 of 26 people found the following review helpful
on March 19, 2010
Format: Hardcover
Yves Smith does a credible job of exposing the underlying issue with the current financial crisis, and that is that the neo-classical theory has been proved wrong again. And yet the purveyors of this nonsense are still in denial. Some still argue that this failure was due to too much government control, too much regulation; despite the fact, as Smith points out, that the vast bulk of the financial instruments that have caused this disaster were in fact unregulated. What we currently have is a group of academics that are heavily invested in the current theory/paradigm and cannot denounce it, without denouncing their life's work. They are wedded to the modern equivalent of the phlogiston theory. Evidence will not persuade them that they are wrong. As Kuhn pointed out paradigms are not overthrown, they die away as the believers die away. Unfortunately in economics the death rate is much too slow.
The moral of this tale is that you can tinker with regulations and banking rules, but unless we fix the underlying economic theory then we will relive this again in a few years. It really is the theory, stupid.
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19 of 24 people found the following review helpful
Format: Hardcover
ECONNED is the most deeply researched and empirically validated account of the financial meltdown of 2008-2009 and how its unaddressed causes predict similar crises to come. As a long-time Wall Street veteran, Yves Smith through her influential blog "Naked Capitalism" lucidly explains to her over 2500,000 unique visitors each month exactly what games market players use and how their "innovations" evolved over the years to take the rest of us to the cleaners. Smith is that unusual combination of scholar, expert, participant and teacher, who writes with a clarifying sense of moral outrage and disgust at the decline of ethics on Wall Street and financial markets. What makes ECONNED so valuable is Smith's deep grasp of how faulty, outdated theories underlying economics led to reliance on faulty mathematical approaches and bogus asset valuation models derived from the ideologies of "efficient markets" and "rational actors."

Many others have examined Modern Portfolio Theory (MPT), Capital Asset Pricing Models, Value at Risk, even the famous Black-Scholes Options Pricing models, and exposed them as based on unreal assumptions and extrapolations of past market behavior. Robert Nadeau, Herman Daly, Steve Keen, Nassim Nicholas Taleb, Pablo Triana and I have ploughed this ground. Even earlier, Hyman Minsky, Herbert Simon, John Maynard Keynes and Thorstein Veblen exposed the same theoretical economics house of cards. For over a century, economists have ignored these critiques, including those from physicist Fritjof Capra, mathematician-historian of science Nicholas Georgescu-Roegen and Nobelist chemist Frederick Soddy. Never a science, the economics profession expanded, colonizing other disciplines from psychology, brain science, anthropology to complexity and systems analysis - now bestriding decision-making in both the public and private sectors.

Yves Smith endorses many of the obvious reforms still opposed by the financial lobby and stymied by financial campaign money to Congress members. They include separating retail deposit-taking banking and regulating its activities as a public utility; banning rating agencies from being paid by issuers of securities they rate; gradually raising the costs to issuers of credit default swaps to guarantee their promises; raising bank capital adequacy reserves, reducing leverage and other reforms. Throughout, she interweaves her revelations about Wall Street shenanigans with deep analysis of causes, deficient theoretical underpinnings, the gradual devolution of capital markets in a race to the ethical bottom.

Yves Smith is silent on the growing calls for financial transaction taxes, as I have proposed for decades (see The UN: Policy and Financial Alternatives, 1995, 1996, and Building a Win-Win World, 1996, now an e-book). She also misses the efforts of many real Nobel prize winners, as well as Nassim Taleb, mathematician Ralph Abraham, economic historian Robert Nadeau, myself and even Peter Nobel, descendent of Alfred Nobel, to de-link the phony "Nobel Memorial Prize in Economics," set up by the central bank of Sweden to legitimize economics as a "science," from the real Nobels. Nor does she stray outside of the "money box" to examine the deeper paradigm problem of our corrupted, overloaded money circuits. We see money printed daily on TV, but we often miss the huge volume of transactions now made electronically in online barter worldwide, amplifying the existing barter or counter trade which is traditionally estimated as up to 25% of all global trade. The new plans to bypass Wall Street (see [...]) include the plans in Michigan and other states to create state-owned banks like that of North Dakota, local credit and the many programs like time banking and currencies such as the Berkshares in Massachusetts. These trading platforms lie beyond money circuits and will continue to speed the transition from fossil fuels to the Solar Age, including using new, inflation-proof currencies based on energy: KWHs and BTUs.

Yet, this courageous book is the best guide to tackling the unwarranted power and unbridled greed of the bloated financial sectors preying on our real economies. Read it!

Hazel Henderson, Ethical Markets: Growing the Green Economy,The Politics of the Solar Age, Alternatives to Economics
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14 of 18 people found the following review helpful
on March 9, 2010
Format: Hardcover
Roseanne Rosannadanna used to say "I'm sorry, never mind" and we'd howl with laughter.

On the other hand when Alan Greenspan sheepishly delivered his version in October `08, "The whole intellectual edifice...collapsed in the summer of last year.", the reaction was more WTF?

To help understand what the Oracle might have meant and what it means to us , Yves Smith examines that edifice, piece by piece, player by player (Fed Treasury, ratings agencies, bankers, think tanks) to describe a kind of con that resulted from adopting flawed psuedo-scientific economic theories that drove monetary and (de)regulatory policy.

Those policy choices had consequences. For example, she describes an underreported strategy that employed some of the derivative `innovations' that accelerated the flood of money into subprime mortgages just at the point where it was becoming obvious to anyone with a pulse, including policymakers, that this ship was going down, and soon. The money needed to keep the lending programs alive was provided by those investors who were clever enough to game the system to pump and dump subprime.

This turns the conventional wisdom that the bubble is the fault of greedy homebuyers on its head and lays responsibility back where it belongs, at the feet of policy makers and the bankers we've protected. That critical point needs to be heard, loudly and frequently as we try to evaluate solutions to both the systemic banking crisis and the foreclosure crisis dumped on the government, and us, as a result of this economic belief system.
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11 of 14 people found the following review helpful
on September 23, 2010
Format: HardcoverVerified Purchase
ECONNED is near the top of the list of books which should re required reading for anyone needing an understanding of what happend to cause the financial crisis, how it developed and why no one in authority acted in any meaningful way to repair the flaws in the system. Yves Smith understands the system and is a brilliant "explainer". ECONNED is an excellent place for someone to start to come to grips with the "real world" of political finance. There are other books which should be included in order to fully appreciate just how far down the road toward financial and political armageddon we have been walked -- most with no real understanding of why or how it happened. Some of them are: Bad Money by Kevin Phillips; A Demon of Our Own Design by Richard Bookstaber; Debunking Economics by Steve Keen; The Myth of the Free Market by Mark A. Martinez; The Collapse of Complex Societies by Joseph Tainter; Free Lunch by David Cay Johnson; and, Contagion by John R. Talbott -- and many more. (see links below)

However, anyone seriously interested in the whys and wherefores behind the crisis should, above all, read Hyman P. Minsky's Stabilizing an Unstable Economy. Minsky, Keen and Yves Smith are among the few who truly understood the brilliance of John Maynard Keynes (mostly thanks to Minsky) and just how his economic theory was distorted, abused and finally blamed for all that is currently wrong with our political economy. It is probably too late to actually "fix" the problems which are and will continue dragging the empire down, but it is never too late to come to an understanding of why it is happening and what the consequences are likely to be for all of us.

In addition to the books mentioned, there are a number of excellent blogs which are currently providing the best and most current information on the state of the economy. Among the best are Yves Smith's Naked Capitalism; Dave Cohen's The Decline Of The Empire; Calculated Risk; and, at times (it's quirky Libertarianism) Zero Hedge. Also of interest is Yahoo's Tech Ticker and the world's best newspaper, The Financial Times (which is indispensible for news of the world - not just for finance). Rest assured that you will not find any useful or even accurate information staying gluded to the cable news / finance channels - these are now almost entirely "infotainment". So, if you truly want to be informed find the good authors who know what they are writing about, buy and read their books and, when available, patronize their web sites - you, and the rest of us will benefit enormously from this patronage.

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial InnovationStabilizing an Unstable EconomyBad Money: Reckless Finance, Failed Politics, and the Global Crisis of American CapitalismDebunking Economics: The Naked Emperor of the Social SciencesThe Myth of the Free Market: The Role of the State in a Capitalist EconomyThe Collapse of Complex Societies (New Studies in Archaeology)Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and StickYou with the Bill)Contagion: The Financial Epidemic That is Sweeping the Global Economy... and How to Protect Yourself from It
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