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The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy [Paperback]

George Cooper
4.6 out of 5 stars  See all reviews (19 customer reviews)

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Book Description

1 Nov 2008
In a series of disarmingly simple arguments financial market analyst George Cooper challenges the core principles of today's economic orthodoxy and explains how we have created an economy that is inherently unstable and crisis prone. With great skill, he examines the very foundations of today's economic philosophy and adds a compelling analysis of the forces behind economic crisis. His goal is nothing less than preventing the seemingly endless procession of damaging boom-bust cycles, unsustainable economic bubbles, crippling credit crunches, and debilitating inflation. His direct, conscientious, and honest approach will captivate any reader and is an invaluable aid in understanding today's economy.

Product details

  • Paperback: 194 pages
  • Publisher: Vintage Books USA (1 Nov 2008)
  • Language: English
  • ISBN-10: 0307473457
  • ISBN-13: 978-0307473455
  • Product Dimensions: 20.3 x 13.1 x 1.5 cm
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (19 customer reviews)
  • Amazon Bestsellers Rank: 1,392,826 in Books (See Top 100 in Books)
  • See Complete Table of Contents

More About the Author

Dr George Cooper has worked for Goldman Sachs, Deutsche Bank, J.P. Morgan and BlueCrest Capital Management in both fund management and investment strategy roles.

George's first book, The Origin of Financial Crises, received critical acclaim for its clear explanation of the monetary policy errors leading up to the global financial crisis.

Prior to joining the City, George worked as a research scientist at Durham University.He lives in London.

Product Description


"A must-read" --The Economist

"a well-written book" --Financial Times

"Awesomely lucid." --Dominic Lawson, The Independent --This text refers to the Hardcover edition.

About the Author

Dr. George Cooper was born in Sunderland and studied at Durham University. He has designed gyroscopes for guidance and control systems, worked as a fund manager for Goldman Sachs, as a strategist for Deutsche Bank and most recently as the London head of interest rate research at JPMorgan. He lives in London with his wife and two children. --This text refers to the Hardcover edition.

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Customer Reviews

4.6 out of 5 stars
4.6 out of 5 stars
Most Helpful Customer Reviews
31 of 31 people found the following review helpful
I completely agree with the positive recommendations of The Economist Magazine and the reviewer. George Cooper combines a strong technical and practical investment background to produce a modern study of the best management of our complex economy. I feel Cooper opens this subject up to every thoughtful investor {regardless their background) by writing in down-to-earth English. He uses everyday examples, like a baker making and selling bread. His clear understandings of the material and deep sympathy for the reader motivate his use of these everyday examples to eliminate the need for mathematical equations. He still maintains the needed precision.
I was persuaded that economic crises are inevitable, and enjoyed his ideas on how we might deal with them. I would like to recommend Cooper's clear, cogent presentation to every investor and student who is curious about how to improve our economy.
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24 of 24 people found the following review helpful
5.0 out of 5 stars A perceptive book 5 Oct 2008
By fejan
This book asserts that whilst efficient market theory does fit trade in goods and services generally, the evidence does not support its fitting assets such as land, and shares. It argues that as a result of what the author sees as a state of denial by most economists, economic policy targets inflation or aims to maintain continuous economic growth. The author suggests, with arguments that are said to be based on the thoughts of Keynes and Minsky and seem compelling to a non-economist, that central banks should rather target asset/land price inflation.

The author is a control engineer and a financial analyst, and his arguments resonate with this reviewer who is also an engineer by origin. What would be interesting is to have reasoned comments from an open minded professonal economist.

That said the book is a good read and for the curious a very different analysis of the financial turmoil of 2008.
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18 of 18 people found the following review helpful
4.0 out of 5 stars Clear and interesting 21 Nov 2008
By tomsk77
This book is one of the better things I have read about the financial crisis. It's a nicely-written and clearly argued case against the efficent markets hypothesis (EMH) and the argument that left to their own financial markets will tend towards equilibrium. In fact a large part of the author's motivation for writing the book seems to be to drive a stake through the heart of the efficent markets hypothesis, which he sees as fundamentally wrong (no argument here!).

As such the book is broadly pro-Keynes, and very pro-Minsky. It takes as a given Minsky's view that markets are inherently unstable and will inevitably swing between boom and bust, and that the busts can be very bad indeed if no action is taken. The suggestion is that Minksy's financial instability hypothesis should replace the EMH as our bedrock understanding of how financial markets work.

Notably this leads him query what central banks are trying to do. He is particularly scathing of Fed, which he suggests tries to combine a belief in the EMH with intervention, when logically they should preclude each other. He argues central banks should refocus their attention on credit expansion and asset price bubbles, rather than consumer price inflation. Notably he therefore believes that bubbles both exist (this might seem obvious, but it's actually an important point) and that central banks can do something about them, though in practice it's credit creation that he thinks should be monitored.

That's the headline argument, but there are lots of nicely structured points building up to it along the way. There's a great section on why even 'fundamental' company analysis on its own can fail to spot the distorting effects of bubbles.

Anyway, definely worth a read, and given that it's both very clearly-written and one of these double-spaced books you can get through it in no time.
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10 of 10 people found the following review helpful
What a pleasure to read this small book that combines clarity, wit and depth in explainig the roots of financial crises like the one we have been experiencing since the summer of 2007. Reading it one cannot but think about the tremendous power that mainstream theories have in keeping the interest of academics and professionals focused on a set of dogmas and predetermined approaches, while ignoring any dissonant voice. Decades of macroeconomics texts have all but ignored the destabilising role of debt financed asset markets, implicitly assuming its behaviour as similar to that of markets for goods and services. This mindset was in accordance with the partylike mood of most politicians and investment bankers during the long boom years up to 2006. As the CEO of one of the failed major banks famously put it, the idea was to go on dancing while there was music playing. George Cooper elegantly shows how governments and central bankers alike, relying on mainstream macroeconomic concepts and statistics, happily ignored the signs of the huge credit/asset price bubble whose burst finally brought down the confidence in our financial institutions.
I really enjoyed reading this book, that hinges on the best tradition of free thinking in economics, and has the clarity and humour that is all so often absent in the literature of the "dismal science".
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22 of 23 people found the following review helpful
172 page analysis of the origin of the current financial crisis. Author argues that the widely accepted Efficient Markets theory has dominated economic thinking of the management of the economy/financial markets. Alas, the facts do not support this theory. Crisis appear far more frequently that theory suggests. In fact, he argues that financial systems are prone to the formation of boom-bust cycles. As an example, rising property prices give lenders a false sense of security in increasing lending money, which in turn increases property prices, which in turn "justifies" lending the money and so on. He discusses the role of central banks and their failure to address the problems of excessive credit creation. Current solutions to the crisis include allowing markets to sort out the problem themselves (the Great Depression route);encourage yet another huge debt-fuelled spending spree; or let inflation rip thereby debasing the outstanding stock of debt. The author argues for a more regular "hand on the tiller" approach, preventing excesses from appearing in the economy. Highly recommended.
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Most Recent Customer Reviews
5.0 out of 5 stars Great book for anyone interested in finance/economics/crisis
I admit I've never heard of the financial instability hypothesis before but he does a great job of explaining it and just when I thought the book culminated with this, he put into... Read more
Published 2 months ago by DIOMIDES MAVROYIANNIS
5.0 out of 5 stars Required reading
Clear and concise analysis of the causes of the recent financial crisis (and the next one as well, no doubt).
Published 8 months ago by Veli M
4.0 out of 5 stars Good
I have read this after have many papers and books regarding the subject. It's a good book but personally I think its missing some details.
Published 10 months ago by Gio
5.0 out of 5 stars Everyone should read this book!
A riveting read and not just for those with a background in finance. George does an amazing job of taking the layman through the reasons behind the current global financial crisis. Read more
Published 11 months ago by Dr Vishal Saxena
5.0 out of 5 stars Lucid
Nice style, clear arguments and an excellent macro economic education for a novice like me. I Recommended this book mainly for its explanation of inflation and the role of central... Read more
Published 12 months ago by Mr Cynic
4.0 out of 5 stars Clear Expose of the History and Challenges of Fiat Money
This book is well-written and is a concise and clear history of how the world economy came to be so reliant on fiat currencies (rather than the gold standard) and the perils this... Read more
Published 19 months ago by Martin Rigby
5.0 out of 5 stars Absorbing
Fascinating book. Many anologies with the real world make this book easy to read and to gain an understanding into the more complex issues of finance and the cyclic effects of... Read more
Published on 20 Nov 2011 by Mac
5.0 out of 5 stars A Few More Nails For The Coffin
Uncompromisingly lucid. Cooper's description of what central banks do should be required procedure in the classroom. Read more
Published on 6 July 2011 by demola
2.0 out of 5 stars A pity he doesn't understand the theory
The great strength of this book is that it encompasses almost all of the common mistakes in analysing the recent financial fiasco in a reasonably compact and very well written form... Read more
Published on 23 May 2010 by Finance Phil
5.0 out of 5 stars Must read for anyone who wants to understand the Financial Crisis
`Regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices. Read more
Published on 21 Feb 2010 by Jasper Tamespeke
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