ECONned
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'There are a lot of phenomenal economics blogs that I find helpful and consult daily. My single favorite: Naked Capitalism. It provides a smart, daily insider look at how Wall Street works and is responding to the crisis.' - Adam Davidson, NPR Correspondent, International Business and Economics, editorial director for Planet Money, NPR's multimedia project covering the global economy
'Yves Smith has been working in financial services since 1980 and she brings all her experience to bear in her Naked Capitalism blog. One of the most respected financial bloggers, Smith routinely rips into dodgy economic assumptions and her worldly analysis makes for indispensable reading.' - Proinsias O'Mahony, Irishtimes.com
'I'm going to recommend this week a blog called nakedcapitalism. . .no one to my mind is covering the Fannie Mae/Freddy Mac crisis any better than Yves...He (sic) does an enormous amount of linking through to the Financial Times and various other financial outlets and then comments upon them with a remarkable acuity. We're in the midst of something so huge and something so tectonic. . .The blow up of these two entities which have been part of American life for decades is a massive story and it's been completely misreported. . . and the best place to really learn about it really are the blogs.' - Stephen Metcalf, Slate Culture Critic. Slate cultural gabfest, Sept. 10, 2008
'...splendidly splenetic...' - Management Today
'Econned by Yves Smith has three great merits: what it says is largely accurate, largely interesting and largely new.' - Peter Sinclair, Central Banking
'Recommended for all those still questioning what the banking bailout really achieved.' – Nick Reeve, FT
Product Description
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. ECONned is the first book to examine the unquestioned role of economists as policy-makers, and how they helped create an unmitigated economic disaster.
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 regulation enabled predatory behavior by Wall Street towards investors
- how economics has no theory of financial systems, yet economists fearlessly prescribe how to manage them
But these are all symptoms. Until we isolate and tackle fundamental causes, we will fail to extirpate the disease. ECONned is the first book to examine the unquestioned role of economists as policy-makers, and how they helped create an unmitigated economic disaster.
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 regulation enabled predatory behavior by Wall Street towards investors
- how economics has no theory of financial systems, yet economists fearlessly prescribe how to manage them
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Most Helpful Customer Reviews
14 of 14 people found the following review helpful
Format:Hardcover
Impossible to praise this book too highly.
For the millions of working tax payers stuck with levels of debt, public and private, it seems impossible to understand how so many of the smartest brains in the western world could have come together to produce a financial crash the like of which the world has never seen.
There are now several published accounts, written at both the personal and the technical level, of the ingenuity and greed with which bankers both in Wall Street and in London devised ever more complicated debt instruments from which enormous levels of apparent profit could be taken. Econned is different. Smith focuses not simply on the king's non-existent new clothes, but on the courtiers. How could so many people have persuaded themselves and each other that financial risk had been eliminated and endless wealth within reach?
The book traces the evolution of the origins of the crash from the end of the second world war to the collapse of the Berlin Wall and on to the completion of financial de-regulation under Clinton. It examines with wit and erudition how Adam Smith's ideas in The Wealth of Nations were cherry-picked and evolved into an ideology which came to dominate university economics departments all over the western world. It turns a baleful eye on the so-called science of economics itself, showing how, as ever more computing power became available, it came to be dominated by models which could never take full account of life as it really happens, and how increasingly it took over political debate, producing, incidentally, the pitiful level of debate in which the current British general election is now being couched.
Smith does not shrink from detailed, expert descriptions either of economic theory or of ever more complicated debt instruments. I can only urge non-technicians like myself to have faith, perhaps skate over ideas, sometimes difficult to grasp at first and go on to enjoy and be profoundly educated by her book. One is constantly astonished and entertained by the sort of nuggets of information and insight which clear and change one's thinking. Did you know, for example, that the Wall Street rating agencies whose AAA AA BBB ratings are locked, by US law into the sort of frantic securities trading which broke the banks have successfully contested litigation over their ratings by claiming their grades are `mere journalistic opinions'? Or enjoy and ponder the Wall Street joke about `trading sardines.' And there's more.
This is a book which should be on the desks of bankers, politicians, journalists, university teachers and every angry, confused or even curious citizen with a will to find out how we came to be in the present mess and what the prospects might be for emerging from it. Only if we can come to understand the extent to which `free market' propaganda has corrupted our understanding can we begin to correct it and find a new way ahead. With Econned Yves Smith has made a major contribution to that.
For the millions of working tax payers stuck with levels of debt, public and private, it seems impossible to understand how so many of the smartest brains in the western world could have come together to produce a financial crash the like of which the world has never seen.
There are now several published accounts, written at both the personal and the technical level, of the ingenuity and greed with which bankers both in Wall Street and in London devised ever more complicated debt instruments from which enormous levels of apparent profit could be taken. Econned is different. Smith focuses not simply on the king's non-existent new clothes, but on the courtiers. How could so many people have persuaded themselves and each other that financial risk had been eliminated and endless wealth within reach?
The book traces the evolution of the origins of the crash from the end of the second world war to the collapse of the Berlin Wall and on to the completion of financial de-regulation under Clinton. It examines with wit and erudition how Adam Smith's ideas in The Wealth of Nations were cherry-picked and evolved into an ideology which came to dominate university economics departments all over the western world. It turns a baleful eye on the so-called science of economics itself, showing how, as ever more computing power became available, it came to be dominated by models which could never take full account of life as it really happens, and how increasingly it took over political debate, producing, incidentally, the pitiful level of debate in which the current British general election is now being couched.
Smith does not shrink from detailed, expert descriptions either of economic theory or of ever more complicated debt instruments. I can only urge non-technicians like myself to have faith, perhaps skate over ideas, sometimes difficult to grasp at first and go on to enjoy and be profoundly educated by her book. One is constantly astonished and entertained by the sort of nuggets of information and insight which clear and change one's thinking. Did you know, for example, that the Wall Street rating agencies whose AAA AA BBB ratings are locked, by US law into the sort of frantic securities trading which broke the banks have successfully contested litigation over their ratings by claiming their grades are `mere journalistic opinions'? Or enjoy and ponder the Wall Street joke about `trading sardines.' And there's more.
This is a book which should be on the desks of bankers, politicians, journalists, university teachers and every angry, confused or even curious citizen with a will to find out how we came to be in the present mess and what the prospects might be for emerging from it. Only if we can come to understand the extent to which `free market' propaganda has corrupted our understanding can we begin to correct it and find a new way ahead. With Econned Yves Smith has made a major contribution to that.
8 of 8 people found the following review helpful
Format:Hardcover
This is a spectacular book about the financial crisis. As a lay person I thought the complexities of the credit crunch would be forever beyond my grasp, but this book not only explains what CDO, CDO², repos and CDS are, but why they were invented and how they were (mis)used in its penultimate chapter. There is even an appendix about how a fictional deal between a hedge fund manager, a broker-dealer, a CDO manager and a monoline insurer might have worked out.
The preceding chapters are devoted to the two main reasons of the collapse of this financial house of cards. First there is neoclassical economics. It is a theoretical construct based on the most implausible assumptions, such as perfect competition, perfect information, utility-maximizing individuals to achieve its goal of "proving" that markets are efficient. Financial economics adds to the mix with its simplistic probability distributions that should have modeled risk accurately. Based on this shaky theoretical foundation the complex financial products were bound to come apart.
There is another, ideological, reason, however, a kind of free market fundamentalism. Starting from neoclassical economics it argued that any government interference in markets is bad. (Trade unions should be banned too.) The unfettered market is the nec plus ultra of economic efficiency and by implication above any moral criticism. Smith retraces the origin of this ideology to the activities of right-wing think-tanks that sprang up in the mid-sixties. It is this mind set that drove the deregulations of the Reagan era and of which the repeal of the Glass-Steagall Act is just another consequence and that enabled the unbridled growth of the financial services industry and ultimately the cultivation of its predatory nature.
The most chilling message is contained in the last chapter. Having laid the groundwork in the preceding chapters Smith offers well-founded suggestions for improving oversight of the financial markets. Comparing these with the timid attempts of reform by the Obama administration, so many members of which are from the financial services industry (Geithner, Summers, Rubin), the conclusion that the regulators are eating out of the hand of the banking sector is almost inescapable (the alternative being that regulators are utterly incompetent). Society as a whole is set up for another fall.
The preceding chapters are devoted to the two main reasons of the collapse of this financial house of cards. First there is neoclassical economics. It is a theoretical construct based on the most implausible assumptions, such as perfect competition, perfect information, utility-maximizing individuals to achieve its goal of "proving" that markets are efficient. Financial economics adds to the mix with its simplistic probability distributions that should have modeled risk accurately. Based on this shaky theoretical foundation the complex financial products were bound to come apart.
There is another, ideological, reason, however, a kind of free market fundamentalism. Starting from neoclassical economics it argued that any government interference in markets is bad. (Trade unions should be banned too.) The unfettered market is the nec plus ultra of economic efficiency and by implication above any moral criticism. Smith retraces the origin of this ideology to the activities of right-wing think-tanks that sprang up in the mid-sixties. It is this mind set that drove the deregulations of the Reagan era and of which the repeal of the Glass-Steagall Act is just another consequence and that enabled the unbridled growth of the financial services industry and ultimately the cultivation of its predatory nature.
The most chilling message is contained in the last chapter. Having laid the groundwork in the preceding chapters Smith offers well-founded suggestions for improving oversight of the financial markets. Comparing these with the timid attempts of reform by the Obama administration, so many members of which are from the financial services industry (Geithner, Summers, Rubin), the conclusion that the regulators are eating out of the hand of the banking sector is almost inescapable (the alternative being that regulators are utterly incompetent). Society as a whole is set up for another fall.
4 of 4 people found the following review helpful
Format:Hardcover
The best book on what's gone wrong with economics,the economy and politics I have read so far.Written so well,even I think I can start to understand all the finance jargon. Basically we have been conned by the financial 'wizards',who have made a fortune and been bailed out and unfortunately politicians have done nothing to stop it happening all over again.
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