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on 7 May 2011
Roubini and Mihm's book is one of the best I have read on the current economic crisis. Particularly lucid, comprehensive and insightful, it not only explains the causes and effects of the crisis, but also places it in an illuminating historical context. The authors show that repeating crises are the normal state of affairs in capitalism and not the exceptional or 'black swan' events that many pundits have suggested. Subsequently, they go on to suggest ways in which the effects of these inevitable crises may be minimised before finally turning to consider the immediate future and the likelihood of their proposed mitigating measures actually being adopted.

The book starts with an explanation of the current crisis and the events leading up to it. The chapter is entitled 'The White Swan' - a deliberate reference to Nassim Nicholas Taleb's 'Black Swan' hypothesis. Far from being a one-off ('black swan') event, the current crisis mirrors those in years gone by. Although, since the end of the Second World War, we may have been living through 'The Great Moderation', now we are actually seeing the return of business as usual - the normal capitalist routine of boom/slump and 'Crisis Economics'.

The next section looks at the 'Crisis Economists'. From John Stuart Mill, William Stanley Jevons and Karl Marx, the authors arrive at Keynes - '[t]he most important economist to emerge out of the Great Depression'(P47). In relation to Keynes, they then go on to briefly discuss Friedman and the Chicago School, Minsky, Schumpeter, Hayek and the Austrian School. The authors believe that the best approach may be a synthesis of Keynes and Schumpeter. Finally, they take a crucial point from Paul Samuelson:

'A founder and codifier of the neoclassical school, he oversaw his profession's embrace of esoteric mathematical models as a way of describing timeless economic phenomena. But when [an] interviewer innocently asked, "What would you say to someone starting graduate studies in economics?" Samuelson gave an unexpected answer. "Well," he said, "this is probably a change from what I would have said when I was younger. Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come." (P59)

In the following chapters, the authors present a detailed comparison of the development of the current situation with the slumps, recessions and depressions of the past. It is absolutely clear from reading these that anyone who claims that the economy has reached a 'new' form and the old rules no longer apply is seriously mistaken. The only surprising thing is that anyone could have been taken in by such pronouncements (I'm reminded very much of Thomas Frank's excellent polemic 'One Market Under God: Extreme Capitalism, Market Populism and the End of Economic Democracy').

After the historical exposition, the authors go on to present a number of reforms or 'First Steps' (Chapter 8). They consider the bonus culture of Wall Street, the extremely obscure financial products that were concocted, the failure and moral ambiguities of the ratings agencies, the derivatives market and banking rules and the Basel agreements. Within the terms of the system their proposals seem eminently sensible.

From these immediate suggestions, they then move on to more systemic 'radical remedies', looking at 'Enforcement and Coordination' (P215), including taking control of the 'shadow banking industry', the reintroduction of some form of Glass-Steagal Act (introduced in the 1930s to keep commercial and investment banking separate - but finally repealed in 1999 with the disastrous consequences that we have all seen), and a far more active role for central banks in controlling and minimising the development of bubbles. The authors are also very aware of the close links between some of those in the shadow banking industry and the US government:

'...we are by no means counseling [sic] a continuation of the high-level "revolving door" that connected some of the biggest financial firms with the regulatory establishment in Washington. Goldman Sachs is particularly infamous for this practice: several CEOs of that firm have held senior positions in the U.S. Government, while scores of other Goldman executives have held high-level jobs too.' (P221)

Again, I'm very much reminded of Thomas Frank - this time of 'The Wrecking Crew'.

Moving out from these essentially national proposals, the authors consider the international ramifications of the crisis and the obvious need for supra-national agreements to control the global economy, reform of the IMF and other global institutions. But, at the same time, they note that even now, some are calling for a return to 'business as usual'.

Finally, they consider the outlook for both the immediate and longer term future. It is not really a very happy picture. The future really does depend on transnational cooperation and, quite frankly, that does not strike me as likely. Whether the current slump is V, U or W shaped, whether Russia should be considered along with Brazil, India and China as a major developing country (BIC? BRIC? BRICK? P285), the fate of the dollar as the world reserve currency, the possibility of countries defaulting on their debts (the so-called PI(I)GS - Portugal, Italy (Ireland), Greece and Spain), the predictable rise in the price of gold (at the time of writing the book, it was at $1000 per ounce, at the time of writing this review, it stood at $1500 per ounce), whether inflation or deflation poses the greater risk - these are all briefly considered. Finally, in a nice reference to Joseph Stiglitz, they consider 'Globalization and Its Discontents' (P298). The current crisis is, they suggest, a huge opportunity for the introduction of changes that, although unlikely to eliminate the boom/bust cycle, will significantly ameliorate its most destructive effects. Whether this opportunity will be seized is a moot point.

Overall then, this is a fascinating and highly readable account of the current economic crisis. It is interesting to note that, although Roubini embraces an approach based on Keynes and Schumpeter, he is quoted and/or referred to in books by Marxist writers like Chris Harman and Alex Callinicos, as well as the former director of the LSE, Howard Davies. Personally though, I believe that the Goldman Sachs Vampire Squid and the Kleptocracy have got far too firm a hold and we are more likely to see the rise of a new form of feudalism. We are so doomed.
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TOP 1000 REVIEWERon 21 December 2010
Nouriel Roubini predicted the financial crisis of 2007-9, and in some detail. This made him extremely unusual among macroeconomists. 'Crisis Economics', written in collaboration with the financial journalist Stephen Mihm, gives Roubini's historical and theoretical perspective on those events, an analysis of where we are now and concrete suggestions for the future from a non-ideological, pragmatic perspective.

Roubini's central insight, informed by his reading of economic history, is that there is nothing unusual about crisis in the economy. On the contrary: he argues against Nassim Taleb's 'black swan' model of unpredictable extreme events that the recent crisis was eminently predictable precisely because it resembled in its course so many other crises in the past. Roubini's is a 'white swan' theory - crisis is normal and inseparable from capitalism - though he agrees with Taleb that within that paradigm crisis can and should be managed and mitigated.

Roubini begins by offering an historical overview of crises caused by an asset bubble that boiled over into the rest of the economy. He argues that the current generation of macroeconomists were fooled, with few exceptions, by an unusually extended period of relative stability (and their own predilections) into believing that stability was the normal state of the economy.

The author then moves from his detailed - and fascinating - account of historical crises to consider how economists have modelled crisis in the past and more recently. Again, this historical perspective reveals significant irrational and extra-economic influences on the question of which model became dominant in academic economics, and why its dominance left economists so unprepared for the crisis of 2007-9.

There follows a detailed analysis of the novel aspects of that crisis, with particular attention paid to the structure of remuneration in the financial sector, the growth of a largely uncontrolled 'shadow banking sector', the unusual degree of interconnection between the parts of the system, and the failures of existing regulation. From this, Roubini moves to an account of the course of the crisis itself, at every stage pointing up the regularity and typicality of its process, and then to a consideration of how a US housing market bubble burgeoned into a 'global pandemic' - and why this might not be the best metaphor for the crisis. For Roubini, this was not an example of global 'infection' from a rogue American economy. As the crisis unfolded, it merely exposed similar structural problems that had grown up independently in other sovereign states. Finally, we are given a view of the truly epic levels of government intervention that were deemed necessary to contain the crisis, whether this was wise, and what this implies for the future.

Roubini then offers detailed policy prescriptions for the future: a series of 'first steps' to address the most glaringly dangerous features of the current system, followed by a systematic overhaul of the financial system and world economic governance. He concludes with an analysis of the near- and medium-term prospects which draws attention to immediate dangers - such as one or more sovereign debt crises, and the possible collapse of the EMU - and a more insidious problem: that the real lessons have not been learned, so that there is a real danger that the system that generated the crisis will not be reformed, for reasons of political convenience and economic dogmatism.

This is an excellent book. Written for the intelligent general reader, highly readable, with no reliance on graphs or mathematics, it offers the best single account of the crisis I have encountered. It is highly recommended.
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TOP 1000 REVIEWERon 24 December 2010
Beginning with a now fairly familiar account of how the crisis of the late noughties came about and unfolded in front of our horrified gaze, Roubini and Mihm proceed to knock down assumptions, lay blame and propose solutions. As with other books in the genre, one of their difficulties is writing in the face of a still-unravelling story. Mostly this is well handled, although that in itself is a judgement made mid-stream.

The current crisis, they maintain, is not a Black Swan. It was predictable and almost inevitable in the circumstances. They stop short of a Marxist viewpoint that such crises are an inevitable feature of capitalism, and reject Schumpeterian doctrine. Instead they concentrate on how such crises of capitalism can be avoided.

They're hard on people like bankers, Bernanke and the ratings agencies. The bankers were, of course, out of control, Bernanke let them be, and the ratings agencies more or less said they weren't. One of the solutions offered up is to change the ratings agencies' business model, so they no longer get paid by the people they're rating, instead being funded by a pool financed by lenders. It's no good, they point out, expecting shareholders to provide responsible oversight. They have as much interest in high risk, high return strategies as the traders who devise them, and their losses are often relatively minor. It's the lenders who stand to lose their shirts. They advocate more powerful risk managers and a clampdown on risky behaviour, but that would appear to reject somewhat the capitalist model, which is founded on risk. What they mean, perhaps, is recklessness. They praise the model of the Financial Services Agency, but think it would be better under the aegis of the Bank of England. Presto! Mr Osborne delivers, so we'll see. They also refloat Keynes's idea of a global currency, but as with many of their proposals, and this more than most, they acknowledge the logistical and political hurdles that need leaping.

At time of writing the whole enormous mess is still unfolding. It's a little like the original Alien, where just when you think the monster has been slain you find it's been hiding in the pipes and wiring, or Ireland and Portugal, as they're also known, waiting to pounce. The authors float the idea of one of these, or maybe another compromised economy, feeling forced to quit the Euro, but it is likely that such an outcome would end up hurting everyone, as a recent article in the Economist detailed (for example, the country's debt would still all be denominated in Euros, and its new currency would immediately crash against that one, effectively increasing its debt).

Overall, Crisis Economics is written with authority, helps explain as well as anyone what's going on (so far as we can work it out at the current juncture), makes some valid judgements on the system that brought the mess about, and carries some good ideas for remedies which should at least be considered. Those who believe the markets will eventually right themselves will not agree with the prognoses; those with a less starry-eyed view will find plenty to chew on.
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on 15 September 2010
The book of Roubini and Mihm is really interesting and well written. It is not difficult but not trivial: it seeks to explain fairly well economic concepts and theories, so that the reader can learn something about economic theory.
It focuses mainly on the financial roots of the 2007-08 crisis and on the so-called global imbalances. Less attention is paid to deeper problems realted to income distribution and it doesn't say anything about why finance has achieved prominence in the last 20-30 years vis-a-vis other business sector. In this sense it doesn't go back that much.
Nevertheless, it refuses the most optimistic and semplicist visions of the working of our economic system and provides, within the so-called imperfectionist mainstream, a very good, detailed and realistic analysis.
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Crisis Economics - This book could become a classic

This is an excellent book detailing the current economic crisis (2010). The combination of the authors' journalistic and economic experience has produced a book which is both accessible and authoritative. It tells a story that will make the reader in turn extremely interested, very angry and deeply depressed.

The historical background on crises past is very useful. This is a topic ignored during any boom and re-discovered during any bust. The small print of financial sales literature often states that "Past performance is not a guide to future performance" but over the long term financial history does seem to repeat itself.

This book has three broad sections: financial history, a description of the lead up to the recent bust and suggestions for a proper response to the crisis. The mistakes of President Hoover at the start of the Great Depression have not been repeated but the current crisis is far from over. In particular, the apparent containment of the current crisis may give a false sense of security, and the re-regulation may be inadequate. A new edition of this book will soon be required, with a section detailing how the current situation was handled.
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VINE VOICEon 16 August 2011
This is an excellent book that takes the reader to the core of issues central to the crisis. It explains why deflation is a real danger and it compares to great effect the experience of previous historical crises with the current predicament. It also contains a series of sensible proposals on reform and it helps to bring together a series of different strands of the literature on the financial crisis. Banning CDSs for example and amending our treatment of bonuses cannot be argued with. The book claims to be non-ideologically aligned and it succeeds, but this is not always an advantage. The crisis was brought about by the dominance of many highly ideological preoccupations, so perhaps a slightly more ideological explanation is in order. The book contains a few minor mistakes that may annoy experts but will not be noticed by the general public. This is a title certainly worth reading for both experts and everyone interested in the mess we are in.
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on 13 December 2012
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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on 25 October 2011
This is a great book for understanding the crisis that occurred in 2007-8 and is indeed very much still occurring, despite these so-called "green shoots of recovery" politicians would have us believe are sprouting through since (if only we would all just borrow and spend even more!). It's also a great book for predicting where the crisis will go and Roubini is pretty clear on his prediction, like many other experts I have read, of a Japan-style deflation, a deleveraging private sector and a pacman government that borrows more and more. He is also rather scathing of the Federal reserve and it's bailing out of anyone and everyone, a practice we in the UK are also too familiar with now half of our poisoned banking sector is in government (ie OUR) hands.

Where I have to disagree with Roubini is on 3 points :-

1) According to him, gold cannot become the new reserve currency as it is "too scarce". Hmmm surely this scarcity is exactly what the world needs for a new, sound, paperless currency.
2) In the credit crunch it was right the government bailed out at least some of the banking system otherwise "good, sound businesses could have gone under". Well if they would good and sound, they would not be living off credit, is my view.
3) The financial world needs more of the right regulation. In my view, it never gets the right regulation and never will, there are always too many vested interests among the elite in government and finance to actually look after the common man.

Obviously, these are all just my view, and that would clearly mark me down by Roubini as a libertarian, a label I'm more than happy with.
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on 3 July 2010
An insightful and accessible analysis of the causes and effects of the 2008 crisis. Put in some historical context (especially 1929) it also provides a general template for how crises are "made" and how they unfold. I specifically enjoyed the authors' straightforwardness about how's to blame - not in a populist way, but they do explain how the FED, Congress and others contributed to the situation, not shying away from mentioning specific persons and their (in retrospect amazingly shortsighted) views or comments on markets.
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on 21 July 2012
Another book on the financial crisis? Seriously? Yes, seriously and calm down. Roubini is one of those guys you can't ignore even if you wanted to. He's always in the news!

"But we've heard it all before. The crisis was caused by greedy bankers and people who wanted to borrow money they couldn't pay back. Jail them all!". Simple solutions for the simpleminded, great. Closing down the banks and jailing everyone might make us all feel better and dare I say, virtuous. But. But. It's not banks that are greedy. It's the people who work in them. In fact, it's people, period. Greedy, hypocritical, self-centered and damn silly. A cursory reading of history is all that's necessary to be persuaded of this reality. The problems our economic system faces are multi-faceted and the networks of a globalized economy only makes disasters more acute. When the system works and "everyone's dancing", it works really well but as Roubini notes, following Minsky, good times are often seeds for crises.

So what are we to do? Roubini has his ideas and reading his book is a way to gain another perspective. I recognize that at some point we will need to stop gaining perspective and start doing something. But are we ready?
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