Scan barcode
inquiry_from_an_anti_library's review against another edition
informative
reflective
fast-paced
4.0
Is This An Overview?
The financial industry is meant to manage risk, allocate capital, and mobilize savings, all while keeping transaction costs low. But the financial crisis in 2007 showed that the financial industry failed their function. They mismanaged risk, misallocated capital, and indebted people, all while imposing high transaction costs. The crisis was made by the financial industry, something that was done to the financial industry and everyone.
Financial markets focused on maximizing returns, no matter the risks involved for the borrower. Mortgage companies generated many inappropriate mortgages, and gave them to people who did not understand their effects with the assumption that housing prices would keep rising. The mortgages were repackaged into financial instruments by banks, which made the securities products more complex. An attempt to reduce the risk, but in practice just shifted the risk. The rating agencies did not check the risk of the securities, but still gave the securities approval as the rating agencies were paid when they provided favorable ratings.
The financial industry analysts deceived themselves and their clients about the worthiness of the products. Having purchased many of the toxic assets themselves. When the crisis occurred, banks did not know the value of their own assets, nor those of other institutions. Therefore, could not lend. The government bailed out the banks, but that did not stop the banks from blaming the government. The Federal Reserve has historically been willing to bailout banks, which created moral hazard as the banks took greater risks with a high expectation of being bailed out again. While banks were being bailed out, banks used the money to pay dividends and bonuses, while denying government assistance to the rest of society because it would have created moral hazard. In effect, the government had rewarded the people responsible for the financial crisis rather than seek accountability.
What Did The Financial Industry Do?
Securitization process repackaged mortgages and bundled them. The innovative financial products were designed to shift risk from banks, while generating fees. They were designed to avoid accounting and regulatory restraints.
The financial sector used their profits to buy political influence, that gave them deregulation and bailouts. Banks had actually successfully lobbied the government for deregulation. Regulators got captured by those they were supposed to regulate. Giving financial markets a lot of influence as to how they are regulated. Giving subsidies to wealthy companies has become known as corporate welfare. Even with the government assistance, banks blamed the government for the crisis anyway.
How Was The Crisis Handled And Resolved?
Rather than hold accountable the people who were responsible for the crisis to pay for the crisis, the government rewarded the banks for their efforts in ruining the economy. It was thought inappropriate to have taxpayers who did not contribute to the housing boom, to pay for those who did. Therefore, the lenders should have paid, because the lenders failed to do their job and assess risk. The banks claimed that paying for the damages would have impeded the recovery. Also, the people responsible for the crisis, were put in charge of the repair. They applied the same ideas that got them into trouble.
The government gave banks money, to enable banks to lend the money out. But the banks did not lend. The money was used by banks to pay dividends and bonuses rather than restart lending. As the banks knew that they might not survive, they just took the money for themselves. The Federal Reserve even started paying banks interests on their reserves, thereby dampening lending further.
The government did not help the rest of society such as homeowners, unemployed, or alternative ways to stimulate the economy. Banks claimed to not want to give homeowners bailouts because that would disincentive replaying loans, while at the same time were asking the government for money for themselves. For an effective stimulus package, it should have been responsive and supported investments to increase jobs.
The government took over various bank assets. But shifting toxic assets to the government, does not get rid of the toxic assets. The mortgages were restructured, which stretched payments for which they got more fees. But this just delayed the consequences.
Caveats?
Book provides an overview of what happened. Many popular criticism are made about the financial system, and the arguments are consistent, but there seems to be information missing.
The author notes various hypocritical contradictions within the claims being made by banks. Consistent logic, but the claims are being referenced as the financial system rather than the individuals. As in different people within the financial system can make different and opposing claims, but does not mean that the individuals are making the contradictions.
The proposed solutions would have had their own consequences, and needed to be developed further to be applicable.
Uses popular assumption because they appear credible, such as claiming that financial services were free and unfettered markets. Although there were products that did not have appropriate regulations, financial services had been one of the most regulated industries.
michaelacabus's review against another edition
5.0
We need books that make forceful motions for change; that push us past the malaise and stagnation that often envelopes our society.
Stiglitz's searing critique of the financial sector, and its responsibility for the cycle of recessions that have become characteristic of the US economy, is much needed.
Needed because 'recession' is a word that may spark fear (or morbid fascination, given the myriad economic articles with titles like "75% of economists predict this is when the next recession hits", making recession predicting akin to dentists recommending toothpaste) largely because it's causes are not so understood. I was in this camp who did not understand, too, and it's forgivable to be, given the huge effort by financial institutions (aided by the Republican and Democratic presidencies during the 2008 recession) to mask their responsibility. It even got a bit literary: don't call it "corporate welfare", for instance, when banks are bailed out...call it, "stimulus", something positive.
To many liberals, the name Obama may come as a surprise in its inclusion, but, as Steglitz points out, Obama, for all the hope and change he talked about, largely left the recovery efforts in the hands of the same people who presided over it, merely "rearranging the deck chairs". The result was a near absolute catering to the financial institutions that caused the crisis, and a hypocritical austerity applied to home owners who were taken advantage of by these institutions predatory lending practices.
This is refreshing, particularly as the narrative of individualism drove the narrative that foreclosures represented personal failings on the part of those who experienced them. It's not radical to think that that financial institutions have a moral obligation to society, but it does seem a foreign concept; faith in free markets was eroding, Stiglitz points out, and in our current time, we still see its effects. It doesn't take a huge leap to conclude that lack of faith in institutions during the recession, the witnessing of huge amounts of money going to financial firms and little to citizens, could be the seed for being disenchanted with political systems writ large, fueling a desire for something (or someone) who proclaimed to be outside the system.
That is the wrong lesson, according the Stiglitz; instead of abandoning the idea of market capitalism, we should be looking for ways to intermix socialist ideas. He makes the wise case that if we can somehow manage corporate welfare, we can manage social welfare, and the latter will give us more innovation, allow people to take more risks, and improve the economy more.
In many ways, this book is about than the 2008 recession; it is about a way to define a future society. Economics drives so much of what a society it, what it values; and to really prevent recessions is really about redefining what we value, to use moments of crisis to redefine society in an age of automation, climate change, and globalization.
This book is required reading to be a fully informed citizen; it is a counter narrative than what many financial institutions want out there, which means it is doing the work a good book should, being a bit dangerous in an effort to change the world.
A+
Stiglitz's searing critique of the financial sector, and its responsibility for the cycle of recessions that have become characteristic of the US economy, is much needed.
Needed because 'recession' is a word that may spark fear (or morbid fascination, given the myriad economic articles with titles like "75% of economists predict this is when the next recession hits", making recession predicting akin to dentists recommending toothpaste) largely because it's causes are not so understood. I was in this camp who did not understand, too, and it's forgivable to be, given the huge effort by financial institutions (aided by the Republican and Democratic presidencies during the 2008 recession) to mask their responsibility. It even got a bit literary: don't call it "corporate welfare", for instance, when banks are bailed out...call it, "stimulus", something positive.
To many liberals, the name Obama may come as a surprise in its inclusion, but, as Steglitz points out, Obama, for all the hope and change he talked about, largely left the recovery efforts in the hands of the same people who presided over it, merely "rearranging the deck chairs". The result was a near absolute catering to the financial institutions that caused the crisis, and a hypocritical austerity applied to home owners who were taken advantage of by these institutions predatory lending practices.
This is refreshing, particularly as the narrative of individualism drove the narrative that foreclosures represented personal failings on the part of those who experienced them. It's not radical to think that that financial institutions have a moral obligation to society, but it does seem a foreign concept; faith in free markets was eroding, Stiglitz points out, and in our current time, we still see its effects. It doesn't take a huge leap to conclude that lack of faith in institutions during the recession, the witnessing of huge amounts of money going to financial firms and little to citizens, could be the seed for being disenchanted with political systems writ large, fueling a desire for something (or someone) who proclaimed to be outside the system.
That is the wrong lesson, according the Stiglitz; instead of abandoning the idea of market capitalism, we should be looking for ways to intermix socialist ideas. He makes the wise case that if we can somehow manage corporate welfare, we can manage social welfare, and the latter will give us more innovation, allow people to take more risks, and improve the economy more.
In many ways, this book is about than the 2008 recession; it is about a way to define a future society. Economics drives so much of what a society it, what it values; and to really prevent recessions is really about redefining what we value, to use moments of crisis to redefine society in an age of automation, climate change, and globalization.
This book is required reading to be a fully informed citizen; it is a counter narrative than what many financial institutions want out there, which means it is doing the work a good book should, being a bit dangerous in an effort to change the world.
A+
volivier's review against another edition
4.0
a bit biased but extremely informative.Very much worth the effort.
julesjim's review against another edition
3.0
The analysis is very interesting and makes a good point as far as I can tell. Unfortunately the authors repeats himself a lot on a few issues, and I would have appreciated a clearer structure to the book overall.
lulumcc's review against another edition
3.0
Not the easiest read, but I definitely get the economic crisis now. There is probably a better presentation of similar data out there.
adt's review against another edition
5.0
How many euphemisms has her culture created for fraud, crime and blatant immorality and disgusting lack of virtue?? Read this book and find out. Not that the author condones any euphemisms. He tells it like it is! As a result of reading this book I canceled Credit cards with any major bank. I will not do any kind of business with these crooks! I am finding comfort in my alumni credit union. In the meantime I'm looking to see what the 2016 presidential candidates will have to say about regulation. Yes I am watching them!
halfmanhalfbook's review against another edition
3.0
Not as readable as his earlier books. My eyes tended to glaze over at the technical stuff...
eralon's review against another edition
5.0
Please, if you live in the United States, I beg you to read this book. The author is a winner of the Nobel Prize in Economics, and he makes the information he's conveying very clear to the non-economist. I realize it's a little old now and would benefit from a little updating, but it's still so valuable to understanding modern economic theory and how political decisions are affecting the economy.
New favorite!
New favorite!
theangrylawngnome's review against another edition
3.0
The author interjected his opinion far too often into the text, especially the last 50 or so pages, for me to really trust both his conclusions and his reasoning. Prof. Stiglitz certainly has no self-esteem issues, I guess that I can conclude.
Still, he knows his stuff and I am much more open to the sort of quasi-fascist economic system he seems to be proposing. (And please note I'm not using "fascist" in a pejorative sense here, I simply can't think of another term to describe an economic system where the means of production remain in private hands, but government has a say in just about everything, heavily regulates everything and structures all industries to put them in line with some sort of set of national goal or goals [see p. 292-93] on the goal bit. Heck, also for the recommendation of intervention on a massive scale.])
I'm also not how sure familiar he is w/the "Austrian School" of economics, since I am not either. It almost seems he thinks there's two colas on the shelf: Keynes and Friedman.
Funny that I'm reviewing this book this way. I'm about to write another review by someone w/radically different beliefs from Stiglitz that in some ways will be a carbon copy of this one. Go figure.
Still, he knows his stuff and I am much more open to the sort of quasi-fascist economic system he seems to be proposing. (And please note I'm not using "fascist" in a pejorative sense here, I simply can't think of another term to describe an economic system where the means of production remain in private hands, but government has a say in just about everything, heavily regulates everything and structures all industries to put them in line with some sort of set of national goal or goals [see p. 292-93] on the goal bit. Heck, also for the recommendation of intervention on a massive scale.])
I'm also not how sure familiar he is w/the "Austrian School" of economics, since I am not either. It almost seems he thinks there's two colas on the shelf: Keynes and Friedman.
Funny that I'm reviewing this book this way. I'm about to write another review by someone w/radically different beliefs from Stiglitz that in some ways will be a carbon copy of this one. Go figure.
davidsteinsaltz's review against another edition
3.0
Okay. Clear left-wing economist perspective on the financial crisis. Bends over backwards to remove agency from the little people, who supposedly didn't know what they were doing when they remortgaged their homes a dozen times. I could have done with less sneering at the supposed conspiracies of the bankers and corruption of the politicians, and more evidence.
The writing, qua writing, is pretty dreary, a massive trainwreck of cliches.
The writing, qua writing, is pretty dreary, a massive trainwreck of cliches.