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4.0 out of 5 stars Useful account of the second great depression, 13 Dec 2012
This review is from: Crisis Economics: A Crash Course in the Future of Finance (Paperback)
Nouriel Roubini is Professor of Economics at New York University's Stern School of Business, and Stephen Mihm is Associate Professor of History at Georgia University.

We are in a second great depression. Crises under capitalism are not black swans but white swans, from the 1630s tulip mania, the 1720 South Sea Bubble, the 1819 crash, the 1825 global crisis (triggered by the Bank of England), further crises in 1837, 1857, 1866, 1873, 1893, 1907, 1920-21 to the Great Depression of 1929-33.

Post-1945, capital controls and the separation of investment banking from commercial banking brought growth and stability, for a time. Then came more crises, getting ever larger, till the current depression.

What the authors call the `cancerous growth of finance' created `a global financial system that was subprime from top to bottom'. As a banker said, "We are in a minefield. No one knows where the mines are planted."

It is a systemic failure, despite efforts to blame the poor, homebuyers, the public in general, subprime borrowers, Fannie Mae and Freddie Mac, Chinese savings, etc. The authors point out, "The huge growth in the subprime market was primarily underwritten not by Fannie Mae and Freddie Mac but by private mortgage lenders like Countrywide. ... overblown claims that Fannie Mae and Freddie Mac single-handedly caused the subprime crisis are just plain wrong. ... All of these factors - financial innovation, failures of corporate governance, easy monetary policy, failures of government, and the shadow banking system - contributed to the onset of the crisis."

Superlow interest rates, Quantitative Easing (printing money to give to bankers) and the growing carry trade in dollars are now fuelling a huge new global bubble in risky assets. Don't forget that when the carry trade in yen unravelled in 2008-09, it wrecked Japan.

The authors insist that banks' creditors must be forced to take losses. Governments must not socialise the debt, as was done in Ireland. Central banks must stop taking taxpayers' money to prop up illiquid and insolvent firms. Goldman Sachs has got more than $60 billion from the taxpayer. It should be broken up, like all the other firms that are `too big to fail', including RBS.

The authors warn, "Nor will any amount of budget cutting and austerity solve the problems of Greece, Ireland, and possibly Portugal and Spain."
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