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The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy Hardcover – International Edition, September 1, 2008
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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).Read more ›
"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."
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.
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?Read more ›
Most Recent Customer Reviews
Very good insight into the current economic issues the global economy is facing.Published 11 months ago by Hossam
Good reading for understanding all that went into the 2010ish financial collapse. Understand why government oversight of Freddie Mac and Fannie Mae kept these mortgage funding... Read morePublished 15 months ago by M. Miloserdoff
This book is based on gross misunderstanding of the Efficient Market Hypothesis (EMH). For example, the author claims that the ability of LTCM to make huge returns and then go bust... Read morePublished 15 months ago by Kras
Good; but the book fails to address the political decisions, which led to the crisis, i.e. fulfilling the purported aspirations of every American family to own their own home... Read morePublished 16 months ago by richard alu
I'm an economic layman attempting to learn about it from popular books. I couldn't finish this book because it's style, typography, structure and the like are so inconsistent that... Read morePublished 20 months ago by A. J. Mcghee
An impressively readable introduction to key financial phenomena and concepts, and a nice refresher for those with more background in the area. The guy is kinda funny too.Published on January 25, 2014 by R. Finley
`Regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices. Read morePublished on September 2, 2012 by Jasper Tamespeke
This vastly entertaining book offers numerous insights into how financial crises arise and how they can be dealt with. Read morePublished on July 13, 2012 by Andrew Baldwin
This was an excellent read, but disheartening. It clearly lays out how, while Adam Smith's invisible hand applies to the market for goods, it does not apply to the asset markets,... Read morePublished on April 6, 2012 by Jeffrey D. Kenyon