Customer Review

17 of 30 people found the following review helpful
2.0 out of 5 stars Disappointing Rehash, 8 Dec 2012
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This review is from: Misunderstanding Financial Crises: Why We Don't See Them Coming (Kindle Edition)
This book may be marginally interesting for someone who hasn't read much about the financial crisis but those who have will find little new.
The author seems to suffer from the misconception that what economists understand about the finance industry is important. But this just isn't so. The crisis wasn't caused by lack of knowledge but rather by willful collusion amongst industry insiders coupled with a total lack of understanding on the part of the world's central banks regarding the impact of China on the economy.

The fact that the crisis was an emerging phenomenon that arose from the interaction of many players makes it hard to understand and is the reason why simplistic account such as this fail. Although the outlines of what went wrong are by now pretty clear.

Central Bankers misunderstood the slow rise in prices as indicating that inflation was well under control; what they missed was that the entry of China into the global economy should have led to a fall in prices. Interest rates were then kept too low to long.
This created a rush for yield, investors would buy anything that had higher yields. Bankers rushed to fill this gap by creating securitised mortgages and ordinary citizens cooperated by rushing to buy houses that could only go up in value in an environment of artificially easy money. And finally the rating agencies knowingly blessed the results so the mortgages could be sold as AAA.
Politicians stood by while this was happening because their voters were happy with ever increasing house prices and their campaign funds were filled with contributions from the banks. Regulators were understaffed and underfunded and reined in by their political masters.
Given this dynamic, the failure of economists to understand that markets aren't efficient is a tiny insignificant part of the problem. Bankers and traders have always understood more about markets than academic economists and probably always will.
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