Customer Reviews

Panic: The Betrayal of Capitalism by Wall Street and Washington

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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.

"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.

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

Tbis book tells the story that Washington and Wall Street don't want you to hear: how the financial crisis was created by misguided government policies and Crony Capitalism, and how the "solutions" to the crisis are only making things worse. Redleaf and Vigilante know what they're talking about - Redleaf predicted the financial crisis back in 2006. Their book is written with insight and style, respecting the reader's inteliigence and explaining often complicated issues in clear terms. The Crony Capitalists want you to think that the financial system is too complex for you to even bother thinking about. Leave it to them, let the experts make all the decisions for you. Redleaf and Vigilante demonstrate how this elitist thinking is what got us in this mess in the first place. It's time for Americans to take back their economy from the elites who have nearly bankrupted it. If enough people read this book before election day 2010, we can save our nation from becoming a banana republic.

An excellent analysis that counters much of the silly political rhetoric that points to demons dwelling everywhere but in the halls of government and ill-considered political policies. A worthy contribution to the literature of failed economic programs.

I found "Panic" very thought-provoking, eminently worth reading both for those interested strictly in finance and for a broader audience. Both are sure to benefit from the authors' central insight: that technology and modeling do not remove the need for judgment and discernment, in finance or in general - quite to the contrary - and that what may seem like a failure of "the system" is in fact a failure to exercise these all-important qualites.

Brilliant. Lucid. Fascinating. A must read if you want to know what happened to all your money. Or where the rest of it is headed.

This book is a superb example of "thinking outside the box"--or, in this case, thinking outside modern portfolio models used by large institutional investors--models that have not produced good returns. I've never understood the "efficient market theory" (EMT)--the idea that the stock market, for example, at any given moment prices in all available information and so cannot be beaten in the long run. EMT is often attributed to Milton Friedman. But, as the authors point out, Friedman actually said this about the currency markets after World War II, his point being that no one has all the necessary information to price a currency at its appropriate level, and so markets should do it. EMT does not explain satisfactorily how the Dow can be at 14,000 in October 2007 and thousands of points below that in early 2009. The book makes you think--and suspect what passes for thinking on Wall Street and in the federal government. A must read, everyone.

One of the best books I've ever read about investing. Tremendous insights from someone who knows what he's talkking about. Read it at least twice!

A book with some perspective; it captures the realities of market events that lead to the "Great Recession", what's happening now (like the flash crash of 5/06/10) and the likelihood it could happen again. A great read with a message that is on target. Definitely would buy it again.