on 11 October 2012
I am really pleased Peston found the time to write this book. I am a lay person in economics and as economic problems of one sort or another have dominated the news for recent decades it has been hard to understand what actually goes on in the banking system and the national economies. This book really does cover many topics of current interest - the credit crunch, the eurozone, USA, Japan, China.
Now I feel I understand a little of how derivatives and bonds work and why they were created, why Germany doesn't want eurobonds and that derivatives aren't just a side issue but a major part of the financial system, that banks reserves were incredibly low compared to what they were borrowing and lending (and why), that the eurozone and Japan really do have problems and so may China eventually. It was good to have all issues of the past two decades explained in detail, and even developments in 2012.
There are of course problems with it as both other reviewers have pointed out. It was obviously written in a bit of a rush and I would have liked more careful explanations at times but this seems a bit carping when I'm glad to read anyone really explaining the subject at all. The style is good with human interest among the drier economics and the odd amusing aside. It does seem a bit OTT pessimistic at times but I imagine this is due to his journalistic style (or perhaps the pessimism is justified?!) However as one reviewer has commented, it seems a bit odd that Peston explains the basic banking instability - that it can never pay more than a small proportion of its customers back simultaneously, so that if a bank is highly leveraged with tiny reserves it only needs one person crying 'wolf' to cause the pack of cards to come crashing down with queues on the streets - and then complains when other people don't like him crying 'wolf' at precisely such a point!
However for anyone with the slightest interest in our current economic situation then do read this book - it's a must.
on 16 November 2012
This is a great book for people who have no experience, or very little knowledge of how the world's banking, economic and political systems correlate.
I found it to be easily accessible and very easy to remember the different topics that the author covers in enough detail to satisfy the readers thirst for knowledge but also not to lose them in a deluge of facts, figures and verbiage.
An excellent book, I would recommend it wholeheartedly
on 21 November 2012
Whilst this tome is a bit long it is worth reading from cover to cover. RP is always clear and takes a great deal of effort to explain all of the complicated financial wheezes/devices and downright criminal activities that contribute to our current financial predicament. If a reader wants to save time I suggest he/she goes direct to pp 392 - 415 to learn the "how to fix it" but I guarantee that afterwards they will go back and read the entire book. An excellent work by an author who knows what he is writing about.
on 18 March 2015
Peston does not appear to understand where money comes from. For example, on page 331 he says "Now, to repeat a mantra you will have heard a few times in this book, when banks cannot borrow, they cannot lend." In other places he talks repeatedly about the importance of savers' deposits in allowing banks to lend i.e. that this is what they are lending. However, this is not the case: contrary to popular belief, banks do not lend savers deposits. 97% of money in existence has been created by commercial banks - out of thin air - as debt, when they issue loans i.e. they do NOT lend savers' deposits they create the money afresh. Outside of the commercial banks this would be called counterfeiting. This might sound incredible but for confirmation see the Bank of England's website (and elsewhere) where you will see the statement " Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits...In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money [i.e. creates money out of thin air!]. The reality of how money is created today differs from the description found in some economics textbooks. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits". Sadly Peston's interpretation of the causes of the 'mess' and the suggested remedies are undermined by this fundamental misconception. For more information about where money currently comes from and a suggested alternative see www.positivemoney.org. Needless to say Peston doesn't mention why and how the current creation of money, which is simply a form of debt, is the main faultline running through the entire world's current financial system. Nor does the creation of a better approach feature in his rather brief list of remedies to the 'mess' that he comprehensively describes. Overall, this book was a disappointment. Peston should understand better the key components of the 'system' on which he opines, including where money comes from.
on 9 November 2012
Best book I've read in ages. I'm a bit of dumbass with an interest in economics, so those two combined means I spend a lot of time reading the business sections of newspapers with a confused look on my face. But not any longer. After reading this book my understanding of how finance works is so complete that I reckon I could get a job as banker, or the head of some European institution that gives unlimited German money to Greece and Spain in the hope they pay it back some day. The only downside is that before I read this book I was a keen Guardian reader but after finishing it, well, I found myself enjoying the Daily Mail a lot more. Not that I'm suggesting this book is for the Daily Mail reader. Just that after reading the facts, it possibly doesn't encourage you to support a financial union with other European countries (unless the union was with Germany, France, Finland and the Netherlands only), which I know is an issue popular with the readers of the Daily Mail.
on 10 May 2013
The strength of this book is the coverage, in detail and in language that is accessible, of the various factors in play that gave rise to the current international financial malaise. If you do not make a habit of trawling the literature for modern economic discussion but would like a thorough explanation of what has happened to get us where we are today, then this book is for you, since Messrs Peston and Knight have amassed a lot of facts and figures that show just how pernicious the banks' and governments' behaviour has been, how pervasive is the rot of under capitalization and thus how perilous is the situation today ("the Mess"). In fact the scale of what has happened beggars belief and makes frightening reading. It should be compulsory reading for anyone who thinks we can rely on consumers to get us out of the mess by kick-starting the economy to get it back to the way it was (politicians in the West, take note). All riveting stuff.
However, there are two main weaknesses: first, the book seems to have been written hurriedly and is poorly edited, and, second, the title is not really valid as a description of the content.
In the case of the editing, for example, somebody needs to tell them what paragraphs are for, since there are many occasions where a paragraph break should be inserted to aid capturing a key idea or statement but topics are merged and their impact diluted as a result.
As for not "doing what it says on the tin", the detailed explanatory coverage, fascinating though it is, fades out to an ending that is, frankly, something of a damp squib as far as remedies are concerned. I found that you have to read the last pages a few times to realise that what the authors are saying is actually there is no "fix" to be had - nothing but time and careful management of "forbearance" (jargon describing the act of being patient with broke borrowers (businesses, governments, banks or people) instead of calling in their loans) will lead to recovery of confidence and trust and hence long-term stability to our financial well-being. The alternative, that the whole lot goes 'phut' in spectacular fashion, is really, really possible and that makes this book one of the scariest reads I've had in a long while.
on 30 December 2012
The book is well written and explains the euro crisis well. The comments on China were New to me and I was thoroughly enjoying the book with 15 per cent to go. Then there was a fairly tiresome and unrelated tilt at Bob diamond. Then at 90 per cent read - it ended. It was as if somebody had stolen the last 10 per cent. No real answer to the question posed by the book or indeed any attempt. It was if pesto had decided to go and make a cup of tea and not come back. Perhaps there are no answers ? Perhaps the title of the book is rhetorical ? In summary - great piece of economic literature, but not what I was looking for.
on 20 November 2012
I agree with a previous reviewer, the title of this book is misleading. After all, if the title is a question one can reasonably expect that the book will attempt to answer that question. The book is a very good account of how we got into this mess but says almost nothing about how we are to get out of it. The only suggestion seems to be that we should try to sell more goods to China. This is so much easier said than done that one can see at once that, whilst Mr Peston is a wonderful financial journalist, he has limited knowledge of business. To say we should try to sell more to China is as useful as saying we should try to make more money.
Robert Peston seems to be one of the few BBC reporters that actually knows something about economics, which is quite refreshing. Having said that, I would not agree with his interpretation of comparative advantage, which exists even where one country is more productive at producing every product.
This book is a solid and detailed account of what went wrong with world economies over the last decade. It is as if someone had distilled ten years of the Economist into a rather solid book. At heart this is good quality journalism, explaining some very complex stuff, with reasonable clarity. There are plenty of facts and figures, perhaps too many, a little more human interest would have made it more readable, but he does the best with a rather dry topic.
Marked down to four marks because at times it was a bit of a slog working through it, some tighter editing could have sharpened it up, or a bit more human interest might have made for a lighter read.
Peston, the drawling Business Editor of the BBC, starts by reviewing the history of the financial crisis, often using striking analogues, with clear explanations of arcane concepts such as `collateralised debt obligations' and `credit derivatives', and shows how trading in debt of various kinds, helped by banks being allowed to increase their ratio of borrowing/lending to capital (`leverage'), came to dwarf trading of traditional `real' assets.
Bankers began to believe in their own infallibility and totally failed to read the lessons of history. Peston shows how, ignoring the principles of sound banking, they constructed ever more complicated financial products that would provide huge personal rewards, but were not fully understood by either those at the top of the organisations, or politicians and regulators. `Big beasts' such as Brown and Greenspan, as well as the IMF, were still proclaiming that everything was rosy up to a few weeks before disaster struck in 2008. A situation was eventually reached where it was all but impossible to make a realistic estimate of the risks involved, and hence factor it into prices. It was `helped' by the so-called Basel Rules (scathingly dissected by Peston) that enabled bankers to conceal the nature of their business. The result was an `Alice in Wonderland' world, where `assets' had the value that bankers said they had without any way of objectively measuring them.
Peston then turns to globalization. While recognising its good consequences (raising the standard of living in third world countries etc.) he also discusses the bad. It has given rise to the situation where a small number of countries, principally China, Japan and Germany, have consistently produced surpluses, and others, such as Britain, America and most of Europe, have consistently produced deficits. These `global imbalances', have exposed the economic frailties of the latter nations and are a major cause of the financial crisis, because instead of responding by becoming fitter and leaner (his analogy is with British Olympic athletes) the debtors have taken the `performance-enhancing' drug of borrowing more money, often from poor countries such as China. To wean ourselves off this addiction will be very painful.
Next under the spotlight is the Eurozone, the flawed construction that led investors to believe all debts of Eurozone countries were of equal value. This directly fueled the debt-driven construction boom in Ireland and Spain, and now denies countries the traditional remedy of devaluation to cure their problems. Countries such as Greece face not just a decade of hardship, but probably a generation of agony, with the possibility of social unrest. The problems of the Eurozone have knock-on effects (not even German banks are immune) and Peston examines its future. The best bet seems to be that the coming few years will see it in a state of permanent crisis management, but beyond that its eventually breakup, with the inevitable financial chaos, cannot be ruled out.
It is unlikely that China could be the solution to all our problems. In fact, Peston points out that China could itself be the next big problem because of its huge infrastructure investment. When this comes to an end, vast numbers of workers will be made redundant and could only be absorbed back into the labour market if the population spends more on consumer goods, something they are at present very reluctant to do. He draws an analogy with Japan in the early 1990s, where similar circumstances led to mass unemployment and a sharp downturn in the economy, from which it has never really recovered.
In the final chapters, Peston turns to current problems. The news is not good. For example, UK banks that are largely owned by taxpayers still behave as independent organisations, paying staff handsomely and still irresponsibly taking undue risks, while failing to provide loans that would get more money into the economy. Each of the major British banks still has leverage ratios more than 25 times their capital, and more of that capital is having to be pledged to secure loans from major lenders, money that is no longer available to improve the economy. In short, government has made little progress in `fixing the mess', by removing the rotten and corrupted heart of the system and restructuring the banking industry from its foundations. Nor has it found a `happy medium' between recovery through austerity or greater investment.
The global financial crisis is the most catastrophic global regulatory failure in history (hence the justification for the 'excessive' length of this review) and has exposed the myth that markets work best when unregulated. It will be paid for by ordinary citizens, not those who caused the disaster, and they face, at best, a bleak future for at least a decade with consequences lasting long after that. Although this book has a misleading title (most of it is about causes, not solutions) Peston's conversational style and clear explanations make it one of the best I have read on the subject.