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benrogerswpg's review against another edition
4.0
This was a very good book that detailed the issues of finance and what can / did happen.
I enjoyed reading this one, as I am learning more and more lately about these topics.
As there are some major warnings about a coming financial crisis, I am trying to learn more about what can happen, and what can prevent it.
4.0/5
I enjoyed reading this one, as I am learning more and more lately about these topics.
As there are some major warnings about a coming financial crisis, I am trying to learn more about what can happen, and what can prevent it.
4.0/5
ashrafulla's review against another edition
4.0
This is a good book explaining a possible feedback mechanism that causes financial crises. Essentially expedience forces market participants to overlever during good periods and try to retract money during bad periods. This exacerbates the natural economic cycle so that peaks go higher (when borrowing money to invest) and troughs go lower (when pulling money out). As a result the drawdown is far wider than the normal economic cycle.
The author does a very good job of describing this mechanism as well as why it happens. He avoids for the most part the use of behavioral economics on purpose. The reason is to avoid people making the assumption that Shiller and Kahneman are required for this cycle-to-crisis transformation. You can use rational efficient market theory, an adherence to the flawed efficient market hypothesis and shorter-term political pressure to generate the cycle. You don't need a decision utility curve or a system 1/2 procedure because the arguments are all rational in the eyes of the actors.
I was a little bit disappointed in the author's proposed solution to the credit expansion of market participants. It amounted to telling everyone they are wrong rather than forcing them. If you believe the right answer is to force investors to have enough capital to take the bets they are taking, then it is not enough to remind them. You have to use an expanded law to force constant monitoring of credit. If you are free market, then what you want is for overleveraged firms to fail during the downturn so that those consequences are priced into the market. The notion of using words over actions seems academic more than influential.
Still, I recommend the book as a good way to learn how to describe the effect of credit policy on financial cycles.
The author does a very good job of describing this mechanism as well as why it happens. He avoids for the most part the use of behavioral economics on purpose. The reason is to avoid people making the assumption that Shiller and Kahneman are required for this cycle-to-crisis transformation. You can use rational efficient market theory, an adherence to the flawed efficient market hypothesis and shorter-term political pressure to generate the cycle. You don't need a decision utility curve or a system 1/2 procedure because the arguments are all rational in the eyes of the actors.
I was a little bit disappointed in the author's proposed solution to the credit expansion of market participants. It amounted to telling everyone they are wrong rather than forcing them. If you believe the right answer is to force investors to have enough capital to take the bets they are taking, then it is not enough to remind them. You have to use an expanded law to force constant monitoring of credit. If you are free market, then what you want is for overleveraged firms to fail during the downturn so that those consequences are priced into the market. The notion of using words over actions seems academic more than influential.
Still, I recommend the book as a good way to learn how to describe the effect of credit policy on financial cycles.
jlbrown23's review against another edition
5.0
I don't have too much to add that you won't see in the other 4 or 5 star reviews. Chapter 3, on the evolution of money is about as clear and concise of a summary you are likely to find on how we got from stone age bartering to modern age fiat currency and central banks(in 50 pages). Worth the price of the book & the stars on its own.
In addition, the author attempts to take on the clear hand-waving and hindsight-as-wisdom that is the current financial world. I am not sure if you could find a better indicator that the current conventional wisdom on economics is broken than the almost universally unpredicted 2008 economic crisis. When circumstances such as these come along where the theory becomes more and more clearly detached from reality (see string theory, global warming, earth-centric universe), I always appreciate the people who realize that band-aiding the old theory is hopeless and only helping further entrench bad ideas. What is needed is new ideas, not putting lipstick on the pig. I don't pretend to be informed enough about economics to give a valid opinion on whether or not he is correct. But I like that he bases his views on real world systems we know work, and not the entrenched dogma of folks who have probably read Atlas Shrugged one too many times. Instead he looks to James Clerk Maxwell's theories of regulating systems. I would say that a strictly factual and mathematical look at regulating systems by one of the most brilliant scientists in history would seem to be a better starting point than the opinions of economics professors who couldn't see 4Q2008 coming even at the end of 3Q2008. As the old joke goes, "If you take all of the economists in the world and line them up in a row, they will all be pointing in different directions". If they follow Maxwell's ideas on governors, maybe they'll start following some of his other laws and line up a little better...
In addition, the author attempts to take on the clear hand-waving and hindsight-as-wisdom that is the current financial world. I am not sure if you could find a better indicator that the current conventional wisdom on economics is broken than the almost universally unpredicted 2008 economic crisis. When circumstances such as these come along where the theory becomes more and more clearly detached from reality (see string theory, global warming, earth-centric universe), I always appreciate the people who realize that band-aiding the old theory is hopeless and only helping further entrench bad ideas. What is needed is new ideas, not putting lipstick on the pig. I don't pretend to be informed enough about economics to give a valid opinion on whether or not he is correct. But I like that he bases his views on real world systems we know work, and not the entrenched dogma of folks who have probably read Atlas Shrugged one too many times. Instead he looks to James Clerk Maxwell's theories of regulating systems. I would say that a strictly factual and mathematical look at regulating systems by one of the most brilliant scientists in history would seem to be a better starting point than the opinions of economics professors who couldn't see 4Q2008 coming even at the end of 3Q2008. As the old joke goes, "If you take all of the economists in the world and line them up in a row, they will all be pointing in different directions". If they follow Maxwell's ideas on governors, maybe they'll start following some of his other laws and line up a little better...
balhau's review
4.0
Another lovely book that starts with a journey through the history of monetary systems and explains the evolution, why we create the gold, then the money and finally the current complex market system. It is a very pedagogical approach and put in perspective several economic views when it takes a subject into discussion and gives a very broad set of information that are intimate related to the mechanism by which we do macro economics today. The fundamental point in this book consists in an analysis to the well known and General equilibrium theory as a theoretical model to macro economics as a reliable tool to explain the reality behind all the economy and in particular the current financial systems. The author does a good job explaining why we should be careful with the premises assumed by this theory and shows how those same premises are weak and in some cases not applicable at all. As an alternative the author shows other economic theories like the famous Minsky's financial instability hypothesis and explain the ideas and how those explain the subprime mortgage crisis. Finally the author ends with a broad analysis of the role of Central Banks and the need for regulation. The author also points for the need to these Central Banks to be independent from political forces to be able to "govern" (in the sens of the article "On governors" of James Clark Maxwell) the markets and in the end avoid the meltdown of entire economical systems through the appearance of bubbles leveraged by debt. In short I must say that the book is a must read and that is very enjoyable as well. The only prerequisite needed to enjoy this book is to want understand how reality of money works and how we are affected by that.
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