18 of 18 people found the following review helpful
on February 6, 2010
Lucid, non-technical and jargon-free writing weaves historical background, details about places, people and events, and most importantly, important ideas in this book. Don't expect to agree with everything the authors propose - there are ideas you will agree with and ideas that you will disagree with but without fail, every chapter will inform you and make you think more deeply. As we wade through what we have learnt from the recent financial crisis and debate reforms that are needed, Bishop and Green provide a balanced view, cautioning us against falling for "false remedies" and reminding us that "finance, although imperfect, is still our best tool for managing risks" and "no alternative economic model is challenging capitalism, for all its flaws, as the best way to meet the needs of the expanding global population." I am recommending this stimulating book not only to my students and academic colleagues but also to my friends and family members.
11 of 11 people found the following review helpful
on February 7, 2010
This book is different. There have been lots of book on the economic crisis that read like a soap opera or a whodunnit. The Road From Ruin explains why the crisis happened, and how we can get out of it in better shape than we went into it. Well-written, convincing, and an enjoyable read for the general reader as well as the expert, it ranges widely, from the future of economics to how to improve financial regulation and why we need to put values at the heart of capitalism. Essential reading for anyone interested in the reset economy.
6 of 6 people found the following review helpful
on April 27, 2010
This is a very ambitious book, requiring an in-depth review. The authors cover the broad sweep of topics relevant to current economics policy, using the banking crisis as the focal point. They provide a well-written history of financial crises, economic thought and policy responses. They effectively undermine the simplistic and knee-jerk solutions of extremist politicians and columnists. They assemble the relevant topics, analyze them and bravely set forth a coherent set of policy solutions within a broader context of the future of American and global capitalism.
Many of the positions restate mainstream economics viewpoints: free trade, free markets, better ag policy, modest fiscal/monetary responses to a weak economy, anti-protectionism, allow derivatives, allow short-sales, don't allow the financial system to collapse, pure free market or pure regulatory solutions are suspect, etc.
The authors provide a large number of important, relevant insights about the current economic situation: currency imbalances harm both countries; Keynes and Smith offered deep solutions; improved financial market information is valuable; extreme efficient market, rational expectations and rational man views are inadequate; liquidity and solvency both matter, but are tough to disentangle in practice; common bank risk models increased the risk to the whole system; innovation starts bubbles and they end when experimentation breaks limits; the role of moral hazard is central but must be de-emphasized in the midst of a crisis; capitalists find ways around regulations; the RTC bad bank model worked; the impact of financial crises varies widely based upon policy responses; purely efficient markets are undermined by agency problems; regulatory capture, limited information and irrational decision-making; alternatives to corporate structure in partnerships, private equity and rich/powerful CEO's exist; and the general international government response to this crisis was better than ever before.
The authors summarize their specific solutions in a concluding chapter: bank risk can be reduced by living wills and contingent capital reserve requirements; the federal reserve needs to act faster and with greater clarity, consistency and impact, including temporary nationalization as required, in spite of political pressures; banks require a greater capital reserve cushion with countercyclical components; greatly increased regulation is counterproductive, but regulators could add value by collecting and sharing information on systemic risks; regulation should be consolidated into one agency; international free trade should be expanded; and the IMF should be modified to be a truly effective lender of last resort with increased independence from politics, adequate reserves to handle liquidity crises and a global currency that is not limited by the interests of a single country.
The book also provides guidance on where a new and improved economics can be developed. Behavioral economics provides an improvement on homo economicus. Institutional analysis can provide insights into why firms and countries with billions and trillions at stake failed to identify or hedge against the obvious risks of an overheated global economy. Using incentives in place of detailed regulations is a preferred strategy. Automatic or countercyclical stabilizers have great potential. Simpler markets and institutional structures may provide the greatest capitalist value. The biological model or adaptive market hypothesis may provide a better framework.
Some of the writers' positions are less convincing: they claim that a split between retail and investment banking does not reduce systemic risks and would be overcome by depositors and banks; limits to bank size do not reduce risks; historic regulation of interest rates and the stock market destroyed value and could not be sustained in the global economy today; Keynesianism was proven a failure in the 1970's; most economics, policy and political groups migrated to the Chicago school's monetarist, rational expectations and anti-regulation views; nationalization of banks is the most effective response to crisis; regulatory staff are inherently inadequate to their tasks and regulation is always overcome; international capital controls are ineffective; and financial innovation would be stifled by requiring derivatives to be traded in exchanges.
The authors devote a good portion of the text to describing many widely decried problems with the incentives faced by economic actors, without providing better solutions: role of institutional investors with boards; generally ineffective corporate board governance; short-term bias and incentives everywhere; ineffectiveness of global institutions; various problems with regulators; executive compensation faults; financial illiteracy at all levels; role of legal versus principle based regulations; rating agency and executive pay consultant incentives.
Although the authors invest much time describing the counterproductive role of assigning blame, they fall into this trap by criticizing: politicians, journalists, the media, uninformed citizens, the IMF, Sarbanes-Oxley 404, mark to market accounting, rating agencies, institutional investors, George Soros, Nicholas Taleb, Milton Friedman, board members, auditors, lawyers and regulators.
The text may be overly ambitious, attempting to incorporate all related public policy issues, background and history. At times, the writing is repetitive or meandering.
The title, sub-title and chapter headings are overly ambitious in positioning this work as a guide to how and why American capitalism should be overhauled to avoid "ruin". One sentence captures this reach: In the future, American leadership will depend on its ability to remake capitalism in a way that is not only more productive but also sustainable, socially and environmentally.
Significant space is allotted to business as a profession, ethics, and corporate responsibility with a plea for business leaders to ignore Milton Friedman's advice and take broader responsibility for the capitalist system and society. The focus on "doing well by doing good" and enlightened long-term self-interest seems out of place in a work devoted to managing the structural incentives of an economic system.
Throughout the text, the authors appeal to actors to see the broader picture: long-run versus short-run; the general good; improved information; a commitment to innovative solutions; economic and social goals; a combined economic framework, international perspective and a mass movement of stockholders to manage corporations. They have identified the vital issues, but not the structural solutions to align incentives.
In spite of these quibbles, this is an outstanding work that provides a solid base for enlightened public policy debate.
10 of 12 people found the following review helpful
The prolonged recent economic downturn has certainly been a boon to authors writing on the subject, and "Road from Ruin" joins in on the fray. Like most of the recent books on the subject "Road from Ruin" seeks to offer recommendations on how to cure what ails us economically speaking. Bishop and Green trod a middle ground between those who say capitalism will sort things out if left well enough alone and those who argue for greater government regulation and intervention. The authors make it clear they are card-carrying capitalists and that they are NOT calling for greater government intervention and offer an honest assessment of what went wrong with the financial system. Where they differ is on how to fix the system, arguing for a need to move beyond the current binary choice of doing nothing and intervention. Their point is that in order to move forward we have to acknowledge both approaches have flaws that result in them being rejected by the opposite side. Neither is blind to the greed and failings that led to the collapse, but the worst idea would be to abandon capitalism, and just as bad is the idea that capitalism does not need reform. You can't simply "reboot the system" or "restore the status quo ante."
So what form should that reform take if it is not government regulation and intervention? To get to that point the authors break the book into two parts; the first take a look at the cycle of booms and busts from the 17th Century forward to make the case that these cycles are necessary for economic prosperity and serve as part of man's learning process, the second laying out a path forward. The first part of the book is particularly well done, making economic history lively and engaging and pointing out the lessons learned (or that SHOULD have been learned). The second half of the book is what will likely spur the greatest amount of dialog and debate, and the part that is perhaps the most contentious depending on your particular perspectives. Here the authors provide four ideas for reform as they see it: 1. the need to rethink economics; 2. the need to "redesign global governance"; 3. the need to "put values back into business"; and 4. the promotion of financial literacy. That's a pretty tall order in all honesty. As someone involved in education I can certainly vouch for the need to rethink economics and to promote financial literacy! Far too many Americans are financially illiterate which is part of how we got into this mess and why our deficit has exploded in recent years. Rethinking economics is similarly something that must be done, but the arguments advanced by the authors here are pretty weak. Redesigning global governance is likely to be another contentious issue as many would be nervous about going off the dollar standard due to its potential consequences. The idea of putting values is somewhat laughable at best. It's as though Bishop and Green can't bring themselves to say "ethics" yet that's exactly what the problem was with the economic collapse; ethics were thrown out the window. And I should know. I worked for WorldCom, as ethically compromised a company as there ever was. From my own experience I can tell you that you cannot put the toothpaste back in the tube. One a company becomes ethically bankrupt there is no way you can scrub it clean. All the training sessions, purges, and attempts at instilling positive "values" will not succeed. The only solution is liquidation and starting over from scratch. Ethical corruption is that toxic. You can try and dig it out, roots and all yet one tiny seed can start the process all over again. The idea that you could successful teach an ethically comprised company to be ethical again is laughable. To reform an entire industry that is so ethically compromised is just not possible. The overriding fear that "the other guy" will try and get away with something unethical is enough for all of them to cast off ethical restraints in a New York Minute.
While I like and embrace a lot of what Bishop and Green have to say here I can't agree with everything. In some respects they come across as over-earnest academics that have been out of the real world a touch too long. The idea you can teach ethics to a hedge fund manager is like getting a bureaucrat to write poetry or a hedgehog to play the violin...it's not going to happen!
7 of 8 people found the following review helpful
on February 23, 2010
The praise that other reviewers have showered on this book is well merited. It is wide ranging, bold and beautifully written. What is especially striking to me is its "insider's" view -- Matthew Bishop is a veteran of the Economist -- of the role the Press. Journalists certainly weren't the prime culprits, but as the authors show, they did contribute through what they did and did not report and how. The Press has a vital role to play in the orderly functioning of modern economies and societies, and Bishop and Green put their finger on the challenges faced by financial journalists.
6 of 7 people found the following review helpful
on February 6, 2010
Matthew Bishop, NY editor of The Economist, and Michael Green conduct a compelling autopsy of the global financial crisis in their latest book (The Road from Ruin) and they survey the road out of the mess and towards a safer capitalism.
They argue that the efficient market hypothesis has been taken dangerously far and that we need a new form of capitalism grounded on a more sophisticated understanding of human behavior, an argument that needs to be heard in the halls of business schools throughout the world.
Bishop and Green dedicate a chapter to the idea of a Hippocratic Oath for business managers which they believe can contribute to the badly needed professionalization of management and its commitment to the public interest. In the last couple of years, the idea of establishing a professional oath for managers has gone from utopia (the case of Thunderbird School of Global Management where I work is explicitly discussed) to a global movement supported by organizations as diverse as the World Economic Forum Young Global Leaders (which Bishop himself is part of), the United Nations Global Compact, an organization of MBA students, and the Aspen Institute. The Road from Ruin provides one of the most compelling critical analyses of this idea to date.
In the presentation of the book in Davos in Jan. 2010 Matthew Bishop recognized he had been initially skeptical about the power of an oath to change behavior, but that the current course of events make him believe that a change in values by those in charge of large corporations and financial institutions is long due, and that a professional code of conduct embedded in business schools and perhaps eventually in professional associations, could contribute to such change.
Overall a great, though-provoking read.
3 of 3 people found the following review helpful
on April 17, 2010
I liked the book. I was in the mood to read an interesting tale about: (1) how our financial markets in the US got into trouble in 2008, (2) how similar catrastrophies have occurred over the past 300 years, and (3) how the authors think the US should best repair the damage done so capitalism can be revived and America will be back on top. Since there wasn't really any rocket science involved it was an easy read.
I would have liked the book better if it had not had a 27-page introduction that felt when read more like a chapter itself rather than an introduction to the overall content of the book. And I'm not sure equating the financial markets to capitalism was really accurate. It seems to me that there is more to capitalism than the banking and investment industries.
Although the world has had economic problems over the past 300 years, I am not sure the problems that existed then are all that relevant to the problems we face today. Never before has any private company been deemed too big to fail. But today some have been deemed as such. And the authors made it clear that they think it was very wrong that Lehman Brothers was allowed to fail. In fact, they state that when Lehman was abandonned that the end of capitalism as we know it ceased. So maybe we don't actually hear about "similar" catastrophies that have taken place over the past 300 years. And maybe that whole section of the book could have been omitted?
The overall message I got from the book was capitalism in America is failing. It needed a band-aid in 2008 in the form of a governmental bailout. But now that things are stablized the surgeon needs to step in, do surgical cutting in the form of government intervention and regulation, and then prescribe various rehabilitation strategies that will involve some more intervention and regulation. The keyword in that last sentence was "some," not too much, but not too little, either. Is this really just common sense, though? When a person has a heart attack, doesn't he work to get the heart back to a steady beat before taking steps to get healthy again and avoid another heart attack? When a business has cash flow problems, doesn't the CEO work to find more cash so the company stays afloat before taking steps to get the company healthy again and avoid another cash crunch? What I'm saying is that you won't find any earth-shattering revelations or wisdom between the covers of this book. 4 stars!
7 of 9 people found the following review helpful
on February 5, 2010
I love this book! By drawing on the lessons of history, Matthew Bishop and
Michael Green offer a wise and timely warning against knee-jerk regulatory
responses that simply try to banish financial innovation. Yet nor are they
complacent. They set a much-needed agenda for change - that business and
finance need to think long-term instead of focusing on short-term
profits and that we need to expand the financial literacy of all citizens
but particularly our politicians.
1 of 1 people found the following review helpful
on April 25, 2010
The authors' premise is that financial bubbles are the result of economic innovation. When the bubbles pop, the effect is sometimes very small and sometimes devastating. The difference is partly due to how governments react to the situation. If governments react intelligently they will preserve the good things from that innovation and help move the economy forward. If they react poorly they can do damage to the economy of a nation or even the entire world.
They illustrate their points with a very good historical overview of how international finance has worked for the last several hundred years. I finally learned some interesting stuff about the gold standard. For example, its downside: it limited the supply of money when more gold was hard to mine. This put a crimp on economic growth.
The second part of the book is devoted to the premise that the recent (2008) financial meltdown is another example and it requires that governments remake capitalism intelligently. It's a very good discussion of the pros and cons of regulation and free market theory.
As I write this (April 2010) I hope the people in charge of economic reform in the US and the EU will read this and takes it's lessons to heart.
on July 2, 2012
'Philanthrocapitalism', a prior book by the same authors, gave an excellent history and status report of high finance philanthropy. This new attempt to reflect the ethics of philanthropy onto the preservation of capitalism falls flat. Nonetheless, it's a really good history of international debt and bubbles as well as general economic ideas. It's a less good economic analysis and a really bad social commentary. The theme is the preservation of capitalism. There's a lot of faith put in government intervention. The book has interesting elements of ethical considerations partly based on what the authors call 'philanthrocapitalism', a history of high finance philanthropy from a prior book. The attempt to project effects in a theory of preserving capitalism falls flat. The authors' way forward is mostly wishful thinking, hoping for change in politicians and electorate.
B&G introduce their theme with what they call five wrong turns and what to do about them.
1. They cite Mackey's book for exaggerating bubbles. (The rest of the book doesn't support this idea.)
2. There is government aversion to risking taxpayer money. (Apparently they think more of this is needed.)
3. We address the fix without addressing causes. (They don't have the causes right.)
4. There's an error in thinking that the economy will naturally recover. (What on earth gives them the idea that government can effect an improvement?)
5. There is a rush to regulate.
I make it out one right and four wrong.
After the introduction the book turned into a surprisingly good history of economic thought, especially regarding debt and bubbles. Surprising, because it starts with the ridiculous assertion that capitalism has just seen off communism. The USSR,with it's mission of exporting communism has imploded but B&G are apparently blind to developing socialism in other places, especially the USA. The authors compound the error by advocating more government control in spite of many examples of failure. They tell us all the restrictions of the gold standard era and seem to think that government fiat money is an improvement.
B&G do a good job of paraphrasing works of both classical and modern economists
Smith, Keynes, Law, Stiglitz, Fisher, Friedman and quite a few more. They are somewhat pretentious in the social commentary, especially in the attempt to include ethical considerations. There are serious tries at analysis involving ethics. This doesn't quite qualify. There is no mention of greater good by Pareto efficiency nor economic analysis of care of the commons as, for example, by William Nordhaus.
If we discard the socio-political commentary in the introduction and conclusion, this is a very well written and entertaining economic history.