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The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy Hardcover – International Edition, September 1, 2008

3.9 out of 5 stars 42 customer reviews

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Editorial Reviews


""A well written book ... Cooper's most novel doctrine is that investors do not have to be irrational to generate bubbles."" -- Financial Times ""Financial Times""

About the Author

Dr. George Cooper is a principal of Alignment Investors, a division of BlueCrest Capital Management Ltd. He was born in Sunderland and studied at Durham University. George has worked as a fund manager at Goldman Sachs and as strategist for Deutsche Bank and J. P. Morgan. He lives in London with his wife and two children.

Product Details

  • Hardcover: 200 pages
  • Publisher: Harriman House (September 1, 2008)
  • Language: English
  • ISBN-10: 1905641850
  • ISBN-13: 978-1905641857
  • Product Dimensions: 6.4 x 0.9 x 9.4 inches
  • Shipping Weight: 1 pounds
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (42 customer reviews)
  • Amazon Best Sellers Rank: #884,430 in Books (See Top 100 in Books)

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Customer Reviews

Top Customer Reviews

Format: Paperback
There's a lot to like in this book. George Cooper (GC) provides one of the most lucid and concise descriptions of the role of central banking you're ever likely to encounter. He carefully distinguishes among the philosophies of different central bankers, such as between the Federal Reserve and the European Central Bank. His critique of the Efficient Market Hypothesis (or "fallacy", as he prefers to call it) is trenchant and clear, as is his analysis of why the "fundamentals" of a stock aren't fundamental. He highlights the heterodox theories of Mandelbrot and Minsky, which are closer to the truth than the orthodox ones Ben Bernanke used to teach at Princeton. And he writes with a wry sense of humor, including a nice one-liner about boom-bust cycles that I'm surprised other reviewers haven't mentioned: "The invisible hand is playing racquetball" (@105).

That said, this book won't give you the whole story in understanding the current financial crisis. For one thing, GC never mentions credit default swaps or other derivatives, which in the aggregate dwarf the "real" economy. Even when GC describes why balance sheets are misleading, he doesn't mention any off-balance sheet instruments, of which derivatives are one category.

For another, GC tends to be overly accepting of microeconomics, and even of the diligence of lenders. For example, he says, in a kind of defense of bond ratings analysts, "When ratings analysts are assessing the quality of a loan, ... or the mortgage broker is assessing the safety of a mortgage, they evaluate each loan against the prevailing market prices for the loan's corresponding assets. In this procedure the tacit assumption is that the asset in question can be sold to repay the loan. At the micro level this is always a reasonable assumption" (@115).
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Format: Hardcover
FYI--this book receives a good review in "Credit and blame: a must-read on the origins of the crisis," The Economist 388(8597), 13 September 2008:79.
"The [credit] crunch has lasted long enough to spawn its own publishing mini-boom, as authors have raced to give their diagnoses in print. George Cooper, a strategist at JPMorgan, an investment bank, has produced by far the best so far, skewering both academic orthodoxy and central bank policy in the process...Mr Cooper's book is by far the most cogent and reasoned of the modern-day 'credit excess' school."
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Format: Hardcover Verified Purchase
I completely agree with the positive recommendations of The Economist Magazine and the reviewers. George Cooper has combined a strong technical and practical investment background to produce a modern thoughtful study of how to best manage our complex economy. However, I disagree with Brady on its readability, I feel Cooper opens this subject up to any thoughtful investor {regardless their background) by writing in down-to-earth English. He uses everyday examples, like a baker making and selling bread. His clear understanding of the material and deep sympathy for the reader motivate him to use such everyday examples to completely dispense with mathematical equations. He still maintains the needed precision.
I was persuaded that economic crises are inevitable, and enjoyed his ideas on how we might deal with them. I want to encourage every investor and student who is curous about how we can improve our economy to read Cooper's clear, cogent presentation.
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Format: Paperback Verified Purchase
Cooper covers the same subject as Kindleberger's Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics); and that is Hyman Minsky theory that the credit cycle exacerbates both asset bubbles and crashes. Credit is too plentiful when the price of the collateral goes up; and too restrictive when the price of the collateral goes down. By doing so, creditors fuel both bubbles and crashes.

But, Cooper and Kindleberger treat the subject very differently. While Kindleberger develops an encyclopedic model of crises since the 1600s, Cooper obsesses in using Minsky's theory for rebutting the Efficient Market Hypothesis and blaming the Fed for not pricking bubbles. But, Cooper over reaches.

Cooper overlooks that his remedy (pricking bubbles) has been tried. And, the track record is scary. Two central bankers did it. One exacerbated the Great Depression. The other caused a 20 year deflation cycle in Japan.

He does not factor that the inflation/deflation risk trade off is asymmetric. It is easier to curb inflation (raise interest rates) than getting out of deflation (can't lower rates below 0%).

Cooper overlooks that a central bank mission is to manage inflation and GDP growth by responding to macroeconomic shocks. Also, asset prices (stocks, real estate) are often negatively correlated to GDP growth and inflation. For the Fed, this would mean having a single set of breaks for four different cars running in opposite directions. Thus, if the Fed was to preempt various asset bubbles, it would run into a constant policy paradox. Does it preempt a bubble and risk a dangerous deflation cycle or not?
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7 Comments 44 of 53 people found this helpful. Was this review helpful to you? Yes No Sending feedback...
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