Crisis Economics: A Crash Course in the Future of Finance

Quick Thoughts:
  1. This was a tough book for me to get through.  I'm not sure if the subject is getting stale, the book was stale, or if I was just too sleepy for reading this book on the train in the morning (Tough week).  I think the latter may have had much to do with my sentiments, because my reading in the afternoon was much more fun.
  2. The authors do a great job of going step-by-step through the recent crisis.  They show how large the unregulated shadow banking system had become.  They combine this with their deep knowledge of economic history and the steps which occur during any financial meltdown.  It is notable that Nouriel Roubini, one of the authors, is widely known for sounding warnings of the potential crisis well before the meltdown.
  3. I really enjoyed the section in the book when they go through what different major economists believe needs to happen during a crisis.  They do a good job of showing the problems that both liberal and conservative economists run into if their theories are carried through to their conclusions.  In the crisis that just occurred, our government played rescue and threw lifelines to all banks in order to save the financial system and the economy.  This has created huge problems in terms of moral hazard.  Banks now know they can take on extremely large and irresponsible risks and get a bailout from the government.  On the other hand, the middle of an economic meltdown isn't exactly a great time to allow entities to fail due to all the linkages in the financial system.  Letting AIG fail would have damaged far more than just AIG.
  4. After reading this book, I'm very interested in how the authors feel about the financial reform bill that just passed.  They had a number of suggestions for how to reform our system, and from my reading some of these ideas were taken on by congress.  My instinct is that the authors will feel that the reforms did not go far enough and will result in another crisis.  These guys are regarded as pessimists, so I can't imagine that they will be very encouraged by a political settlement.
  5. I enjoyed the outlook section of the book at the end where they go region-by-region and issue-by-issue and discuss potential threat and opportunities.  They are extremely concerned with the US current account deficit.  They are certain that it is unsustainable and will end badly even if we take their suggested mitigating steps. 
  6. I will say that the book is very clear.  The authors make economic concepts intuitive for the reader.  Given my level of exhaustion last week, I should picked a different book for the morning.  However, I will say that the authors have me thinking about reading some of the more conservative economists (Like Hayek), so I can better understand the moral hazard issue.

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