Природа финансовых кризисов

by George Cooper, Джордж Купер

In a series of disarmingly simple arguments financial market analyst George Cooper challenges the core principles of today's economic orthodoxy and explains how we have created an economy that is inherently unstable and crisis prone. With great skill, he examines the very foundations of today's economic philosophy and adds a compelling analysis of the forces behind economic crisis. His goal is nothing less than preventing the seemingly endless procession of damaging boom-bust cycles, unsustainable economic bubbles, crippling credit crunches, and debilitating inflation. His direct, conscientious, and honest approach will captivate any reader and is an invaluable aid in understanding today's economy.

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

216 pages, Paperback

First published January 1, 2008

About the author

I wrote my first book – The Origin of Financial Crises – back in 2008. With that book I was trying to explain what was going wrong with monetary policy and how our central banks were making financial crises bigger rather than smaller. The book got some good press including some generous reviews in The Economist and in the Financial Times. Nevertheless neither my book nor any of the others discussing the policy errors leading up to the crisis have had much impact. Five years after the crisis our economic models and our economic policies remain pretty much as they were before Lehman Brothers failed.
Having watched the policy debate since the crisis I am now more convinced than ever that we won’t be able to fix our economic policies without first fixing the ‘science’ of economics. My second book – Money, Blood and Revolution – aims to help unravel the confusion within economics. If we can make our economies easier to understand they should also become easier to manage.
The new book will be published in March 2014.

Reviews

[Clif · Rating 4 out of 5]

It's important to note that the title uses the word crises, not crisis. Though it was written in 2008 undoubtedly prompted by the housing bust, the message to readers is that the root of the problem is in how our financial situation is analyzed in particular how the Fed, the U.S. central bank, analyzes it that creates the repeated deep recessions that plague us.

There is a concept, the "efficient market hypothesis," that has been proven wrong repeatedly but that stubbornly continues to be cited as fact. This hypothesis says that the price of things is always accurate. All the information needed to set the price of anything is known at all times so we can never point to a price and say it is too high or too low. There is another theory - the greater fool theory - which says a price will go up as long as a greater fool can be found to pay it, the sky being the limit. The dot-com boom and bust in the stock market was a perfect example of this.

Do you recall the Federal Reserve Bank chairman at the time, Alan Greenspan, telling us that it was very difficult to spot a bubble in asset prices even as house prices were racing upward? Of course, it was a bubble and it burst to great financial damage and a government bailout of the big banks. The man himself later said it had surprised him being contrary to his beliefs about how the economy works.

The Federal Reserve Bank was created as a result of a big bust back in 1907. It was realized that the boom/bust cycle was a problem with capitalism and that something had to be done to at least prevent runs on banks if the cycle itself could not be stopped.

This easy to read short book drives home the point that the efficient market hypothesis is a fallacy. When it comes to determining asset prices, instability is to be expected and is not the fault of people acting irrationally. This was put forth by Hyman Minsky in his financial instability hypothesis that George Cooper writes is validated by what we have seen happen repeatedly in our economy.

Why is instability the case? Its basis is in the issuance of credit with its partner the taking on of debt. I've heard it said, accurately I believe, that the price of anything is equal to the amount of money that can be loaned to buy it. We saw this in the dot com bust and the housing bust. As prices rose, more and more people believed that the trend would continue and they borrowed increasing amounts of money to buy internet stocks or houses respectively.

If your house was going to appreciate 10% or more in a year, why not go for the bigger house with a bigger loan and then easily pay off the loan and clear good money too with the appreciation on the house? And why not borrow even more for the things you want using your house as security for the loan...thus creating the "home ATM?" Why stand by and make nothing while others were getting rich flipping houses? The banks enthusiastically joined the rush seeing profits could be made on giving loans to anyone regardless of income or credit rating. The house that was mortgaged would appreciate in value. If some person couldn't meet the payments and defaulted the bank would be left with a nicely priced house. It looked like nobody could lose. Then the bubble popped.

Cooper is not an opponent of the Fed. He sees it as a necessary tool in damping the boom/bust credit cycle. This can be done by raising the interest rate as asset prices start to take off. Raising the cost of getting a loan reins in bank lending and deters bank customers from taking out loans due to the increased cost of loan interest. This is excellent advice, but the Fed has been very hesitant to "take away the punch bowl just when the party gets going." When big money is being made, the 1% are on top of the receiving line. Members of the Federal Reserve board are all members of the 1% and the big banks have known, proven in the big bank bailout, that when the crunch comes, the Fed will be there to bail them out, though the little guy with the worthless asset and big loan will be left hanging.

To sum up, we have a system, the Fed, that was put in place to take care of a problem that was evident over 100 years ago, but we still have the problem. What's most alarming is that today the Fed has used up all its ammunition by keeping interest rates low when they should have been raised. Stocks are up almost 50% in three years. The historical norm is 7% a year. This is a bubble that in 2019 is showing signs of popping. We now see a limping economic system despite the Fed having done all it can to juice it, taking on huge debt with "quantitative easing" (buying up bad loans with good money) and, well, just yesterday refusing to raise interest rates. There is terror of any stock market fall, though moderate periodical falls should be the norm if we want to avoid epic drops. But if the Fed backs off in fear of any drop in the market, interest rates can never rise enough to be effectively lowered if a crisis occurs.

I highly recommend this book to one and all. There's no math, there are no charts and graphs to figure out, just clear writing with strong evidence for the author's points.

[Ari · Rating 2 out of 5]

This book addresses one of the major questions in practical macroeconomics -- "why do bubbles form and burst, and what should we do about it to minimize the answer?"

The author's answer, which I think is plausible, is "asset prices have a great deal of (positive) feedback and so the system is prone to oscillate quasi-randomly. Claiming that markets are efficient is either false or meaningless, when there are multiple efficient price equilibria and the system can switch between hem unpredictably. Central banks ought to act as dampers on the oscillation but don't, because they tend to leave interest rates too low too long."

The book is written vividly and clearly, but I think it fails to persuade. The author's argument has two major themes: first, "Keynes was right all along you nitwits", and second, the efficient market hypothesis is meaningless or false when applied to asset prices, because of the feedback loops. Both of these *might* be true, but the author doesn't really think through his claims and doesn't address obvious objections.

There is a long explanation of how banking is different from normal industry, because banks are always pushed to take excess risks in competing for deposits. But this is actually not at all convincing; every business is pushed by competition to lower its prices to the lowest possible level, and every business is at risk from large shifts in market conditions. Why do we have financial crises that paralyze the whole economy, but not when several airlines go bankrupt at the same time?

The author suggests that central banks should be much more aggressive in raising rates to stop asset bubbles. But this begs the question -- how does the central bank know when assets in general are overvalued, and in particular, how does the central bank know better than the marginal investor, who could profit from selling short? Sneering at the Efficient Market Hypothesis doesn't make its underlying logic go away. Moreover, the author ignores the practical problem that bubbles are often asset-specific. Just because technology stocks are badly overvalued does not necessarily mean that everything is; given that the economy has many different asset classes, some of which may be overvalued while others are under-valued, how is the bank supposed to set rates?

The book is pretentious in ways that undermine the author's credibility. The explanation of feedback and oscillation is told with heavy reference to Maxwell's work on steam engine governors -- Maxwell's paper on the topic is actually reprinted in the appendix. This adds essentially no value to the book. Any reader able to follow Maxwell's differential equation will already be familiar with the theory of a forced damped oscillator, which is a standard part of freshman mechanics. Moreover, control theory and the study of dynamical systems have evolved very considerably since the 1868. If the author has to hide behind Maxwell to explain feedback, I worry that he literally doesn't know what he's talking about when he claims the economy has no stable equilibrium. That claim isn't justified, nor does the author give evidence he knows what a justification would look like.

I think I learned things reading the book, it was at least thought-provking. But I'm not sure it persuaded me of anything.

"Manias, Panics, and Crashes: A History of Financial Crises", by Charles Kindleberger, is a better book on the topic, with similar but more careful conclusions. Read that instead.

[Juneight · Rating 4 out of 5]

Economy has its own rules. Understanding the interaction among various determinants of an healthy economy requires technical knowledge. This books provides a basic understanding of how markets work and why crises occur and who are the key actors in the market system to fix these crises. A good read if you are interested in the economy, markets and crisis.

[Ben · Rating 4 out of 5]

This was a very good book that detailed the issues of finance and what can / did happen.

I enjoyed reading this one, as I am learning more and more lately about these topics.

As there are some major warnings about a coming financial crisis, I am trying to learn more about what can happen, and what can prevent it.

4.0/5

[Duncan · Rating 4 out of 5]

Overall, an extremely interesting book that links what many of us intuitively feel about the economic orthodoxy (namely that the current status quo is fundamentally flawed) to a discussion of how things could be done differently. As someone with only a basic understanding of economics, I found this book readable and the arguments easy to follow.

Neoliberal economic doctrine holds that markets are inherently self-correcting, and that they will therefore fix themselves whenever any problem (a 'shock') emerges. Free markets are also held to be the most efficient way of allocating resources. This is the Efficient Market Hypothesis, which is a cornerstone assumption of the belief that the state should intervene in the economy as little as possible.

George Cooper shows how this is actually no more than wishful thinking, a theory that frequently and fundamentally fails to describe the data. Instead, the author turns to J.M. Keynes and American economist Hyman Minsky, to argue that the markets for assets are inherently unstable: the Financial Instability Hypothesis. The author spends much of the book convincingly arguing that the Financial Instability Hypothesis explains the reality of the situation much more accurately.

While this may seem like an arcane point only academics need discuss, it actually determines policy makers' beliefs about how governments and central banks should manage the economy.

For example, free marketeers claim it is impossible to spot an asset bubble until it has burst, which implies that no steps should be taken to dampen growth in the markets, no matter how disproportionately they seem to be expanding. Similarly, no intervention should be taken to prevent debt from reaching enormous levels: the market will reach an equilibrium by itself if left alone.

On the other hand, even if it is true that markets will eventually balance themselves out, the big question is: at what cost to the average person? Further, while some economists go to extreme lengths to deny the existence of bubbles, anyone at all can see, for example, that house prices in many western countries have become cripplingly expensive, and that astronomical share prices during the dot-com boom-and-bust bore no relation to those companies' revenues (let alone profits).

Whether we call these bubbles or something else is a mere technicality once it is recognised that the flip side of overheated expansion fuelled by massive levels of debt is prolonged, painful contraction once credit destruction begins to exceed creation.

One interesting (read: self-serving and hypocritical) aspect of the free marketeers ideology is that they vociferously oppose state intervention in the markets during boom times, but positively demand it when the growth begins to slacken, even before it even turns negative.

But by providing pre-emptive stimulus to the economy before things even turn sour, which the US Federal Reserve under Greenspan was especially guilty of, policy makers actually prevent important signals from feeding through to the markets, artificially inflating bubbles further and further, and thus ensuring the landing will come with a crash, rather than a bump, when it finally hits.

The author has some interesting things to say about central banks. He argues that their purported goals are actually self-contradictory. For example, when growth is weak, they will lower interest rates to promote growth by encouraging people to borrow and spend rather than save - but encouraging a greater and greater accumulation of debt will also eventually precipitate a much worse crash - and so the tools used to shore up growth in the short term will cause greater instability and pain over a longer time period.

So what needs to be done on a policy level? According to the author, downturns are an inevitable part of the cycle, and putting them off only makes them worse, so policy makers and voters need to learn to accept small contractions on a more regular basis, rather than prioritising policies that increase or prolong growth now but will also exacerbate the suffering later.

Once this is accepted, central banks and politicians will be able to focus their attention on making the ups and downs less extreme by pricking asset bubbles and disincentivising credit expansion earlier in times of growth. Conversely, once a downturn has arrived and its concordant signals have fed through to the markets, stimulus should be provided in order to lessen the depth and length of the recession.

Rather than yo-yoing violently between rapid growth and crisis, economies under this system would roll more gently up and down, providing much greater stability overall.

[Philski · Rating 1 out of 5]

E for Effort, but ultimately this book was a huge disappointment.

The first few chapters are fine background material.

His introduction of Minsky's Financial Instability Hypothesis and criticism of the Efficient Market Hypothesis is good and to a large extent I agree.

However to him it's binary, either 'the market' is stable and requires no intervention, or it's unstable and needs a central bank. He doesn't acknowlege it could have multiple stability points and bounce back and forth between them.

And how can you mention Keynes almost every other page without mentioning Hayek? There were a few references to Milton Friedman but Hayek and Keynes sparred over ideas during their career and it would have been good to incorporate both sides of history.

But where he really fails is in his over simplified examples of why the financial market is not like the physical trade market. He offers the simplified analogy of a bread and a potato salesman and how their changing prices will lead to response in the consumers which will bring prices back into check. So far so good. He then has a separate simplified finance market where somoene buys stock in the one stock that exists, raises the price of the stock, loans get adjusted mark-to-market, boom things explode.

BUT WAIT!

His model is too simple... in the real world we can short that stock (that is, sell it and buy it back cheaper). And with only one stock he removes the principle of arbitrage (that is selling one stock and buying another, or an index, as a paired trade) which brings prices back in line. By making his examples too simple he eliminates feedback functions that exist and work.

...

He provides the example of a bridge which vibrates (resonates) with foot traffic, and dampers are installed after the fact to make it stable, and that central banking can offer the same damping function and stability. What he needs to realize and say in the next breath is that this *** shifts the stability point to a different mode *** which could very well be worst - catastrophic - as opposed to just annoying. He cites Mandelbrot's work on finance criticizing the efficient market hypothesis without citing Mandelbrot on the idea of the sandpile and criticality in systems - that is, you take away one mode of failure, and others crop up.

...


He also fails to acknowledge that, while there are have been booms and busts prior to central banking (Tulip bulbs, South Sea company) we haven't had system wide booms and busts (Great Depression, Internet bubble, Housing bubble) since central banking appeared. This is key!

...

In the end he is correct about individual arguments, for example how having a generous central bank encourages risky loans, but when he puts all the arguments together it falls apart due to oversimplification. He uses Mandelbrot's ideas where convenient and throws them away when they aren't. He quotes Keynes left and right without Hayek, his counterpart and intellectual sparring partner. Avoid unless you can read it critically.

[Balhau · Rating 4 out of 5]

Another lovely book that starts with a journey through the history of monetary systems and explains the evolution, why we create the gold, then the money and finally the current complex market system. It is a very pedagogical approach and put in perspective several economic views when it takes a subject into discussion and gives a very broad set of information that are intimate related to the mechanism by which we do macro economics today. The fundamental point in this book consists in an analysis to the well known and General equilibrium theory as a theoretical model to macro economics as a reliable tool to explain the reality behind all the economy and in particular the current financial systems. The author does a good job explaining why we should be careful with the premises assumed by this theory and shows how those same premises are weak and in some cases not applicable at all. As an alternative the author shows other economic theories like the famous Minsky's financial instability hypothesis and explain the ideas and how those explain the subprime mortgage crisis. Finally the author ends with a broad analysis of the role of Central Banks and the need for regulation. The author also points for the need to these Central Banks to be independent from political forces to be able to "govern" (in the sens of the article "On governors" of James Clark Maxwell) the markets and in the end avoid the meltdown of entire economical systems through the appearance of bubbles leveraged by debt. In short I must say that the book is a must read and that is very enjoyable as well. The only prerequisite needed to enjoy this book is to want understand how reality of money works and how we are affected by that.

[Dominik · Rating 4 out of 5]

The book is very easy to follow, reading is almost effortless. It does not use financial jargon, so even individuals not unacquainted with the fiscal and monetary policy will be able to read it and understand.

However, writing an easy to read book on such a difficult subject comes with some drawbacks. The subject is not yet fully understood. The theories are constantly evolving, one after another contradicting themselves. The author tries to find a binary answer to such a multidimensional problem. It has to come with some very dangerous oversimplification and compromises.

The subject is dividing, so the book also has to divide. I agree that financial markets are inherently unstable, oscillating between multiple dynamic equilibrium points. I believe controlling the credit expansion cycle is important and consumer price targeting should be abandoned. However, advices such as;
1. To preemptively prick the bubbles using some arbitrary metrics.
2. Annual assessment of the government’s fiscal position by Central Bank.
3. Letting the inflation run for the purpose of redistributing wealth.
Those ideas will not solve any of our problems and eventually will blow up in our faces. I agree with the diagnose but I'm definitely against the proposed treatment!

The solution may lay in the implementation of a well understood and widely publicised Maxwell governor. Knowing the set of predefined rules for the credit expansion prevention market might self regulate in anticipation of governor intervention. However, if history is any guide, all measures attempting to regulate the market will sooner or later fail... Maybe we are destined to live with unstable financial markets forever?

[Becky · Rating 3 out of 5]

This book was very beneficial to me because it started out explaining the evolution of our economic system from a gold backed currency to a fiat money system. I've always been confused regarding the technical aspects of this and so now feel much more informed and able to move forward in learning and understanding other economic concepts. The main focus of this book is to highlight the "fallacy" of the Efficient Market Hypothesis which states that when left alone, our market processes will take care of themselves - or rather balance out through supply and demand, etc. The Financial Instability Hypothesis developed by American economist Hyman P. Minsky counters the Efficient Market Hypotheses by stating that there are extraneous variables (including the actions of the central banks), and even elements within the laissez-faire environment of the EMH that do throw the market out of equilibrium. Cooper dissects and explains these variables a bit and through this we get a good understanding of the central banks' roles in it all. Cooper argues in support of the Financial Instability Hypothesis, the needed acceptance of the innate instability (within limits) of the market, the need for central banks, and the need for central banks to understand the markets better and to react on a more preventative, consistent, and less knee-jerk way.

[E · Rating 4 out of 5]

Critical examination of the “efficient market” theory

Analyst George Cooper’s book seems to prioritize passionate (although informed and understandable) advocacy over a strictly reportorial explanation of economic ideas. He clarifies his belief that much of the present fiscal misery flows from decades of unwarranted confidence in the “Efficient Market Hypothesis.” He offers the work of 1970s American economist Hyman Minsky, 19th century physicist James Clerk Maxwell and the inventor of fractal geometry Benoit Mandelbrot, to support his claim that experts could detect, govern and manage economic bubbles before they pop. He also recommends a dose of inflation plus governmental controls on credit creation to fix the economic system. He summarizes Minsky, uses Maxwell’s work on steam engine governors as a metaphor for managing credit creation and applies Mandelbrot’s observation of a memory effect to the economy. Even though his presentation of the efficient markets fallacy seems oversimplified in parts, his theory is interesting. getAbstract recommends Cooper’s background research on fiscal policy ideas, if not on every facet of fiscal events. The more government controls you favor, the more likely you are to be persuaded by his passion.

[Michael Nygaard · Rating 4 out of 5]

I was lead to this book from Taleb’s Anti fragility. I see a lot of similarities between each work.

Cooper has opened my eyes to the possible feedback mechanisms that promote boom and busts. I never put the pieces together like he explains. However he is not as convincing because of the lack of true evidence. This book is mostly narrative based, rather than evidence based (which is ironic for me given that Taleb warns against such narrative creation). I plan on reading Minsky’s work to see further explanations.

The issue with Cooper’s ideas is that he is assuming an all knowing central bank can make interest rate changes with precise timing. If the market doesn’t see the signs that credit is over extended, how is a central bank supposed to recognize it at the appropriate time? The answer would be that the central bank needs to be conservative and increase rates after a reasonable time of a boom cycle. This will leave potential wealth creation on the table.

Overall, a good read and definitely thought provoking.

[Brook Miscoski · Rating 5 out of 5]

This book has certain inadequacies, but does a reasonably good job of explaining why the Efficient Market hypothesis, which makes sense for discussing the regulation of goods, does not make sense when talking about the regulation of assets (because they are credit-related).

The explains the economic dynamics behind credit expansion and discusses why asset markets are thus not stable, efficient systems that seek a single equilibrium state.

This is a good read for anyone who's been exposed to the standard law and econ arguments promulgated by the Chicago School, because those standard arguments are not good at explaining economic reality today, and are more or less just useful for people who want to avoid regulation because it is good for their individual interests.

[Dave Peticolas · Rating 3 out of 5]

A pretty good but not great book about the recent(ish) history of money, finance, and financial crises and what we should do about them. The author never delves very deeply into the details of macroeconomics and that lack of rigor shows towards the end, particular when it comes to his prescriptions about what is to be done. They sounds nice enough, but one wants a bit more detail in their justification.

[Hossam El-ashkar · Rating 5 out of 5]

This is a very good insight into the current global economic state. It is written in a plain language for the normal people not specialized in economics. It uses normal analogies, yet it is not superficial.

[Freddy Rojas · Rating 3 out of 5]

I bought the book just thinking to cover and double-check my expertise in financial crises and also increasing my knowledge in any statistic/number I may have forgotten, any detail of financial-crisis events and give ultimately some stance in somebody's else point of view, just to get fun!

However, the book is misleading in that specific subject, it does not cover in detail past financial crises, so why did I give 3 out of 5 stars? The point of the book is to argue the roots of ALL financial crises, that is something adventurous from the author. Cooper argues that the origin of those crises stems from the same financial sector; the financial sector is fickle by nature, economist do know that, investment and financial sector moves together, it is volatile relationship, that is the source of fluctuations, period. There is nothing new.

Something that I like is that George Cooper delivers the message pretty well, criticizes (vilifies!) in the chapter two the efficient-market hypothesis and takes two figures (Minsky and Mandelbrot) to help himself to go deeply in pointing out the unstable market: the credit market. Copper does a significant job in explaining the origins of central banking in chapter three, one of my favorites chapters. I think, that chapter could be taken for any scholar to show a quick-course about creation of money, Bretton-Woods, Nixon, and the hegemony of the US dollar. On this, Cooper explains that US government could no longer honor the convertibility of debt into gold and thus in order to avoid a Bank run, the only reasonable action was to allowing the devaluation of foreign currencies.

In the last chapter, Copper does propose accurately (based on his past arguments of course!) that the only task to do by central banks is to target asset prices since the goods market is entirely stable and there is nothing to control on it. Finally, in chapter five, Cooper talks about bubbles and just comment about the reasoning behind those events (under the inefficient-market hypothesis).

On my side, I believe that arguments in the book are reasonable but those may obey to tautologies too; for example, who is the responsible of the mess in the financial sector? yes, of course the financial and banking sector, there are lemon markets everywhere, there is chance of bank runs, there is a financial-accelerator mechanism, the shocks can be amplified and so on. Other example, is it reasonable to regulate or surveil the financial sector? Yes of course -even though the book comes out in late 2008- macroprudential policies were already effective and properly working before that particular year and central banks know that regulation can be done nicely nowadays only in the aftermath of the great recession. In my opinion, there is no novelty in the message of action of policy from the author.

PhD. Freddy Rojas Cama

[Cody · Rating 3 out of 5]

What exactly can I say...? Let be start by saying that economics is one of my least favorite subjects. There are oh so many reasons why, but that does not really matter. What does matter is that my lack of expertise or interest in the subject may cause me to be gullible. Or, it could cause me to be overly critical as well. Though, I do feel what I am about to be said will be fair, I just wanted to give all a fair warning.

Long and the short of it: The mission of this book is twofold. A) attempt to show how and why market bubbles form, and how best to handle them. B) prove that Efficient Market Theory (what I’ve always known as “classical” economic theory) is a fantasy, well, more than that—a farce really. Does the book succeed in its endeavor? To be fair that really is all a matter of opinion.

However, my opinion is—yes and no. The biggest and main problem, according to Mr. Cooper, is identified by the current system and its policies. Duh, however, it goes a bit deeper than that. Basically, the most damning charge he makes is that our system is not a Keynesianism system nor is it a system governed by our stated belief in classical theory. No, rather we borrow from the two theories and this is the cause of our problems because the two theories are not compatible. After this identification he turns his attention to why we ought to go with a purely Keynesian system over classical theory. If not for the fact that, as he points out, neither side is getting a fair shake in the current market, his criticism may perhaps be even stronger. As it stands, I feel the feel a little short and a little flat.

He does however do a most excellent job of defending [an expanded upon version] of Keynesian theory. Cooper gives us skeptics a good reason to give Keynes one more look. He points out that the way we apply Keynes theory today was not how Keynes ever intended it to be applied. As I said, economics isn’t exactly my forte, so I’d rather not go into details here in the review. However, I’ll do my best to answer questions.

Now it is time for the main point of all reviews; would I recommend this book? Let me start by saying again, it is a book of economic theory, so it is rather dry and can be a bit hard to get through. It is less than 175 pages and it took me, let’s just say longer than it could or should have to get through. There are however a few brilliant moments of well-placed wit to be found. Also, most of the time when I read, I don’t really learn anything truly new. Usually, all I really gain is reinforcement in my positions, expansion of what I already knew, or a fresh perspective on an old issue. However, rarely do I feel like I’ve learned anything. After reading this book, I do feel smarter. Therefore, it must get my recommendation.

[Peter S · Rating 4 out of 5]

This is a very readable, ~170 page book. It articulates most of the problems that Mandlebroit, Minsky, Taleb, and ZeroHedge have with markets in a concise, simple, non-aggressive, non-conspiratorial way.

The basic problem is that central banks operate as if the efficient market theory (EMT) is correct. However, if the EMT were true, then there would be no need for a central bank, because the market could solve all of its own problems more efficiently than any exogenous actor. The fed and the ecb, as a result, act in ways that make markets functional for longer, but much more painful on downturns.

I enjoyed how much Cooper worked in Keynes and Minsky's theories. I found them to be valuable, as Keynes represents the intellectual ballast behind modern central banking and Minsky represents its detractors. Both have their virtues. Cooper doesn't argue that Central Banks shouldn't exist or that we should go back to the gold standard, or get rid of fiat money in some other way (as many ZeroHedgers and Bitcoin bugs contend). Instead he says that Central Banks need to recognize, that although the EMT is neat and elegant, it cannot possibly be true.

Paired with the End of Alchemy (and perhaps some Taleb, Mandlebroit, and talking to goldbugs - who you will see are wrong about the gold standard), this is a very informative read. I am glad to have read it.

[DC · Rating 5 out of 5]

Great outline of our current financial systems and how credit creation has evolved and affects economic cycles and inflation. Also briefly covers the different schools of economic thought. Anyone wanting to learn more about how capitalist economies work including the role of central banks should start here. Easy to read.

[Paul Colver · Rating 5 out of 5]

Five Stars. Economics made simple.
is the general approach to managing the economy wrong?
Are economists parroting nonsense?
If we don't change the direction we are headed we are going to end up with another, bigger 2008?
This book is a very well though out approach of what we are doing wrong and a very well thought out approach to a solution.
I can't recommend it enough.

[James Waugh · Rating 3 out of 5]

Recommended by Nassim Taleb.

Concise read explaining a thesis I've seen in several places. Writing is clear and engages with a range of familiar names. The first argument is made clearly: central banks, whatever their function is, are asked to perform conflicting functions and often act in ways contrary to their purported principal reasons for existence. The second argument is simply about the possibility of financial bubbles forming as a result of rational investor behavior in certain asset classes.

I can't tell if I'm surrounded by people who have already internalized this thesis, but there wasn't terribly much new for me conceptually. Several facts are hammered down and the arguments are spelled out, although I'm left scratching my head as to what *exactly* Cooper thinks the Efficient Market Hypothesis claims. I'm not sure exactly how he thinks the possibility of Long-Term Capital Management either confirms or thwarts the EMH. I'm left wondering what his alternative vision is: all he seems to say is "central banks may as well randomly spike rates to pop bubbles." I have to admire the commitment to reasoning from first principles.

Three stars for a solid treatment, if not a particularly powerful motivation or solution, for a specific problem. I'll strongly recommend it to anyone who wants a lucid introduction to the problem of asset bubbles.

[TaeHyeok · Rating 4 out of 5]

Very logical explanations on why modern finance system has inherent risk on causing a financial crisis. Any reader can follow up the occurring of an inflation monster, which rarely emerges but leads to a huge impact on the economy.

[Andy Kim · Rating 5 out of 5]

Great overview of the current financial theory and the cause of the financial crisis.

[Kumail Akbar · Rating 4 out of 5]

The first book I read on the GFC, found it to be a decent read back then, there are much better reads that have come out since.

[Phil · Rating 5 out of 5]

One of the most thoughtful, informative counterpoints to the efficient market hypothesis, I have come across.

[Robbie Dunne · Rating 5 out of 5]

Essential reading for everyone. I never write reviews but this should be in bedside lockers at hotels. Foundational book for understanding the world.

[Mel Stead]

Review from the March 2009 issue of the Socialist Standard:

https://socialiststandardmyspace.blog...

[Zi · Rating 5 out of 5]

This book should be standard reading for historical context. I am less optimistic than Cooper about solutions, but it puts many historical things into stark reality.

[Hang · Rating 4 out of 5]

well-explained, must read in economical crisis.

[Marianne · Rating 4 out of 5]

Placeholder for “understanding bank crises and contagion” read today from audible

[Puttipong K. · Rating 4 out of 5]

The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy is a piece of post-Keynesian literature with many great points but ultimately falls short in its own inducement. The book walks through the fallacy of efficient market hypothesis and advocates another notion of financial instability hypothesis. The author did the job well of describing the fallacies of the efficient market hypothesis and giving an overall insightful view to the history of economics, though when it comes to advocating the financial instability hypothesis, its argument is rather uncompelling. Overall, the Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy does itself exceptionally well to give an insightful view (both the good and the bad) of the current economics model, though it doesn’t contribute anything to what the current econonics system should be derived to.

3.7 / 5