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on 27 April 2012
How Markets Fail by John Cassidy provides a detailed review of economic theories relating to the operations of markets and illustrates the power of ideas; sometimes - bad ideas.
Cassidy provides the reader with a highly relevant historical journey that weaves the development of economic theories (particularly in finance and macroeconomics) with their practice in the real world leading up to the breaking of the financial crash of 2008-2009 centred on the US housing bubble. Key characters include economists from both sides of the spectrum together with pivotal policy makers.
This is definitely one of the better books I have read on the financial crisis since Cassidy illustrates how we came to be in this dreadful place through a combination of factors. Grounded in a fair representation of the conflicting theories of finance and macroeconomic policy this books avoids the kind of ranting witnessed in certain other publications on the subject.
Perhaps most valuable in this book is the way in which Cassidy traces the thinking of theoreticians about how markets operate from the classical to the contemporary period and illustrates how these various theories were adopted by politicans and financiers in the real world. Sometimes with disastrous results.
Hence whilst the book goes to some lenghts to explain the relevant theoretical constructs of the economics community, it is complemented by an equal consideration of the psychology and political economics at play amongst some of the key players.
As recorded in other publications on the financial crisis the book reinforces the sense that the demise of millions of people results from the games played by a relatively small number of players at the top of the power pyramid.
Sadly, although the conclusion of the book offers up some suggestions on how the crisis might be turned into an opportunity for significant reform in banking (particularly investment banking), the intervening three years since the book was published witness very little has been changed. A seriously missed opportunity.
At its heart this is a book that revisits the intellectual struggle by top economists from Adam Smith to Friedrich Hayek and Milton Friedman, from the ideas of Karl Marx to the insights of John Maynard Keynes. But it also includes some less well known figures whose contributions have greatly enriched our understanding of how people behave in market situations, in particular Daniel Kahneman and Amos Tversky in their contributions from psychology and Hyman Minsky's grasp of reality of how markets really work.
It reminds us that as students of political economics, there are two sides to consider; namely, the political (in particular the use of power) and the economic. The same can be said of financial economics, where there are the increasingly mathematically based models to consider, but there are also the psychological and political elements of the players. At its heart, this book reads as a review of the ideological battle between those (both theorists and practitioners) who believe in the efficiencies of the market and the need to minimise government intervention, versus those who take a more pragmatic approach that acknowledges the realities of market failure and the need to insulate society from its excesses. It is of course a conflict that continues to this day.
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on 24 January 2012
This superb book gives not only a wonderfully comprehensive and readable insight into the 2007/8 financial crisis in the U.S., but also a lucid and articulate look into the world of economic theory, which is especially important given the Federal Reserve's totally misguided (some might describe it as downright negligent) attitude towards Wall Street during the Alan Greenspan regime.

If, by any chance, you believe that something called the Efficient Market Hypothesis has any validity in modern-day financial markets, then this book will surely demonstrate to you the error of your ways.

The book is extraordinarily detailed but never gets bogged down.

Amongst other things, the book enables us to stand back and see how the legislative protections put in place after the Great Depression (in order to avoid a repeat, naturally) were unceremoniously dismantled, particularly over the ten years or so leading up to 2007. We can only guess at the motivations that drove certain Senators and Congressmen to press for the dismantling of this protective framework which had helped to preserve a certain amount of sanity in the financial markets in all of those decades since the Depression.

And with the facts laid out so clearly in front of us, we can at least see who was supplying the matches before the house burnt down. Step forward Alan Greenspan, the revered (at least up to 2007/8) Chairman of the Fed, who now looks like a one-trick bull market pony, who not only exercised atrociously poor judgement when it came to understanding where the out-of-control bull markets were heading, but seemed hell-bent on wiping out all forms of regulation for U.S. financial institutions and markets as soon as was humanly possible.

Yes, we know lots of other individuals and entities were also culpable, but when the man at the top of the Fed seemed to spend most of his time opening all of the doors, we shouldn't be surprised when the fire burns the whole house down.

The author deserves a big pat on the back for weaving the various strands of this very involved story into one coherent body of work.

Economics students could do far worse than ditch their degree course and just read this book instead.
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on 14 March 2016
Very readable, very persuasive; but I'll withhold judgement until I've read Mervyn King's book "The End of Alchemy".
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on 13 July 2015
Pretty much what I expected. Solid analysis of radical free market cowboy insanity...but written clearly and calmly.
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on 21 August 2014
Bought as present they thought very good
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on 15 May 2017
The build to the crises was imo really clear.
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on 11 July 2015
A very thorough, readable, non-technical introduction of economic theory. Highly recommended!
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on 27 March 2015
An important analysis of markets, that realistically exposes how they fail.
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on 24 July 2014
great read very intellectually stimulating
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on 17 October 2014
Awesome and good book for my personal statement
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