What happens when the people running America's financial institutions believe that human judgment is passe? When they abdicate decision-making to an algorithm? The crash of 2008 was driven by a financial establishment, dominant in both Wall Street and Washington, that betrayed the fundamental principle of Capitalism: that all wealth springs from the minds of men. The bureaucrats of capital sought refuge in rules and systems as substitutes for thought, ultimately creating a machinery of disaster they could neither understand nor control.
Panic
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Editorial Reviews
Review
"'Sometime in the next 12 to 18 months, there is going to be a panic in credit markets,' Andy Redleaf, a 50-year-old hedge fund manager, wrote to investors in December [2006]. 'The driver in the credit market panic of 2007 or 2008 will be a sudden...loss of faith in the alchemy of [mortgage] finance as it is currently practiced'....Whitebox Advisors, Mr. Redleaf's family of hedge funds, was not the only one to bet against subprime. But it did so with searing and amusing insight, a trademark of the founder and the firm." --Jenny Anderson, "A Hedge Fund That Saw What Was Coming" - the New York Times
"Has the makings of a classic." -- Robert Shiller, Arthur M. Okun Professor of Economics, Yale University, and author of Irrational Exuberance
"Panic vividly traces the causes of our current economic woes. The authors take you on a tour of pinhead intellectuals, politically protected bankers, and calamitous government policymakers. Panic is vital to understanding how we got here, and how we might get out." --Gil Weinreich, editor, Research Magazine
"The number of true contrarians is very small, and Andy is absolutely one of them." --Michael Harron, managing partner for TMF Capital Management
"Of all the dozens of books written on the financial crisis, Redleaf and Vigilante finally get it right...PANIC is a tour de force!" --Mark Skousen, editor, Forecasts and Strategies
"Brilliant" --Jim McTague, Barron's
"A wonderful indictment" --Jim Grant, Grant's Interest Rate Observer
"Has the makings of a classic." --Robert Shiller, Yale professor of economics who called the housing bubble in 2003
"Searing and amusing insight." --New York Times
"Has the makings of a classic." -- Robert Shiller, Arthur M. Okun Professor of Economics, Yale University, and author of Irrational Exuberance
"Panic vividly traces the causes of our current economic woes. The authors take you on a tour of pinhead intellectuals, politically protected bankers, and calamitous government policymakers. Panic is vital to understanding how we got here, and how we might get out." --Gil Weinreich, editor, Research Magazine
"The number of true contrarians is very small, and Andy is absolutely one of them." --Michael Harron, managing partner for TMF Capital Management
"Of all the dozens of books written on the financial crisis, Redleaf and Vigilante finally get it right...PANIC is a tour de force!" --Mark Skousen, editor, Forecasts and Strategies
"Brilliant" --Jim McTague, Barron's
"A wonderful indictment" --Jim Grant, Grant's Interest Rate Observer
"Has the makings of a classic." --Robert Shiller, Yale professor of economics who called the housing bubble in 2003
"Searing and amusing insight." --New York Times
From the Inside Flap
What happens when the nation's bankers and regulators become convinced human judgment is passé?
What happens when they abdicate decision making to an algorithm?
And then cram the algorithm with imaginary data because no one has the authority or guts to expose it as nonsense?
ANDREW REDLEAF, founder and CEO of a multibillion-dollar hedge fund and credited by the New York Times with predicting the crisis in surprising detail, and RICHARD VIGILANTE, reveal the Crash of 2008 as the "predictable outcome of an ideology that has dominated the American financial establishment for upwards of forty years."
This "ideology of modern finance" replaced the capitalist's appreciation for free markets as a context for human creativity with the worship of efficient markets as substitutes for that creativity. The capitalist understands free markets as an arena for the contending judgments of free men. The ideologues of modern finance dreamed of efficient markets as a replacement for that judgment and almost a replacement for the men.
Under the influence of contemporary financial theory, bankers and regulators abandoned basic tools of financial analysis and judgment for elaborate, statistically based insurance schemes and a blind faith in the efficiency of modern securities markets.
The result: it became impossible for either executives or regulators to fully understand the financial condition of any great modern bank. Believing that financial systems could transcend the need for human judgment the bankers and regulators combined to create financial institutions with balance sheets no one could judge.
Redleaf and Vigilante guide the reader through the history of the crash with wisdom and wit, presenting a refreshingly commonsense approach to understanding how markets actually work. Panic makes sense of a nonsensical moment in market history and reveals why booms and busts have become so common in recent decades, and what we can do about it.
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42 of 45 people found the following review helpful:
5.0 out of 5 stars
Thrilling adventure, changes how I see politics and Wall Street,
By
This review is from: Panic: The Betrayal of Capitalism by Wall Street and Washington (Hardcover)
I read this on a flight because a friend said I had to read it, and I'm glad I have friends like that. Wow. This is like the sequel to the Conspiracy of Fools about the crash of Enron, but broader and deeper in its indictment of the whole banking system and the political cronies of both parties that support it. It reads like the Das Kapital written by entrepreneurs who know all the players and all the financial models and b-school philosophies that led us into the mess, and will keep us there until they are uprooted. It challenges the notions of structured finance, efficient market theory, stock markets as the most perfect markets, diversified portfolio management, public corporations as better than private corporations, the banking system as a free market, whether the relaxation of mortgage "redlining" rules helped blacks, whether the crisis was caused by deregulation, whether home flippers were good for the economy, and whether George W. Bush was a conservative hero. The authors identify two steps the federal government could have taken to avert the brunt of the collapse: publish information about the troubled banks, not hide it; and use the TARP funds to buy up undervalued corporate bonds, not the assets of the bad banks. Some of my favorite quotes: "At the heart of crony capitalism is not corruption, but a skepticism of ideas and the practicality of principle. It is the notion that what is good for one's institutional friends is good for the country." "Bush's initial policy on the crisis was similar to his Iraq policy: create a Green Zone and a Red Zone. Both policies were failures." "In public equity markets, everybody knows nothing." "US home mortgages remained the foundation of the US banking system and thus of the American economy and the dollar itself." "Financial markets are not the most perfect market. They are close to the worst." This book was a tour de force of finance, economics, history, philosophy, and politics in very accessible and humorous language. Small-business owners, political independents, tea partiers, and anyone who wants to sound smart at a party will enjoy this. I can see this becoming required reading in econ classes and business schools. It turns so many theories on their heads.
15 of 15 people found the following review helpful:
5.0 out of 5 stars
Bad title, fantastic book,
This review is from: Panic: The Betrayal of Capitalism by Wall Street and Washington (Hardcover)
"Panic," by Andrew Redleaf and Richard Vigilante, is a giant of a book, but its title is very misleading. The book is not at all about how Wall Street and Washington "betrayed" capitalism. It's about how the vast majority of investors, politicians, and bureaucrats fail to understand how markets really work. Most of what we learned about modern portfolio theory has blinded us to some key insights which the authors share. I've been immersed in markets for over 30 years, and I can't remember the last time I read a book or article that made me rethink so many of my deeply-held beliefs.
Are you one of the many that believe in the Efficient Market Hypothesis? In the Capital Asset Pricing Model? Do you agree that, in general, the more risk you assume the greater your reward should be? Do you believe that portfolio diversification is key to managing risk? Do you think that highly liquid markets are by nature efficient? Well, think again. Read the book and discover what you have been missing. Here are some choice sound bites from the book: "Risk is not the foundation of profit but its most dreaded enemy." "Profit is the payment earned by the exercise of judgment to reduce the risk of an enterprise in an economical way." "Investors are paid for being right, not for the possibility of being wrong." "Diversification is always and everywhere a confession of ignorance." "The preference for public financial markets over all other markets creates a preference for weak ownership over strong." "Both the mortgage crisis and the crash are best understood as the result of government policies that pushed trillions of dollars in assets out of the hands of relatively strong owners and into the hands of weak owners." "The dream of market efficiency and the dream of socialist efficiency are the same dream ... both yearn for capitalism without capitalists." "Free economic markets are especially good at rewarding the creative and productive use of capital ... yet no matter how free the market, it is the men not the market who do the creating." In addition to offering numerous and seemingly paradoxical insights into markets and investing, the book does a great job of explaining how the financial crisis of 2008 came about and how, with the help of hugely misguided government intervention, it eventually led to a global recession. In my professional career I have spent hundreds of hours trying to explain derivatives to colleagues, professionals, and executives, so I was amazed to see what a good job the book does of making extremely complex securities understandable to just about anyone. The authors' prescriptions for making things better include: less government regulation, not more; less reliance on securitization, structured finance, and portfolio diversification; more respect for entrepreneurs and savers; a rejection of "too big to fail;" and the elimination of "agencies" such as Freddie and Fannie. I hasten to note that the authors are bipartisan critics, heaping plenty of scorn on the "crony capitalists" that inhabit both Republican and Democratic administrations. All investors can benefit tremendously from this book, but it should be required reading for all politicians and bureaucrats. That's because the more the government tries to shield us from risk and uncertainty, the worse things become. Rarely have I seen anyone do such a good job of explaining why that is so.
13 of 13 people found the following review helpful:
5.0 out of 5 stars
Paradigm Busting at its Best,
By
Amazon Verified Purchase(What's this?)
This review is from: Panic: The Betrayal of Capitalism by Wall Street and Washington (Hardcover)
One of the most compelling books on investing I have read in a long time and far and away the best overview of the financial meltdown published so far. Redleaf and Vigilante do a superb job of dismantling the reigning paradigms that dominate institutional investing today (from the Efficient Market Theory to Modern Portfolio Theory to the Capital Allocation Portfolio Model)and explain the role these paradigms played in setting the table for the calamity that unfolded the past 3 years. This is must reading for investors and political junkies as well. Neither the Democrats or the Republicans escape the wrath of the authors in their scathing attack of crony capitalists and their crucial role in devastating Main Street America. Investors who don't read this book are taking a knife to a gun fight.
ashby foote
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