" It comes as something of a surprise that Posner, a doyen of the market-oriented law-and-economics movement, should deliver a roundhouse punch to the proposition that markets are self-correcting. It might also seem odd that a federal appellate judge (and University of Chicago law lecturer) would be among the first out of the gate with a comprehensive book on the financial crisis--if, that is, the judge were any other judge. But Posner is the late Daniel Patrick Moynihan's successor as the country's most omnivorous and independent-minded public intellectual. By now, his dozens of books just about fill their own wing in the Library of Congress...Compact and bracingly lucid...By the last page, not a single lazy generalization has survived Posner's merciless scrutiny, not one populist cliche remains standing. A Failure of Capitalism clears away whole forests of cant but leaves readers at a loss as to where to go from here. In other words, it is only a starting point--but an indispensable one."-- Jonathan Rauch, New York Times Book Review, 5th May 2009
"Richard Posner is a phenomenon...He provides a very competent account of the events which led to the current crisis, with an emphasis on the political and ideological context. John Kay, Financial Times, 31st July 2009 --John Kay, Financial Times, 31st July 2009
The financial and economic crisis that began in 2008 is the most alarming of our lifetime because of the warp-speed at which it is occurring. How could it have happened, especially after all that we’ve learned from the Great Depression? Why wasn’t it anticipated so that remedial steps could be taken to avoid or mitigate it? What can be done to reverse a slide into a full-blown depression? Why have the responses to date of the government and the economics profession been so lackluster? Richard Posner presents a concise and non-technical examination of this mother of all financial disasters and of the, as yet, stumbling efforts to cope with it. No previous acquaintance on the part of the reader with macroeconomics or the theory of finance is presupposed. This is a book for intelligent generalists that will interest specialists as well.
Among the facts and causes Posner identifies are: excess savings
flowing in from Asia and the reckless lowering of interest rates by the
Federal Reserve Board; the relation between executive compensation,
short-term profit goals, and risky lending; the housing bubble fuelled by
low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions.
Posner analyzes the two basic remedial approaches to the crisis, which correspond to the two theories of the cause of the Great Depression:
the monetarist—that the Federal Reserve Board allowed the money supply to shrink, thus failing to prevent a disastrous deflation—and the Keynesian—that the depression was the product of a credit binge in the 1920’s, a stock-market crash, and the ensuing downward spiral in economic activity. Posner concludes that the pendulum swung too far and that our financial markets need to be more heavily regulated.
Read Richard Posner's blog, and his latest article in The Atlantic.