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6 of 6 people found the following review helpful
5.0 out of 5 stars How the portfolio society went bust
Except for the title, which should be "Mismanaged by the Markets," University of Michigan business professor Gerald Davis's book is as compact and clear a description of how we screwed up a fine economy as you will find.

It is presented in the form of a quick history of the changes in American business over the past century or so, and while I think it leaves...
Published on October 4, 2009 by Harry Eagar

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5 of 8 people found the following review helpful
3.0 out of 5 stars Educational but repetitive
We live in a world where finance has outstripped production, where it is more important to make money than to build cars or refrigerators. In Managed by the Markets, Gerald Davis tries to make sense of this transition. He raises some interesting points, but ultimately the book is short-sold by needless repetition. It would make an intriguing 30-page article, but there's...
Published on July 2, 2009 by Dave Schwartz


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6 of 6 people found the following review helpful
5.0 out of 5 stars How the portfolio society went bust, October 4, 2009
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Except for the title, which should be "Mismanaged by the Markets," University of Michigan business professor Gerald Davis's book is as compact and clear a description of how we screwed up a fine economy as you will find.

It is presented in the form of a quick history of the changes in American business over the past century or so, and while I think it leaves out some important stuff, it does hit the high points.

One thing it leaves out is that until the 1920s, about two-fifths of American households were primary producers (farmers, mostly) or almost totally and directly dependent on primary producers (country stores, millers). These people represented a good deal less than two-fifths of wealth, but they were not greatly dependent on big city banks. They were dependent on wider markets and suffered when prices crashed in 1922, but if there had been a run on National City Bank, they would hardly have noticed.

Bankers were important, but their role was circumscribed. There could not have been a national housing bubble in the '20s, because mortgage lending was local, as was much banking. There was no FDIC, although some states, like Nebraska, had state bank deposit insurance (which, in the case of Nebraska, went bust in '28, without setting off any wider tremors). As Davis recognizes, banking was about to become even more circumscribed in the middle years of the century.

The dominant firms of the American economy, the giant manufacturers, were so profitable that they didn't need Wall Street or banks for any fundamental task: They found the capital they needed for expansion and renewal in their retained earnings. (Davis, keeping his eye on the target, does not mention that one of the biggest, Ford, twice nearly went broke and both times bulled its way through without giving up control to bankers or bondholders. Even if Ford was hardly typical of American management style, the fact that it could ignore bankers in a crisis confirms Davis's conception.)

As manufacturing waned as a proportion of the overall economy, finance took over. I think Davis puts this too late. The turning point can be exactly dated, to 1953, when General Motors went to the bond market for the first time and when its replaced its chief, who until then was always a production man, with an accountant.

This still might not have affected Joe Sixpack, but the worshippers of market dynamics wanted to persuade people who were too small to operate in financial markets to directly tie all their assets to market trading. Davis calls this the portfolio society. Its high (or low, depending on your point of view) point came when George Bush tried to bully Americans into transferring all their mobile wealth into the hands of Wall Street traders.

Even though Bush failed in his attempt to force Main Street to go to Wall Street, the American householder, seduced by the innovation of convenient home equity loans (you could, literally, treat them as checking accounts), transferred even his immobile wealth into the hands of Wall Street traders. If Main Street wouldn't go to Wall Street, Wall Street figured out how to come to Main Street. In the '20s, shoeshine boys played the stock market and, notoriously, Joseph Kennedy liquidated his securities when his taxi driver started giving him stock tips; but back on the farm, nobody was buying Radio on margin and hoping to see it break $1,000. By 2007, everybody was a playah.

The theory of market orientation as the sole and only good form of economic organization assumes participants (and especially those with asymmetrical power) are at least conventionally honest in the sense that you could invite them into tea and not have to count the spoons afterward. That was the unspoken foundation behind the Bush proposal.

In fact, of course, that assumption is unjustifiable. Davis has plenty of examples dating back to the Roaring Twenties and he makes use of many of them. Despite the fact that anybody who opened his eyes could see that the financial markets never had operated as the efficient market theorists had theorized, there was a well-greased publicity organization set up to persuade people not to believe their own eyes.

Davis calls this a faith-based economic system.

He is one of many observers to have noticed that the switchover from a production economy to a finance economy coincided with a generation of workers who, for the first time in American history, could not expect their children to enjoy better material terms of existence than they had; and, for the majority of workers, not even the ability to maintain their own position.

It was said that shipping productive jobs overseas would free American workers to do new, yet undreamed of tasks that would pay better. The theorists of this view failed to care that there were millions of Americans who were in no position to take these new jobs, even if they were offered (which, for the most part, they were not).

The only really basic economic statement ever made was spoken by a social worker, Harry Hopkins, who said, "People don't eat in the long run. They eat every day."

The prophets of finance never concerned themselves about that. In the new economy "workers were all temps."

It might have worked even so, if the financial manipulators had been honest and if they had understood the risks they were creating. With trivial exceptions, they were neither. "Wall Street came to Main Street like a tornado in a trailer park." Square dealing -- to the extent it was ever common -- was replaced by "cynical pragmatism."

Now all the fine theories have been exposed -- again -- as mistaken, but the fine theorists are not budging.

Despite the fact that the era of mixed capitalism inspired by the New Deal was the richest and most stable in history, the finance- and market-oriented theorists and practitioners worked hard and successfully to dismantle it.

"Managed by the Markets" is not some mere Progressive or left-liberal polemic against Wall Street manipulators. Because it is based in an accurate historical review of the stepwise process by which financial considerations replaced virtually every other concept of economic or social good, Davis' book delivers a believable verdict on a sort of mass delusion, akin psychologically and spiritually to the Children's Crusade of the Middle Ages or the witch mania of the 17th century.
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7 of 8 people found the following review helpful
5.0 out of 5 stars Smart, Savvy and An Absolute Essential, June 5, 2009
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This is hands-down one of the most well written books covering the current economic crisis that I've read to date...and as a college instructor (business) and writer, I've read more than my share. It's intelligent, well organized, clear and right on the mark.

Those that are trying to make sense of what is taking place and why will find the background information easy to understand without insulting ones intelligence...however, unlike the vast majority of writers, the author doesn't stop with the basics. He takes time to explore where we came from, where we are today (as a nation and globally) and where we are likely heading in the future but without giving into the "easy money" hype of trying to forecast the future or make wild claims. Instead, he presents the information in a factual manner that allows the readers to draw their own conclusions and spot opportunity as well as risk inherent in the system itself.

During every major transition there are those that continue to work/invest from the former perspective while others realize that change is taking place. This is not an investment book per se but rather an in-depth exploration of the transition along a likely continuum.

Who Will Like This Book...
-Investors - those that want to understand the investment environment not merely those searching for a 'how to' or checklist.
- Business Owners
- Government Officials
- Political and/or Social Science Buffs
- Anyone seeking to better understand how we got here and were it heads into the future

Plain and simple, this is for those that don't mind to think...and think you will because the information, direction and long term consequences will not be easily digested - or resolved. Inform yourself.
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8 of 10 people found the following review helpful
4.0 out of 5 stars Managed by the Markets, or by the Financial Oligarchs?, June 18, 2009
By 
Patrick M. Hussey (Baltimore, MD, United States) - See all my reviews
(REAL NAME)   
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Managed by the Markets is an exquisite overview of modern finance-based "capitalism" as defined by most mainstream observers. The author shines when discussing corporate governance, as he has specialized in this area. The author also provides a strong overview of securitization, although his coverage of derivatives was weaker than hoped. The author covers a bit of the dot.com bubble as well, which would make this a useful text for younger students who missed that era, though older observers might skip it. The author flirts with mentioning the Money Trust that created the Fed, by citing Brandeis' classic "Other People's Money, and How the Bankers Use it". However, he dismisses the conspiratorial view that financial elites may have deliberately imploded the economy in order to own a larger portion of it.

"From Sovereign to Vendor-State" was a useful chapter, but the following chapter, "From Employee and Citizen to Investor" was not. Although people may have defined themselves in such terms circa 2005 or even 2007, the vast loss of wealth since then has introduced a new frugality. People are reconsidering their status as financial cogs, and rediscovering the human element. I have noticed this in previous recessions as well - perhaps the personal empire building reverses when one's financial coliseum collapses.

For this reason, and a few others too detailed to cover here, the Conclusion seems inaccurate and premature. The pervasiveness of finance has not created a portfolio society, but rather has been revealed as tremendously destructive force when coupled with extremely loose monetary policy. Modern cowboy finance as practised by the large banks has become a wealth destroyer and a parasite, not a wealth enhancer. The author seems to have a Keynesian bias, which may be why agrees with the bailouts and does not seem to foresee the imminent demise of the present monetary order. From an Austrian perspective, it seems obvious that the cost structure of the US economy has become bloated from inflation and over-taxation, and has to contract consumption to remain competitive at the international level. This will require a devaluation of the dollar, and possibly a loss of reserve status.

In spite of a few minor shortcomings at the analytical level, Managed by the Markets is a wonderful title with a very good summary of events up to November 2008. Consequently, it deserves a strong four stars.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Very good book to understand transition to current finance system, August 20, 2009
By 
Dan Sherman (Alexandria, VA USA) - See all my reviews
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This is a dense book in the best sense of the word. It covers a lot of material in a fairly brief space and in a way that you really needed to pay attention to individual sentences. A lot is said in this relatively short (250 page) book and it really is not for skimming. I found myself going back and ready short sections over again, to make sure I understood all they contained. The book is well written, and is easy to read in terms of language- it just needs to be read carefully.

I have read many books on economic history and found that this book gives a nice short history (some may say too short) of how major institutions developed in the country (book mostly has an American perspective), right up to the present place where financial institutions became predominant before their collapse in late 2008. The focus of the book is the past 30 or so years, with shift to an international, highly securitized economy. The book is neither a business book (i.e., how to invest) or really a history book per se, but more of a sociology book that shows how institutions changed and ultimately affected individuals -- i.e., moved from a one-employee career with benefits at a manufacturing firm to a day trader/401(k) who may own mutual funds or individual stocks but is very distant from any enterprise.

This is a very, very good book that doesn't have a particular view (e.g., capitalism is good or evil). I found it easy to read with lots of interesting content -- the (academic) author has done his research and knows his sources (there is a good set of references and endnotes).

I suppose my only complaint is that it really doesn't extrapolate things into the future (a dangerous thing I suppose). Although it has a very short "What's next?" section, it would have been nice to read how financial system might change after events of 2008 and what possible policies might be. There was so much good groundwork in this book, a little speculation would have been good.
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1 of 1 people found the following review helpful
5.0 out of 5 stars What happend to the American Dream!, July 16, 2009
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Prior to reading this book I read several highly publicized books on the current US economic crisis, but this book was by far the best. As suggested by the title Finance has revolutionized the American economy and society. The author utilizes historical evidence and illustrates how America transitioned from an industrial to a financial economy. The book has many interesting statistics that demonstrate the average employment life of an American in different sectors, and how this rapidly changing labor market has destroyed social mobility. The book discusses how America became more and more dependent on the market as a result of the destruction of the social safety nets and the rapid growth of portable 401ks, and contract employment, which has created this disloyal employers.
I agree with some of the reviewer about the repetitive nature of the theme but it is still very readable, full of interesting ideas and insightful.
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1 of 1 people found the following review helpful
4.0 out of 5 stars " 'It's easy to build a car. It's harder to build a brand.' ", June 19, 2009
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The above quote came from Ford Motor's chairman and declares that the work of physically building an automobile can be left to anyone, and Ford management ought to concentrate on advertising and sales concepts. Add to that Sara Lee's CEO's statement that Wall Street has " ' decided to give premiums to companies that harbor the most profits for the least assets.' " These comments point to misguided corporate trends that, in part, have precipitated the recent and ongoing financial meltdowns. Business elites have shifted focus from building solid organizations with production of products in mind to captaining nexus corporations that deal in information, contracts, and affiliations. Likewise, financial institutions such as banks, brokerages, realtors, and insurance companies have, mainly through deregulation, lost their separate identities and functions to become shell clearing houses for complicated financial instruments, such as Collateralized Debt Obligations (CDOs). Instead of firms sticking to their own original areas of expertise, they have uprooted themselves in the "post-industrial" economy. And, of course, large segments of the public have been swept along as less-than-fully-informed investors in the real estate and stock market booms that have now gone bust.

In Managed by the Markets: How Finance Re-Shaped America, Gerald F. Davis systematically chronicles how we Americans arrived at our current predicament. In his words, "My aim in writing this book was to sketch a map of how finance and post-industrialization have reshaped contemporary American society." In comprehensive chapters on financial markets, corporate evolution, the effects of disintermediation on banking, how governments are becoming "vendor-states," and how citizens have morphed into investors, he traces these various threads with scholarly method. Chapter Three, "From Institution to Nexus: how the Corporation Got, Then Lost, Its Soul" stands out as particularly informative and absorbing, but the discussions on "From Banks to Markets" and "From Sovereign to Vendor-State" rank nearly as highly on the "valuable" scale.

If there is a downside to MANAGED BY THE MARKETS, it is that Davis's scope limits his ability to address the full complement of causes of our present situation. The Federal Reserve's decisions, ballooning government spending, and ever-widening social contracts with concomitant future liabilities all contribute. Davis, however, mainly (though not exclusively) analyzes the "private" side of things, and this constrains him in the search for how to disengage from and correct the faults. He says simply, "In short, government is needed to help create a new set of institutions to address the void created by the end of corporate feudalism and the rise of financialization. but after the past decade of government outsourcing, it is perhaps less equipped than ever to accomplish this." But Davis is not unreasonable to limit his range of subject matter.

Overall, MANAGED BY THE MARKETS provides a detailed historical survey that does indeed prove the accuracy of the title: the markets have become the preponderant force in America and much of the world. Instead of being seen as civic or simply human entities, we're "consumers" and "investors." We're also just cogs in the wheels of multinationals, financial institutions, and governments, all of which seek more control, globalization, and standardization and which are not, organizationally, interested in redressing these basic problems: lack localism, of accountability and comprehensibility, and of human worth values.
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1 of 1 people found the following review helpful
4.0 out of 5 stars Not an easy book to read, June 18, 2009
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The thesis of this book is that "the shift from a manufacturing to a service (or post-industrial) economy in the United States has been decisively shaped by finance." People, labor, houses, and bank accounts are now treated as commodities to be bought and sold in the marketplace, which is itself increasingly free of governmental control. In the final chapter, the author outlines several deleterious effects of this shift: "less mobility, more inequality"; "educational insecurity"; "the end of the corporate safety net"; "dangerous financial services"; and "the brain drain from government to contractors." The author believes that New Deal-like policies are needed to fulfill the state's obligations to its citizens.

To be perfectly honest, this book was a hard slog reading, not because the author is clear and precise, but because many of the financial concepts and sociological observations are a bit out of my ken. It was also hard to read because I'm politically on the right while this book is center-left or left. So, to me at any rate, some of the diagnosis and prognosis seems wrong, although I don't know that I could argue against it.

At any rate, given the deep mess our country is in economically, and despite my reservations about this book, I think it's worth reading.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Well Written Explanation of the Shift in the Economy From Manufacturing to Finance, June 15, 2009
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scesq "scesq" (New Milford, New Jersey USA) - See all my reviews
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I picked up this book because I wanted a better understanding of why my supposedly safe mutual funds lost so much of their value. The book's premise is that today's economic crisis is the result of finance replacing manufacturing as the center of the American economy.

Prior to reading the book my only exposure to economic theory was an economics course I attempted to take in college which I quickly dropped when I looked at the textbook. When I first picked up this book I was a bit intimidated but I found it to be something I was able to understand and it gave me a better understanding of the American economy. I don't consider this to be light reading but you don't have be an economist or have a financial or economic background to learn something from this book.

This book is written in a scholarly tone with thorough footnoting, ten pages of references to texts on the subject and a great index. Yet the author does not focus on complex economic theory but rather gives concrete examples of how corporations, finance companies, stockholders and the government played a part in the current economic crisis.

I don't have the economic background to evaluate the author's premise but he convinced me that the shift from a manufacturing based economy to a finance based economy is the reason for our financial situation and that recognition of this shift is necessary to ensure that the economic crisis ends.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Excellent job explaining a complex topic succinctly, June 12, 2009
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This book is very well written, well referenced, and very interesting. Gerald Davis explains his theory about how our current financial crisis has evolved. This book is basically the author's treatise on the effects of finance on society. You may not agree with everything he has to say, but his arguments and well stated. Thought provoking is the least anyone can say about this book.
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5 of 7 people found the following review helpful
5.0 out of 5 stars Excellent read, May 11, 2009
This is a terrific read. Very accessible to all, it charts the changes in US brought on by Wall street. It is dripping with anecdotes and humorous observations. I would strongly recommend it for anyone wanting to get a deeper understanding of our current predicament.
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Managed by the Markets: How Finance Re-Shaped America
Managed by the Markets: How Finance Re-Shaped America by Gerald F. Davis (Paperback - October 15, 2011)
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