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ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism Paperback – October 11, 2011
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ECONned examines the unquestioned role of economists as policy-makers, and how they helped create an unmitigated economic disaster.
Why are we in such a financial mess today? There are lots of proximate causes: over-leverage, global imbalances, bad financial technology that lead to widespread underestimation of risk. But these are all symptoms. Until we isolate and tackle fundamental causes, we will fail to extirpate the disease.
Here, Yves Smith looks at how economists in key policy positions put doctrine before hard evidence, ignoring the deteriorating conditions and rising dangers that eventually led them, and us, off the cliff and into financial meltdown. Intelligently written for the layman, Smith takes us on a terrifying investigation of the financial realm over the last twenty-five years of misrepresentations, naive interpretations of economic conditions, rationalizations of bad outcomes, and rejection of clear signs of growing instability.
In eConned, author Yves Smith reveals:
--why the measures taken by the Obama Administration are mere palliatives and are unlikely to pave the way for a solid recovery
--how economists have come to play a profoundly anti-democratic role in policy
--how financial models and concepts that were discredited more than thirty years ago are still widely used by banks, regulators, and investors
--how management and employees of major financial firms looted them, enriching themselves and leaving the mess to taxpayers
--how financial deregulation enabled predatory behavior by Wall Street towards investors
--how economics has no theory of financial systems, yet economists fearlessly prescribe how to manage them
- Print length368 pages
- LanguageEnglish
- Publication dateOctober 11, 2011
- Dimensions6 x 0.82 x 9 inches
- ISBN-100230114563
- ISBN-13978-0230114562
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Editorial Reviews
Review
“The helplessness you feel, in the face of the demonic complexity of modern finance . . .set it aside, and pick up Yves Smith book ECONned. Indignation and clarity and omnivorous knowledge come together in her writing, to explain how we, the taxpayers, are being meticulously fleeced. Never go into an argument about the financial crisis unarmed again.” ―Stephen Metcalf, Slate Columnist
“In ECONned, Smith blows the top wide open on the role that economists and policy makers had in enabling Wall Street greed and misdeeds. This fascinating book reads like a detective story uncovering the roots of our disastrous financial philosophy - the book must be read by everyone from Wall Street to Washington.” ―Nouriel Roubini, Professor of Economics at New York University and founder of RGE Monitor
“Yves Smith has written a wonderful book which combines first hand knowledge of financial markets with a devastating attack on the scientific pretensions of economics. It is required reading by all those who want to dig below the surface of the worst economic collapse since the war to the intellectual and regulatory rottenness underlying it.” ―Lord Skidelsky, author of Keynes: The Return of the Master
“This book is a fascinating and insightful reminder that economics is like any other powerful tool. It can be used to help understand the world and solve important problems - or to rationalize ridiculous behavior and overwhelm common sense. Smith provides a brilliantly researched tour of good ideas gone bad.” ―Charles Wheelan, author of Naked Economics: Undressing the Dismal Science
“Lost your job, lost your life savings, the country's going down the proverbial - want to know who did it? Yves Smith tells the tale of how bad economics created the foundations for the 'Madoff economy'. After you read the book, just collect your pitchforks and get ready to march on the University of Chicago or Wall Street or both! A refreshingly sane and honest analysis.” ―Satyajit Das, author of Traders, Guns & Money: Knowns & Unknowns in the Wonderful World of Derivatives
“If you only read one book on the global financial crisis, it should be Econned by "Yves Smith", an entertaining, thorough and damning indictment of the way that Western economists, bankers and politicians together messed up - and are still messing up - the global financial and economic system.” ―Kevin Rafferty, South China Morning Post
“ECONned by Yves Smith has three great merits: what it says is largely accurate, largely interesting, and largely new.” ―Central Banking Journal
“Econned is one of the most important books on the financial crisis. Yves Smith understands both the Street and finance theory in a way that few writers do. Her argument that short sellers provided critical fuel for subprime lending flips The Big Short's conventional wisdom on its head and belies Bernanke's arguments that the housing bubble was the result primarily of a global supply glut. There is no other book with an appendix (Appendix II, no less!) that is a must-read for understanding the financial crisis.” ―Adam J. Levitin, Professor of Law, Georgetown University Law Center
About the Author
Product details
- Publisher : St. Martin's Griffin; Reprint edition (October 11, 2011)
- Language : English
- Paperback : 368 pages
- ISBN-10 : 0230114563
- ISBN-13 : 978-0230114562
- Item Weight : 14.7 ounces
- Dimensions : 6 x 0.82 x 9 inches
- Best Sellers Rank: #1,822,619 in Books (See Top 100 in Books)
- #877 in Free Enterprise & Capitalism
- #2,855 in Economic Conditions (Books)
- #3,563 in Economic History (Books)
- Customer Reviews:
About the author

As Joe Costello, who writes on politics and finance, said in the Huffington Post,
"In case you haven't heard, women are leading the charge on financial reform. In the spirit of celebrating their contributions, I've put together a list of the top five heroes of 2009, in the hopes that their work will inspire us in the coming year....
"First, I'll start with Yves Smith, who I came across end of last summer. She has 25 years in financial services, worked for, amongst others, Goldman, McKinsey, and Sumitomo, and is also a graduate of Harvard and Harvard Business School. Her must-read blog is Naked Capitalism. She has shown great knowledge and greater courage -- and from my experience, these two traits are too rare together. Her writing is exceptional, and if you want a good overview of the financial mess and what's gone on over the past year and half, I highly recommend paging through her blog's archive. The president should replace Geithner with her. Time we had our first woman Treasury Secretary."
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Chapter 2 was a revelation to me. It's probably the best introduction to economic theory you can find out there. I had always had some more or less conscious reverence for economists. After all they look and sound like serious academics legitimately deserving of commanding public attention. After reading the book, I will never again be able to watch an economist (particularly one of the neo-classical persuasion) talk on TV without hearing the snaky pitch of a quack medicine peddler. Nassim Taleb had unceremoniously called economists "charlatans" before, but he did not provide much detail except that they use a probability distribution called Gaussian when they should not. YS filled the gaps for me. Those guys have never cared for truth, science or knowledge. Their main agenda has always been to push that nebulous but attractively named (in pure Orwellian manner) notion of "free markets". From the start the Chicago school courted and received corporate funding. The mathematization of economic theory is utterly meaningless (Appendix 1 will convince you of that if Chapter 2 hasn't). A whole academic discipline has been hijacked for propaganda purposes.
Although YS intended the book for laypeople I have to say it's not that easy a read. But maybe we should be worried if it were. Someone once said: "make everything as simple as possible but not simpler". I think YS achieved the amazing feat of treading on that thin line for most of her book. If she had simplified more she probably would've sacrificed accuracy, which I believe she would never do. Chapter 9 gave me a hard time. YS describes the Magnetar trade that kept the subprime insanity going when it was about to stop. I can't help thinking that Matt Taibbi would have made a better job of explaining that trade. MT's advantage is that he is in fact a layperson while YS is a professional financier. MT would have to explain the trade to himself before explaining it to us. That's what makes him so effective. An expert's mind takes shortcuts over all those intermediate mental steps that the layperson needs. I believe ECONNED is the kind of book that is most profitable read twice in a row. Some question you might have at the beginning are actually answered later in the book. While writing this review I reread some passages and they seemed unquestionably clearer than when I read them the first time.
Another aspect of the book I enjoyed is the near encyclopedic quality of YS's knowledge. Her universal inquisitiveness is evident in her blog where every morning she puts up links to interesting articles pertaining to a wide variety of subjects. Reading the book I've learned about the 3-body problem in physics, the moving down of decision making authority that made the German army the most effective during WW2, and many many other fascinating topics.
YS has graciously taken questions about ECONNED from readers on her blog. Her answers constitute insightful additions to her book. Q&As can be found here:
[...]
It is important that as many people as possible read this book. Our ignorance has been abused long enough. The most gigantic institutionalized looting in the history of mankind has taken place before our eyes and the mainstream media have done nothing but covering up.
Read the book, join the blog and forget about the mainstream media. The day before the world comes crashing down they will still be babbling about Tiger Woods' newfound ability to wink at his fans.
The author begins by eviscerating the economics profession and exposing the pseudo science of their models. Astrology is mentioned. Then describes the influence, one might say the cover it has given to government, corporations and policy makers, and how on the basis of that flawed economic philosophy, that inculcated conventional wisdom, incentives were structured to create a predatory financial system; and the way in which the self-interest of individuals would consume not just their very own customers, but even their very own organizations - "Maximum extraction of value."
There are good descriptions of the accounting chicanery used to mask exposures and thwart regulation and the nature and structure of financial derivatives, the trading strategies employed, and the simply incorrigible sociopathic behavior which blew up our financial system. And it's all presented in a surprisingly well written, coherent and rigorously logical way. Though it's more than a little dour, and a lot disconcerting. This book isn't for everybody. You've got to be a bit of a nerd to want to know these things. But everybody should.
There are other good books that take a wider view. "13 Bankers" gives a longer historical story. "It Takes a Pillage" scores bonus points for making the author's personal response to all this nonsense hilariously clear.
"ECONned" differs from all the above in taking more pains to explain the major defects of current economic theory and the partisan way those defects are promoted and exploited. It's fundamental to understanding how we got into this mess and why we are not going to emerge from it any time soon. A rational and free market in economic thought would be nice!
Sidenote: Kindle reader still doesn't work well with diagrams etc. - so get the paper version.
Top reviews from other countries
Il n'y a pas de révélations spectaculaires, mais on sent un gros travail de clarification sur ce sujet assez technique.
Ouvrage très didactique, sans doute un des meilleurs disponibles sur la crise.
then read Gillian Tett's Fool's Gold for what happened; then read Ishikawa's How I Caused The Credit Crisis to find out who and how the dealers lived an exceptional life of money and spending and lavicious living (names are changed); then read Feinstein's Planet Ponzi how most of our investments are hanging by a cord as we are still not out of the woods.
This order of reading would more logical. Smith describes the background to structured financial methods. Warnings were issued in the preceeding years but most people's knowledge was based on a faulty neoliberal sect of economics which some realise is like astrology. The theory relies on rational actors. Only robots can act like this. All actors have access to all possible knowledge including all of the future! This means nothing is a bet and no actors can make any money. This is clearly not happening as the finance industry would not exist as it does. The theory is that all economies will come back to equilibrium and can not cause crises or crashes. These are all due to unknown external influences but that will be theoretically impossible due to the all-knowledge-is-available axiom.
After some regulations were removed to allow more risky behaviours by irresponsable actors the dealers went for very high-risk behaviours to bet against the markets. These operations are not regulated by governm,ents They are done by a Shadow Banking system. Operations were declared perfectly safe with guaranteed profits so the bonuses were paid out in advance. The companies went into hundreds of billions of dollars into debt (undeclared). This was all hidden behind a pile of legal abbreviations and built on the assumed integrity of the system. There was no complete audit trail, so very few would know how much toxic debt was declared in AAA(+) instruments. They would have found an excessive demand for AAA assets that did not exist (due to a change in policy) and excessive credit awarded to purchasers of residential morgages who could never pay these off except in a cloud cuckoo land where every one lives happily ever after. But that ends in a massive crash and the US government hand over $3Trillion of credit backed by tax receivables N.B. the rich don't pay much tax or at very low rates. The practices above are still legal. These types of crises will continue unless major changes in government policy are made.



