on December 11, 2014
Why would I read a book like this? Maybe for the same reason you are looking at it and checking the reviews. To understand how things went so wrong. But there is more. To understand how to see, no, to forsee the next time the economic system we live 'under' may be about to collapse,so when the sky falls, maybe you , or I, will get under cover and protect as much of our nest eggs as possible.
I appreciated learning how all the players were involved. What they did. How they tried to pass the buck. How they held out their hands for bailouts. Tales of unintended consequences, perhaps, but a system that created risks but was manipulated so the institutions took the cream (the rewards for the risks) then passéd off the risks, too another institution who took the milk, who then passed off the sour residue of risk to another institution. And no one was been held accountable for anything. It's 8 years later,has anyone in control of the major financial institutions been raked over the hot coals? How about some warm rocks? Made to sleep with a hot water bottle in their bed?
The crisis was created by easy credit, think minimal interest rates, and too much currency, both physical and digital after the previous bubble burst. The tech bubble POP. HOW??? do you fix the system with the same bad medicine that made it sick in the first place? Interest rates remain near zero and more and more currency is printed. Nothing is fixed. Companies that should have been broken up weren't. Companies that should have had to deal with the messes they made of their balance sheets, never had to. And deficits continue. Debt grows from already historic record level. and money is being printed in great volumes, if you check certain websites you can see the Everest they are printing. Companies that are too big to fail, Nouriel restates, should be too big to exist. the only goal seems to be to reinflate the bubble or find an alternate bubble to inflate.
So... I took a star away because Nouriel spends some time examining the efforts to fix the system and his educated suggestions how to choose which fixes have the best chance to accomplish overhauling the broken system. Had I read the book when it came out, I would have been amused at the idea anything would change, and now, about 3 years after the book came out, it is evident a lot of hot air was added to the greenhouse effect, talked to death til everyone stopped listening, then nothing done.
All I can think of is a few pearls of wisdom I have gleaned:
'If it sounds to good to be true... it is'
'If they are saying the old rules don't apply because this is a new day... start backing away toward the exits'
In the book Nouriel seemed hopeful that something would be done to change the rules to stop this from happening again, and his 'Dr Doom' knickname, earned by his warning of the coming crisis, had been dropped because he was now optimistic looking forward. I keep meaning to youtube any recent interviews he may have done.
PS... If you put the all the tmes the word 'systemic' is used... there could be a chapter with only that word repeatesd over and over.
Nouriel Roubini has the distinction of being one of the few economists to identify the problems with sub-prime mortgages, excessive leverage and the real estate bubble and predict the collapse of the real estate bubble a few years before it happened.
This book is his explanation of how the current economic mess was created and what should be done now that we're in this mess. It's an excellent book; I'd go as far as to say the best book of the many books currently available on this topic.
It's very well written, concise and clear. It is clear enough to provide the background for those with limited knowledge of economics while providing enough detailed information and analysis to keep the interest and attention of those with a more extensive background in economics and finance.
This unabridged audio book of Crisis Economics is very well done. I have a 40 minute highway commute to and from work and I usually pass the time listening to audio books. I really enjoyed this one and learned a lot from it.
on June 3, 2010
Nouriel Roubini gained great notoriety as one of the few economists who correctly predicted our current financial crisis, specifically pointing to the 90 percent increase in home prices from 1997 to 2006. While Roubini has written other books, "Crisis Economics" is his first foray into economic literature aimed at the mass market and serves to expound on his argument that most financial bubbles are not only predictable, but avoidable. To borrow a phrase from Nassim Taleb, these are not unpredictable "black swan" events, but can be forecasted with some degree of probability. The authors aptly point out the difficulty in defusing bubbles as they inflate as no one within the financial markets or the regulatory structure typically wants to take the punchbowl away from the party. As bubbles inflate they typically open the door for schemers and opportunists who become the inevitable scapegoats for the inevitable crisis, conveniently deflecting criticism from those who deserve it. Worse still there's little accountability in either the public or private sector for those who should have known the bubble was over-inflated and took no corrective measures to stop it. What compounds the problem this time is governments are re-leveraging the system by taking on massive debt to prop up the private sector, leaving them vulnerable and unable to respond when the next crisis inevitably comes. Worse still, these "balance-sheet" crises hobble government finances resulting in anemic recoveries that drag on as happened in Japan in the 1990s. And for all the talk of the private sector de-leveraging there's little real proof that's occurring and instead it appears to be stabilizing at unsustainably high levels, setting the stage for the next liquidity crisis.
The authors look over economic history and point out a well reasoned argument, namely that economic collapses are both likely to occur and are predictable. They are not freakish, unforeseen occurrences, but oncoming events whose warning signs are ignored by policy makers, executives, and politicians. Even recent history proves this to be correct, pointing out crises limited to specific countries over the past few decades (Thailand, Mexico, Argentina, Indonesia, etc) that have led to more large scale economic problems. By now you'd be inclined to feel that Roubini truly is living up to his "Dr. Doom" nickname, but he is hardly finished. The authors roundly criticize the current tendency to socialize losses and privatize gains and calls on governments to do more to break up too-big-to-fail institutions before they do fail, as the temptation to bail them out when they do fail (and they will) will prove irresistible for policy makers and politicians alike. The sad reality is that policy makers have not yet learned their lessons and are tinkering at the margins when a more massive overhaul is required. While keeping interest rates near zero percent has kept the economy from totally collapsing it is unsustainable and new bubbles are appearing in the form of commodities prices, which have surged greatly in price.
But the authors do offer ways in which policy makers, executives, and politicians can get out of our current situation and avoid recurrences. Sadly they are not easy or palatable situations, and its all to easy for all three groups to ignore taking hard steps to reign in economic growth during robust growth periods. And that's the problem. Societies are predicated on growth and expansion. We detest the idea of tamping down economic growth as it is so contrarian, yet that's what essential. Thankfully Roubini and Mihm make economics and finance relateable and easy to understand, yet without dumbing it down significantly. As academics both write with a flair and élan uncommon in economics, yet they certainly do tend to get readers to despair at times. Their solutions seem reasonable; one can only hope that policy makers, executives, and politicians would not only read this but find the will to actually do what is necessary to prevent the next crisis.