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How Markets Fail: The Logic of Economic Calamities Hardcover – Bargain Price, November 10, 2009
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Top Customer Reviews
Cassidy refers to the idea that a free market economy is sturdy and well grounded as an "illusion of stability". He calls this "Utopian economics". This forms the first of three parts of his book and includes eight fascinating chapters on the people and ideas that shaped it.
This section of the book first lays out in great detail how economic theories and economists came about to have a large sphere of influence in central banks' monetary policy matters and governments' economic policies. It describes how the "Chicago School" of economics, propagating free market economy with almost zero regulations, ended up enormously broadening their sphere of influence in the top echelons of the US Federal Reserve and the Treasury department of the US government. What follows is an excellent exposition of 10-12 most-influential economists including Adam Smith, John Keynes, Milton Friedman, Robert Lucas and Friedrich Von Hayek, as well as a couple of mathematicians such as Eugene Fama.
Taking the reader back and forth in time, Cassidy beautifully connects the conservative economists with the "neo" liberalists, mathematics with economics, and evangelist-led economic theories with existing practices in financial markets and governmental regulations.Read more ›
1) the illusion of harmony (free markets always generate good outcomes);
2) the illusion of stability (free market economy is sturdy);
3) the illusion of predictability (distribution of returns can be foreseen); and
4) the illusion of Homo Economicus (individuals are rational and act on perfect information).
This idealized framework allowed economists to develop overreaching math models increasingly disconnected from reality. This trend started with Friedrich Hayek, leading Austrian economics, who stated in late 1930s that prices communicate near perfect information that determined underlying demand and supply. This was a brilliant insight if not taken too far. In the 1970s, Eugene Fama builds upon Hayek's insight with the Efficient Market Hypothesis (EMH) that stated stock prices captured all available information. Thus, stock prices move randomly and both technical and fundamental analysis do not add value. The theory was popularized by Burton Malkiel in A Random Walk Down Wall Street: Completely Revised and Updated Edition. The EMH was a brilliant insight backed by data (the majority of mutual fund managers do not beat the index to this day).Read more ›
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.Read more ›
Most Recent Customer Reviews
Completely misguided and starts off by not even knowing or properly defining what free markets are. Goes through and makes claims that are false about markets and what guided them... Read morePublished 3 months ago by Stephen D.
One of the best treatments of the 2008-2010 financial meltdown.Published 6 months ago by David Rodgers
A critical look at markets and what mainstream economist miss in constructing simplistic theories. Easy read, even for those not trained in economics.Published 8 months ago by Anne e Nonomous
Absolutely outstanding. Should be required reading for anyone interested in economicsPublished 10 months ago by Dr. Paul Godin
As a professional economist this book is a seminal discussion of where economics ought to be taught. The old 'micro and macro' approach should no longer be taught. Read morePublished 14 months ago by tim
This is one of my favorite books explaining market failures. Markets are powerful and useful tools, but they come with risks. Read morePublished 15 months ago by Scott Cromar
Clear, straightforward explanation for the common person about how things can and do go off balance.Published 16 months ago by Full Time Investor
Does anyone remember the most recent gigantic financial collapse? Some people do, and they wrote books about them.
Like his previous tome, Dot. Read more
This book is as engrossing as any fiction, yet the subject is all to real. The author does a fantastic job of explaining in clear and simple terms the root causes and forces... Read morePublished 21 months ago by Go Rockies