How Do We Fix This Mess? The Economic Price of Having it all, and the Route to Lasting Prosperity

by Robert Peston

In Robert Peston's new book he explains in his characteristically straightforward way how the world got itself into the current economic mess - and how we might get out of it. 'How do we fix this mess? I don't know. But don't stop reading now. Perhaps if we have a clearer understanding of what went wrong, we'll have a better idea of what needs to be done. This book is a map of what needs to be fixed.' The record-breaking unbroken growth between 1992 and 2008 wasn't the economic miracle that it seemed. It was based on a number of dangerous illusions - most notably that it didn't matter that the UK and US year after year consumed more than they earned. But we couldn't go on increasing our indebtedness forever. The financial crash of 2007/8 and the subsequent economic slump in much of the west was the moment when we realised we had borrowed more than we could afford to repay. So who got it wrong? Bankers, investors and regulators? And were they greedy, stupid or asleep? What was the role of government? And what part did we, as consumers, play in all this? How do we get through this difficult period of transition to a more sustainable economy, one based on investment and exports, rather than on borrowing and consumption? With the same probing lucidity he brought to WHO RUNS BRITAIN?, Robert Peston takes us step-by-step towards a common sense way to fix this mess.

Genres: Economics, Nonfiction, Business, Politics, History, Finance

480 pages, Hardcover

First published September 1, 2012

Reviews

[Paul Bryant · Rating 2 out of 5]

So this is how they steal our world - they make the crime so fantastically dull that we can't concentrate on it long enough to arrest them.

*

Robert Peston is the BBC's main economic reporter and he has a very eccentric style. His speech is full of odd pauses and mysteriously elongated worrrrrrrrrrddddds as if he's thinking how to explain the next piece of horrendous jargon while he's in the middle of the last piece of horrendous jargon. I thought he might be the guy to educate me about what's going on with those naughty capitalists but it wasn't to be. He wants his book to be for the layman, the concerned onlooker, so every page is dotted with "the way to think of it is like this..." or "to put that into English..." or :

I wish I could say of a collateralised debt obligation that "it does what it says on the tin". But you would probably assault me on Twitter if I did that.

However, such - for me - are the abstractions of finance - nay, the abstractions upon abstractions - that he utterly fails to explain anything that can't be summed up in a few of the well-worn journalistic cliches we already all know - casino banking, too big to fail, who regulates the regulators, bonus culture, and so on.

I'll give one example of what strikes me as an explanation which doesn't explain. He's talking about credit derivatives also known as credit default swaps. These are forms of insurance against bad debts. So a bank or investor takes insurance out against their debt not being repaid. RP says that this sounds like financial good sense, doesn't it? Yes! But then he says look what happened. The value of these insurance contracts "increased to massively more than the value of the underlying loans that were insured. The same loans were insured many times over, all at the same time. How on earth could this be?"

Well, what happened was that credit default swaps in the debt of specific companies or governments were often bought for pure speculation, by hedge funds - for example - that had not lent to the relevant companies or governments. In that sense, trading in credit default swaps became a sort of Wild West market. The market price of a company's credit default swap, for instance, would rise and fall in line with what happened to the company's share price... But the thing about this market is that for some years it grew and grew... the really smart investors worked out that credit derivatives offered a way to make an absolute fortune out of the overweening exuberence of the most naive or optimistic investors and the fecklessness of over-stretched banks or governments. Or to put it another way, they could get very rich betting on the impending penury of others.

And on and on he rattles. My eyes glaze over. The book droops from uncaring fingers. It slides onto the floor. My tongue lolls, my eyes stare ahead unseeing. "Do you think we'd better call an ambulance?" says Georgia. "No, " says her mother, "just wave that Sherlock Holmes book in front of his face."

[John Owen · Rating 4 out of 5]

Robert Peston has always been a dab hand at explaining economics and business, but this is a big ask, even for him. Explaining the whys and wherefores of the economic disaster that was the Crash of 2008 takes some doing, but Peston manages it. I certainly came to the end of the book understanding a lot more than I did at the beginning. I also came out with my distrust of bankers and the City of London reinforced, as Peston doesn't let anyone off the hook for the economic woes that avarice and a lack of control led us into. I'm not wholly convinced by his solutions, as they require much stronger government supervision and control of financial institutions, the same institutions that pour money into politicians' pockets the world over to keep the status quo going. A fascinating, thought provoking and ultimately disturbing book.

[Fiona Robson · Rating 5 out of 5]

LOVED THIS BOOK!!! And Peston's writing style. He kept the book relevent, concise, politically neutral and explained a lot of things I was hiterto unsure of. I look forward to reading his other books.

[Brian Clegg · Rating 4 out of 5]

Like, I suspect a lot of people, I have struggled to understand just how the banks got into the mess they did, what is happening to try to untangle it, what is going on in the Eurozone and more. And thanks to this book I now have a much better feel for what it's all about. It's the sort of thing that is very difficult to put across on the TV news, requiring a more detailed, sprawling approach possible in a book, and Peston really does make things a whole lot clearer. He also makes it clear that there hasn't been enough done to prevent this happening again - the regulatory system still encourages the bankers to dream up byzantine mechanisms to get around the rules and increase their bonuses.

What's more as a bonus (the acceptable face of the bonus) there's an explanation of the whole LIBOR scandal business - and an in-depth analysis of China's finances and why there is a lot of potential for problems there too. Of course, you have to have an interest in current affairs/business and finance to find this as fascinating as I did, but it is important reading if you want to get on top of this crucial world situation affecting all our livelihoods.

One thing Robert Peston is famous for is his rather strange, drawling intonation and the book does have an equivalent in a habit of far too often saying 'In other words' or 'Put simply this means' or something similar. Time and again he will make a statement and then re-state it in simple terms. (He actually does this twice in a single paragraph at one point.) Usually the restatement is valuable, and sometimes having both versions helps because one uses the terminology you often hear but don't understand and the other clarifies - but it does happen far too often. I also ought to mention Laurence Knight who appears in very small letters on the front - he presumably co-wrote the book, so part of the acknowledgement for an excellent bit of work should go to him.

If you were baffled by the credit crunch, banking behaviour, the Eurozone crisis or any combination thereof and want to know more, this is definitely the book for you.

[John Gall · Rating 5 out of 5]

Fascinating insight into the economic crisis, the source of the problems, and how, with great difficulty, various issues need to be addressed. No easy solutions here I'm afraid. UK, Europe and Global problems addressed with stark reality and diplomacy. Had the pleasure of briefly meeting Robert Peston at the Edinburgh Book Festival, well worth catching him speak if the chance arises. Entertaining, amusing, informative in equal measure. 5 star read.

[L · Rating 4 out of 5]

Insightful and absorbing, this illuminating read will shed new light on Britain’s economy

In this new book by BBC business, political and financial editor Robert Preston one gains an insight into out changing economy and the current crisis it is now in. He explains in his characteristically straightforward way how the world got itself into this current economic state and how we may get out of it, with having a clearer understanding of what really happened. The unbroken growth between the years of 1992 and 2008 was astonishing for many, especially as the UK and the US consumed a lot more then they earned, year after year and which perplexed many individuals who monitored this. Naturally we could not continue like this by increasing our indebtedness forever, and so the financial crash came in 2007/8 that shook the world, for the realization then dawned on us that we had borrowed more than we could afford to repay. Many blame the bankers, the investors and regulators for getting it wrong, being accused of laziness and greed, whist also turning to the government for answers on what us (consumers) played in all of this. This book explains about us getting through this difficult time and period of transition between then and a more stable economy, one based on investments and exports rather than borrowing a lot and consumption.
With the same probing lucidity as the author’s previous work ‘Who runs Britain?’ Robert Preston takes the reader on a gradual explanation of the system, or common sense way to fix the mess and economic collapse. This has to be essential reading for anyone who wants to know about how the British economy operates, how it has changed and continues to change its ideals and concepts so that it thus improves and works much more efficiently. Preston also delves into the world of turbo-capitalism and other things such as hedge-funds, sub-prime borrowing and defined-benefit pensions. It really does give the reader an in-depth look at the pros and cons of borrowing money (whether that may be in the form of a loan or something much larger for say a business or company) and the implications that come with it, and the impact due to our actions.

Current and contemporary, this book is a fresh modern look at Britain today, written in a conversational and fluid style that is very readable. Robert Preston captures the zeitgeist of our country and the paradox in the form of Gordon Brown. It is lucid, candid and totally honest and I think many readers will appreciate the author who is plainspoken and tells it like it is. It cannot fail to shock and surprise you in places (such as for example when recounting how Labor admitted their overspending and thus compromised the entire balance and harmony of the nation’s economy. This book really does make for an interesting read that is of such great significance that I highly recommend it to all.

[Suzana · Rating 3 out of 5]

Good read, I liked it.

[Jeremy · Rating 4 out of 5]

What a mighty tome this is. Even with Roberts chatty writing style it still takes a lot of effort to get through it all. The world of finance is a peculiar one where the purpose of financial transactions is deftly hidden through silly names and where logic is skilfully defied. Peston tries his level best to keep the reader up to speed with da lingo but I confess he lost me several times and, only occasionally did I reread a passage in the hope that what he was saying would make sense. I tried to play catch up as I went along.
Having lived through the financial crash in the USA in the most painful of ways I do have a real interest in Pestons view of the “sliced and diced” mortgage debt, the peculiar way the ratings agency hold nations to ransom (and are significant players in the disaster) and find his analysis and conclusions of what lead to and what caused the great crash illuminating. Greed and self interest lies at the heart of it all and it can all be traced back to the halcyon days of Mrs Thatcher when she opened the flood gates for stock brokers to break the rules (well that’s my view – Roberts is not quite like that). When you understand that banks made more money when they held less reserve and made riskier loans and that bankers bonuses were (are?) linked to the profit the banks make, and that international banking guidelines promoted eye watering low levels of reserves you can see how Northern Rock fell over. What a mess the banking system got itself into, how the bankers benefited from it and how we have been left to clear up their mess.
In some ways it is a depressing book as we discover the root cause of the problems and see how there really is no easy or short term way out.

It is not a British or American problem (or indeed a Eurozone crisis) as those countries which financed our spending spree have boxed themselves into a financial corner and will face severe austerity themselves. He suggests that the banking industry has to find its primary reason for existence once more – and that is not to make money out of punters and we have to find a way to create wealth (not create money as the financial sector does, but actually create wealth through making things we can add value to). But no-one country can fix their own woes or the woes of any other – even though Germany props up all of the Eurozone – this is a global crisis and the world has to work together to re-stabilise the global economic machine.

I heartily recommend this book to everyone – some might say they’d rather eat their own arm than read a financial book, but they would be missing out big time. It would also make a great 1st year text book for economics and management degree students.

[Ian Russell · Rating 4 out of 5]

The immediate impression I had with this book is Robert Peston writes precisely in the style he speaks. I could almost hear his lilting voice in my ears with each sentence, such phrases as "In other words...", and "Or to put in another way..." which he uses to better inform in his radio pieces perform the same role in his prose. It took me a while to accept this idiosyncratic style of presentation but now I appreciate his news reports on business and the economy.

So, hence opting for this read, and curiosity to understand how the last five years happened and for how long more. Peston is very concise and insightful. At times, the bombing with mind-numbingly large numbers is wearisome but they need to be said; the situation was, and is, utterly horrendous. The best moments are when the figures are out of the way and he's simply telling the story, of reckless bankers, new and inscrutable financial products, rampant government indebtedness, surplus economies and borrowing economies, banks to big to fail and too big to be sustainable. Basically, we've been shamming it for so long, in so-called prosperity, that austerity, far from being seen as a brief period of readjustment pain, should really be seen as chronic normality. It is a global mess. But it's a fascinating insight into the interactive influence of the world's economy (yes, it appears we are all linked by finance).

Peston fulfils the promise in the title with a positive propositions in the final chapter. The economy can be improved if not entirely fixed. Whether it will happen though, he's not saying.

I got a lot from this book. I haven't had any formal education in economics but managed to keep up with most of the explanations, not that I could probably remember the finer points without recourse to the book. He's aware of the obfuscation of jargon, which is rife in financial circles, it seems, - no surprises - and takes time to clarify its meaning, when a meaning exists, and he points out when it sometimes doesn't.

A good read if you have an interest in the subject.

[Henry · Rating 4 out of 5]

Robert Peston has always been extraordinary at explaining the events of the economoc downturn, this is no exception.

Difficult concepts are turned into easy to digest examples here, wish I'd read this when it firat came out.

[Charlie Lake · Rating 3 out of 5]

At 453 pages and no diagrams you will require time and patience to read this book. The book focuses on the UK's banking sector during the Great Financial Crisis and contains possibly the clearest explanation of why it happened. It clearly describes how the use of derivatives CDOs and CDSs were the primary cause of the meltdown. The securitization of CDO's or Collateral debt obligations were designed as bundles of high risk mortgages that were bundled with low risk mortgages and sold as bonds rated AAA by the ratings organizations (Moodys etc). The competition to buy and sell these called AAA bonds proved irrisistable to the large investment arms of the large retail banks and although these were US innovations, banks across the world jumped on the bandwagon to get in on the action in their search for yield and larger and larger personal executive bonuses. Once the AAA bonds were proven to have no value, banks all over the world found they were unable to offload them and the credit contraction crisis began as banks found themselves unable to absorb the losses. The book contains good explanations re the fractional approach to lending, the health of the Banks in the EU and the PIGS crisis of 2011, China's approach to lending funds and the implications going forward and the LIBOR scandal. It is an excellent and well written book and is definitely recommended .....but for those new to this dry subject ...be prepared to devote patience and time to read this book.

[Lynne · Rating 5 out of 5]

You ever hear about the economic mess that the Labour Party left in 2010 - a grain of truth is shown here. Labour did make errors. But they were ones that built from Tory free-market errors in the 1980s and 1990s. Deregulation was a small part of this. The creation of new items of investment that even the boards of banks and the managers responsible didn't understand was the real cause.

It shows us how we need the government to have greater control over the banking system if we are to maintain capitalism in the future. Salutary lessons need to be learned. No to bankers bonuses. No to bank shareholder dividents until ordinary taxpayers are repaid for their stabilisation of the banking system.

[Graham Keith Collins · Rating 5 out of 5]

Robert Peston dramatically maps out how the Western World faced economic and financial meltdown in 2008 and bluntly states where the blame lays. His insightful analysis shines a powerful light on all the shenanigans of financiers, the ineptitude of regulators and the complacency of national governments. Peston highlights the fragility of the modern financial system and the unsustainable and incessant demand of the consumer that could well lead us back to 2008. Thoroughly enjoyable to read and very enlightening.

[Andy Nott · Rating 4 out of 5]

Interesting read into the causes of the 2008 financial crisis and wider look into global economics and why we as a western consumer economy need to change our ways rather than rely on the producing countries to fund our debt.

I think Peston communicates the technicalities well, and introduced new concepts of how we got into the financial trouble in 2008.

[James · Rating 3 out of 5]

It's very well explained. But the subject matter is very heavy. I will re-read soon to ensure I've taken it in

[Mark Beech · Rating 4 out of 5]

A really interesting read and depressing at the same time. Terrible decisions in the Banking industry caring about profits rather than doing the right thing. Let's hope this never happens again.

[Peter · Rating 3 out of 5]

A really interesting account of a shocking subject, but he goes into too much detail, so that the book is about twice as long as it needs to be. Shame, because he's good on TV.

[Vicii · Rating 3 out of 5]

I started reading this 6 years ago and now have finally finished it. Suffice to say, it might have been more relevant if I had of completed it earlier but still an interesting read

[Greg · Rating 3 out of 5]

An excellent book and well worth struggling though, but with some flaws. It can be summarised in Peston's own words: “... much innovation in recent years has resulted in the exploitation of the stupid and greedy by the clever and greedy.”

It seems to straddle an uncomfortable chasm between a text book, with its careful analysis of the banking “industry”, and a journalistic investigation for a popular readership, but it does need a compassionate but ruthless editor to reduce its size. It took 456 pages to tell a tale in an at times, verbose fashion with some repetition. It's other flaw is also a strength. It is written by someone who has been a financial journalist for some 26 years who is so steeped in the industry, that, at times, cannot see outside of the “bubble”, but who also has excellent contacts and an experienced journalist's understanding of financial facts and figures. The flaw is shown in his treatment of the Financial Transaction Tax (FTT). Peston can see all the advantages, from a financial analyst's point of view, but does not touch on the problematical history of taxes, such as the necessary global nature of a FTT imposed by unaccountable, unrepresentative organisations and especially of those taxes that start off tiny so are seemingly painless. The cry of “No taxation without Representation” might come to mind, and where it took Britain in the past or the introduction of the tiny, temporary income tax introduced in 1799 to beat Napoleon.

Peston's bubble thinking is also shown in this comment: “... it is very difficult to see how our excessive debts can be cut in anything but a very painful way. If there were a proper global government, it would be simpler to put in place policies that would encourage us .. to save more and spend less, ..” Although he doesn't appear to be recommending a global government, he makes no attempt to touch on the horrors or many problems that history tells us are associated with unrepresentative governments or empires.

It is almost essential to read Michael Lewis' “Boomerang” and Dave Fishwick's “Bank of Dave”, alongside Robert Peston's book, to get a more complete picture from outside of the bubble and from a financial user perspective, but do not neglect Peston's book. It puts a mighty amount of flesh on the bones of the other two books.

Peston leaves us with these important questions to which we have no answer, at present: “Banking is a service industry, but too often in recent years bankers saw themselves as masters, not servants. Can banks and bankers find honour in providing the affordable mortgage to a young family or be exhilarated by trying to properly understand the credit needs of a growing business, rather than chasing the next big bonus-generating deal? If so, then maybe that cancerous mistrust between the providers and receivers of finance, between the bankers and us, can be replaced by a spirit of co-operation that might, in time, rehabilitate our limping anaemic economy and restore our confidence that we will again be able to earn our standard of living and pay our way in the world.”

[Philip · Rating 3 out of 5]

An interesting and easy read that does well to explain the building of the debt bubble and how the ramifications are likely to continue to be felt for a long time yet. For me there was a bit too much focus on (and returning to) damning the culture of aiming at achieving bonuses at banks and not enough blame laid at the door of the regulators and governments of the day or on household borrowers who should perhaps have known better themselves too. Also the "Or to put it another way..." method of illustrating the previous point did get a bit tediously repetitive. Overall a good book although he didn't really address the title question until very late on.

[Pinko Palest · Rating 3 out of 5]

Full marks for readability, but he doesn't even begin discussing how the mess can be fixed. Rather, he gives the standard account of how we came to be where we are. Also, he still believes that neoliberalism is the only way forward (or at least the only way he presents; he hints that there might be other views, but he never discusses them). Still, much of what he has to say is interesting and even enlightening to those of us who don't know all tha tmuch about economics. What did grate though was his insistence on discussing himself and how he had predicted most of what happened ages ago. And that is the reason I am giving him just the three stars

[Ann · Rating 4 out of 5]

Anyone who wants to understand how the banks messed up, why they did so and why they're still at it 7 years after the start of the credit crunch should read this book.

It's getting a little dated now, but nevertheless this book goes a long way towards explaining the current economic situation in an amusing and comprehensible fashion. Despite having a degree in economics, I have never claimed to understand derivatives. Thanks to Robert Peston I no longer feel I am alone in being mystified by them.

[Ashok Hatwar · Rating 3 out of 5]

Covers a range of topics from the banking crisis to the Euro trouble to the problems afflicting many of the EU nations like Spain, Ireland and Italy among others. Explains these issues with the right mix of technical jargon and "easy-to-understand" language to appease those far away from the financial services.

Would recommend it as a read for anyone who is interested these topics and how it affects our day-to-day life.

[Daragh · Rating 3 out of 5]

Despite its title, this is largely a look back at the causes of 'this mess' than a prescription of how to fix it.

The reasons for the global financial crisis are so multitudinous, so varied in nature and so systematic as to make it almost impossible comprehensively to analyse them all. Peston does a solid job, working methodically through issues with the banks, challenges in nation states and all of the miscellany of error and deceit that leaves you in awe that nobody saw what was coming.

[James Elder · Rating 4 out of 5]

Complex subject, well-explained. As with John Lanchester's "Whoops!" makes me so angry at the intellectual arrogance, greed and hubris of free-market ideologues in general and bankers in particular.

Some of it does make for depressing reading, especially as the suggested ways forward don't seem to be ones adopted by our current Government.

[Jane Walker · Rating 4 out of 5]

It's about as lucid an analysis of the current financial mess and how we got here as you're likely to find. But it's still a struggle, even though Peston does his best to illuminate matters. What's missing, I felt, was any real answer to the question posed by the title.

[Ingmar Boddington · Rating 4 out of 5]

Interesting and easy to follow, good in depth explanation of the people, organisations and systems which led to the crash, and how tenuous the current state of the UK, eurozone and world economies really are.

[Fazackerly Toast · Rating 3 out of 5]

quick answer : wholesale cultural change. easier said than done. useful summary of how we got into this mess, but not exactly news if you've been working in a global investment bank for the past fifteen years.

[James · Rating 3 out of 5]

I did enjoy this book, but I found it to be quite hard going. This was mainly due to my lack of understanding of a lot of what Peston was talking about. It was particularly interesting to hear about the state of economies other than the UK's during the economic crisis.

[Vincent Tan · Rating 3 out of 5]

not very deep but a good primer for the layman. improves in the second half.