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32 of 32 people found the following review helpful
5.0 out of 5 stars COOPER HAS WRITTEN A READABLE MASTERPIECE
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...
Published on 7 Oct 2008 by Amazon Customer

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23 of 36 people found the following review helpful
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 (and it is for the latter quality it gets 2 instead of 1 stars). And his views on central banks are well argued. But the author has made too many errors in simple finance for this book to be...
Published on 23 May 2010 by Finance Phil


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1 of 1 people found the following review helpful
5.0 out of 5 stars A Few More Nails For The Coffin, 6 July 2011
Uncompromisingly lucid. Cooper's description of what central banks do should be required procedure in the classroom. And after nailing the Efficient Market Hypothesis, Cooper introduces Minsky's unstable economy theory which from what I have observed fits the real world much better than the rational man approach of economists. Having said all that, the EMH just says that an asset's price incorporates all the known information that could affect the price. The finance and economics guys have run with this to imply that "efficient" equals "perfect" and no one should tinker with the market because we will do more harm than good as the "invisible hand" really knows what its doing and does it best for the good of all mankind. Boohoo. We now know that markets are neither rational nor efficient else we would never have crashes or crunches. It's about time we moved on to a model that's more, shall we say, human - i.e. incorporates pervasive disequilibrium and messiness.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Must read for anyone who wants to understand the Financial Crisis, 21 Feb 2010
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`Regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices.' thus spake Ben Bernanke in a speech in January 2010. I actually read this book some time ago but was prompted to look at it again & write this review after what the Chairman of the Fed said. It proves that this superb book is more relevant than ever, as the Fed has clearly not learned the lessons & is in denial about its crucial role in the great debt bubble of the noughties. Indeed, with the ramping up of asset prices following `Quantitative Easing', the Fed and the UK authorities may be fuelling another asset price bubble.

The first thing to say about this book is that it is short: no issues about `Too Big to Read' here. Secondly, whilst it deals with highly complex topics about how modern economies function and are governed, any intelligent person not versed in economic theory will be able to read & understand it.

The basic hypothesis is that the markets for financial assets are not the same as the markets for goods and other services, where the efficient market paradigms work well. Whereas the market for basic goods will find a natural equilibrium level if left alone, financial asset prices are inherently unstable. Cooper illustrates this point using very simple examples which work very effectively. Anyone who has worked in financial markets through a business cycle (rather than studied them academically) knows this instinctively, but the explanation here is very clear.

By not understanding this distinction Central Bankers (the Fed in particular), have amplified this instability, whereas their job should be to help the system purge itself: in Fed Governor Chesney Martin's famous words 'The job of the Federal Reserve is to take away the punchbowl just when the party gets going.' Cooper uses some very good analogies to explain what the proper role of a Central Bank should be (including how the Eurofighter works, which is interesting in itself!). Just a shame that they don't seem to be listening.

There are probably hundreds of books by now about the crash, but if anyone wants to understand the background to it (rather than a blow-by-blow account) I would recommend reading this and `Fools Gold' by Gilllian Tett. Both books are well written, accurate and clear about complex topics, and not too long either.
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5.0 out of 5 stars Five Stars, 1 July 2014
brilliant book. gives a very comprehensive overview of the causes of financial crises including the recent credit crunch.
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5.0 out of 5 stars Great book for anyone interested in finance/economics/crisis, 2 Feb 2014
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This review is from: The Origin of Financial Crises: Central banks, credit bubbles and the efficient market fallacy (Kindle Edition)
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 a larger context referencing some very unlikely sources. Though the first half of the book is relatively simple and perhaps not too focused I would recommend the second half onward to just about anyone of any level.
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5.0 out of 5 stars Required reading, 21 Aug 2013
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Veli M (Helsinki, Finland) - See all my reviews
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Clear and concise analysis of the causes of the recent financial crisis (and the next one as well, no doubt).
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5.0 out of 5 stars Lucid, 13 April 2013
This review is from: The Origin of Financial Crises: Central banks, credit bubbles and the efficient market fallacy (Kindle Edition)
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 banks.
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4.0 out of 5 stars Clear Expose of the History and Challenges of Fiat Money, 13 Sep 2012
By 
Martin Rigby (Cambridge, England) - See all my reviews
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This review is from: The Origin of Financial Crises: Central banks, credit bubbles and the efficient market fallacy (Kindle Edition)
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 entails.

It is not an economics text book and it is polemical in that George Cooper makes a persuasive case for why there is no easy monetarist solution to the banking crisis and why the ideas of J M Keynes both help us to understand the crisis as well as deal with its consequences.

I'd recommend it to anyone as a thought-provoking analysis of the banking industry and how a credit based economy cannot avoid boom and bust.
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23 of 36 people found the following review helpful
2.0 out of 5 stars A pity he doesn't understand the theory, 23 May 2010
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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 (and it is for the latter quality it gets 2 instead of 1 stars). And his views on central banks are well argued. But the author has made too many errors in simple finance for this book to be anything other than false and misleading.

The most annoying and fundamental problem is that he assigns to the efficient market hypothesis the belief that the market always gives a fair price for an asset. The efficient market hypothesis actually says that the return from using information is commensurate with its cost - it says, in its most rigid form, that future price moves are not predictable. It says absolutely nothing about whether that price is a true one, or on the other hand whether it is affected by failures in the thinking of the average market punter.

I am not sure where the commonly held belief in market price being a true value comes from. If anywhere, it could be from the theory of the wisdom of crowds - and those who have read Surowiecki's excellent book of that name will know that the prerequisites for that to work (in particular independence of thought and diversity) are generally not present in financial markets. It could be from the use of the market value by accountants looking for an unbiassed and independent (though not necessarily true) price for complex financial assets.

Many groups were at fault in teh crisis, including politicians who were trying to keep the economy growing, City reporters, US homeowners who lied about their income, regional banks who thought they could compete with the big financial institutions, and the practitioners in the big financial institutions (like those Mr Cooper worked in) who sold complexity to those not capable of understanding it. It is so easy for any or all of them to pick up a theory with a name that sounds oxymoronic and use it to blame a few academics for it all. But the target picked was not involved.

A book whose central tenet is based on a fundamental mistake has little value - which is a pity for this is a book where a lot of care and thought has clearly gone in to developing the idea. If you want a proper discussion of the Efficient Market Hypothesis, there was a recent article in the Journal of Applied Corporate Finance by R. Ball (The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned?"). Read that - don't go here.
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0 of 1 people found the following review helpful
4.0 out of 5 stars Good, 29 May 2013
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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.
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4 of 9 people found the following review helpful
5.0 out of 5 stars Fine study of capitalism's failure, 17 Feb 2009
By 
William Podmore (London United Kingdom) - See all my reviews
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George Cooper, who has worked as a fund manager for Goldman Sachs and is now a principal of Alignment Investors, shows why capitalism's financial system does not work. All markets, if left alone, are supposed to tend to a steady state, with correct prices ensuring the most productive use of resources, maximising economic output. Also, price competition, in theory, makes inflation impossible, because competition means more efficient production, with lower costs, and so lower prices.

This is a simple, persuasive and elegant theory. Unfortunately it is also completely wrong.

As Cooper sums up its flaws, "the prevailing laissez-faire, efficient-market orthodoxy cannot explain the historical pattern of economic progress, nor can it explain the emergence of financial crises, the behaviour of asset markets, the necessity of central banking, or the presence of inflation. In short, our economic theories do not explain how our economies work. The scientific method requires, first and foremost, that theories be constructed to accord with facts. On this count the economic orthodoxy does not qualify as a science."

In the real world, markets are inherently unstable, prone to boom and bust. Credit crunches follow asset price bubbles and crises get larger and more frequent.

As Cooper writes, "the critical difference between markets for goods and those for assets is how the markets respond to shifting prices, or equivalently shifting demand. In the goods market, higher (lower) prices trigger lower (higher) demand; in the asset market, higher (lower) prices trigger higher (lower) demand." So the goods market is inherently stable, the capital market inherently unstable.

He illustrates his point with a parable: "On Monday, when our stranger came into town to buy bread, his purchases displaced bread demand from the rest of the townsfolk - leaving a stable bread market. On Tuesday, our stranger's purchases of bakery stock triggered a self-reinforcing spiral of demand for stocks supported by an equally self-reinforcing spiral of debt."

By contrast, Nobel Prize-winning economist Paul Samuelson asserts, without proof, "What is true of the markets for consumers' goods is also true of markets for factors of production such as labor, land, and capital inputs."

Since capital markets were unstable, states created central banks to stabilise the credit system, but their presence encourages more risky lending, destabilising the system. Since more loans, or less savings, boost profits, all capitalists, including central bankers, always favour excess credit. The contradiction at the core of capitalism is, "Credit creation is the foundation of the wealth-generation process; it is also the cause of financial instability."

Cooper warns, "today Keynesian stimulus is used not to exit depressions but rather to avoid going into recessions. ... As each fledgling recession is successfully prevented by the government and the central bank, the private sector borrowers become progressively more confident and therefore willing to build up an even greater stock of debt. However, as the debt stock builds it becomes progressively more difficult for the stimulus policies to offset future downturns."

The credit build-up is also of course a debt build-up, and the debts built up over the last 30 years are now huge and unsustainable. The orthodox policy choices are 1. Let it alone (Tory policy), 2. Find another credit bubble (where?), as they did in the late 1990s after the earlier binge - ensuring an even bigger crash next time, or 3. Print money (Labour policy). None of these will get us out of capitalism's endless cycle of debt and slump. Fortunately, we have a better way - socialism.
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