Freefall: America, Free Markets, and the Sinking of the World Economy

by Joseph E. Stiglitz

The New York Times bestseller: "A lucid account" ( New York Times ) of the recent financial crisis and the way forward by the Nobel Prize-winning economist, with a new afterword. The Great Recession, as it has come to be called, has impacted more people worldwide than any crisis since the Great Depression. Flawed government policy and unscrupulous personal and corporate behavior in the United States created the current financial meltdown, which was exported across the globe with devastating consequences. The crisis has sparked an essential debate about America’s economic missteps, the soundness of this country’s economy, and even the appropriate shape of a capitalist system.

Few are more qualified to comment during this turbulent time than Joseph E. Stiglitz. Winner of the 2001 Nobel Prize in Economics, Stiglitz is “an insanely great economist, in ways you can’t really appreciate unless you’re deep into the field” (Paul Krugman, New York Times ). In Freefall , Stiglitz traces the origins of the Great Recession, eschewing easy answers and demolishing the contention that America needs more billion-dollar bailouts and free passes to those “too big to fail,” while also outlining the alternatives and revealing that even now there are choices ahead that can make a difference. The system is broken, and we can only fix it by examining the underlying theories that have led us into this new “bubble capitalism.”

Ranging across a host of topics that bear on the crisis, Stiglitz argues convincingly for a restoration of the balance between government and markets. America as a nation faces huge challenges―in health care, energy, the environment, education, and manufacturing―and Stiglitz penetratingly addresses each in light of the newly emerging global economic order. An ongoing war of ideas over the most effective type of capitalist system, as well as a rebalancing of global economic power, is shaping that order. The battle may finally give the lie to theories of a “rational” market or to the view that America’s global economic dominance is inevitable and unassailable.

For anyone watching with indignation while a reckless Wall Street destroyed homes, educations, and jobs; while the government took half-steps hoping for a “just-enough” recovery; and while bankers fell all over themselves claiming not to have seen what was coming, then sought government bailouts while resisting regulation that would make future crises less likely, Freefall offers a clear accounting of why so many Americans feel disillusioned today and how we can realize a prosperous economy and a moral society for the future.

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

480 pages, Paperback

First published January 1, 2010

About the author

Joseph Eugene Stiglitz, ForMemRS, FBA, is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls "free market fundamentalists") and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Professor Stiglitz is also an honorary professor at Tsinghua University School of Public Policy and Management. Stiglitz is one of the most frequently cited economists in the world.

Reviews

[Trevor · Rating 4 out of 5]

This is an important book and perhaps the best I’ve read on the current crisis - its causes, the reasons for those causes, possible solutions and the moral implications of our obsession and blind faith in free market economics: a theology of greed whose time has surely past.

In a decade in which per capital GDP in the US increased by ten percent while average wages decreased by 4 percent we have learnt that some rising tides only lift the biggest of boats. The increasing inequity of the US is but reflective of the increasing inequity in the rest of the world. But inequity has social, moral and even economic costs.

One thing that clearly got under Joseph’s skin was that after bringing the world economy to the brink of total collapse due to their failing in the basic requirements of their jobs, after only being saved by what may well prove to be a terribly flawed policy of pouring nearly a trillion dollars into the financial system to keep it afloat, the guys who got us into this mess gave themselves huge bonuses! The breathtaking audacity of such an action ought to have caused some kind of revolution – instead we effectively said, “Oh those guys, will they never learn…” Of course, even bankers couldn’t justify talking ‘performance bonuses’ at such at time – and so they called these dump-trucks full of money things like ‘retention fees’.

What is also clear is that, despite his clear warnings that we need more regulation, more effective government intervention in the economy, a closer alignment of incentives toward social needs – nothing is likely to change. And why? My own theory is that the US public is so enamoured with the idea that they live in the best of all possible worlds that too much of their effort is spent trying to find ways to justify the unjustifiable (to which the most unjustifiable is the extreme and increasing inequity that is central to economic, foreign policy, environmental degradation and elsewhere) that there is no strength left to look at how we might actually make the world a better place. Anyway, if this is already the best of all possible worlds …

Markets are efficient, self-interest brings social good, the blind-hand of the market fixes all, big government is bad government – all of these are myths carefully and clearly explained and deconstructed in this book. He also gives a fascinating explanation of the work he did in winning the Nobel Prize around how information asymmetries (even seemingly minor ones) destroy the possibility of market efficiency. And all this in clear and easily understood prose.

He points to the normative role neoliberal economics plays – saying that the more time people spend in business school and economics classes the more selfish and (let's not be cute) repulsive they become. It really is time to worry about the consequences of breeding generations of greedy bastards whose sole reason for being is to pillage and to gorge.

This is a lucid book, it is a book that challenges the existing assumptions (particularly neoliberal economic assumptions) and presents a way forward for a more stable, ecologically sustainable and more just society. It is written by a winner of the Nobel Prize for Economics (not that that is anything worth boasting about – they even gave one of those to Milton Friedman) and a chief economist with the World Bank. This is a guy from the centre of the establishment – when people like him start telling us things have got to change, well, who knows, perhaps it is time to start paying attention.

But I’ve been reading too many articles lately in the business pages of the paper saying things like, ‘remember when people where talking about the end of free market economics in all of the excitement caused by the GFC – when in fact what we need is a bigger dose of less regulation’. Those are the bastards likely to win. As we have seen, No Drama Obama is no salvation – we are allowing the audacity of greed to trump the audacity of hope, it seems. But perhaps, if we can at least learn and remember what these bastards have done by reading books like this, to remember what they have gotten away with, perhaps then we can move from empty hope to positive action.

[John · Rating 5 out of 5]

I am 'mostly' conservative and very much into holding on tight to my faith. That puts me somewhere on the right—maybe far right, although I am no radical. But I absolutely looovvved reading this book. Economist Stiglitz worked for former President Clinton and he maintains that Sarbanes and Oxley didn't go far enough in regulating, especially, the big banks that without Chase-Steagall (since 1995) have been virtually guaranteed huge incentives for risky financial innovation (CDOs?) that have all but destroyed our economy. Maybe it is time for a global currency? Read this book. It's a best seller and if you are like me you won't want to put it down.

Oh, How did such a liberal idea (government regulation) become so agreeable to me? How did I find myself in the liberal camp cheering Stiglitz on!

The truth is simply the truth. Markets may not be self correcting; trust in the institution might be now all but gone; so, law must replace common sense and moral principle.

[Lobstergirl · Rating 3 out of 5]

It's probably unfair to call Stiglitz a subpar storyteller, since he's not really trying to tell a story here. I will anyway, though. Reading through a bunch of books on the financial crisis, you can't help make comparisons among them though they may be apples and oranges. Freefall lacks both the verve and masterfully absorbing narrative of All the Devils Are Here: The Hidden History of the Financial Crisis; the latter, written by two business journalists, wasn't trying to be an economic treatise. But Freefall also falls short in terms of concision and organization; Raghuram Rajan's Fault Lines: How Hidden Fractures Still Threaten the World Economy succeeds on those measures.

Stiglitz, a 2001 Nobel prize winner, says many valuable and important things here. But it feels like he's stating and restating those things seven times. If this book were an animal, it would be an octopus, with numerous long, virtually identical parts. Its 300 pages of text seem more like 500 - and the endnotes are interminable, 62 pages worth. The hardcover edition lacks an index!

His suggestions for reforming the financial sector, the economy, and actually all of society are vast, wide, deep, and most of them are so frankly aspirational as to be hopeless. None of this will ever come to pass, because the forces arrayed against change are too powerful. This went to press before the financial reform law, Dodd-Frank, was passed, but Dodd-Frank is pretty weak tea compared to what Stiglitz and other progressive economists would like to have happen. Too-big-to-fail is still with us; the financial sector is still awash, drowning, in moral hazard. There is still little penalty for risk-taking, because the government will still deem it necessary to bail out systemically important organizations. But there will be no bailouts for the little people. Cheers.

[Daniel Clausen · Rating 5 out of 5]

The book is about 10 years old. At points, the book feels dated; and then, at other points, you realize that the world and the US, in particular, are still struggling with the same basic questions: more regulation or less, a bigger role for government in the economy or not, a continuation of corporate welfare or not.

The biggest question, the question with the biggest reckoning: Will America confront its debt addiction? That question -- the question of debt, what it is, how it works, and what is to be done about it -- seems larger than ever considering the world is about to embark on one of the greatest expansions in debt we have ever seen.

In its attempts to explain things like Credit Default Swaps and the perils of financial deregulation, I feel like the book is probably less useful than a movie like "The Big Short" (I also quite like Margin Call). When I try to explain to people about the 2008 financial crisis and its aftermath, I prefer to recommend that movie because it is no less smart and quite a bit funnier. Still, despite how old the book is, I do feel like there are still some good things in it. Some of its lessons about economics and the global financial architecture might still be useful for the future...though, one wishes that it had been implemented a long time ago.

I particularly enjoyed the parts of the book that dealt with the discipline of economics and larger issues with how the US values people's efforts and talents. Why do our best and brightest go into finance instead of into other pursuits? Why do so many people equate wealth with virtue? The last two chapters seem the most timeless because they focus less on the 2008 crisis and more with big questions of the role of money and economics in civic life.

I look forward to reading more of Stiglitz's more current work.

[Simon Wood · Rating 5 out of 5]

THE GREAT FREE MARKET FAILURE

Joseph Stiglitz has made the transition from being at the centre of one of the main institutions of the Washington Consensus, to a principled opponent of these very same institutions, and the current "free" market orthodoxy which still tenaciously holds it grip on economic thinking at the global and national level. In "Freefall" he looks at the current economic debacle, how it happened, its origins, the inadequate response, as well as speculating on what might get us out of this awful mess. His focus is almost wholly on the US experience with only occasional sideway glances at events in Europe and across the globe.

The narrative of the events, and processes, that led to the credit crunch are put before the reader in a concise and comprehensive manner, including the variety of complex financial innovations that contributed to the crash. Stiglitz then looks at the Bush and the Obama administrations, he is fairly scathing about the latter, in particular regarding his economic team, almost all of them have played a part in getting the US economy into its current state. Unsurprisingly he finds their responses to be inadequate, and primarily focused at preserving financial institutions that have failed, and a policy environment that has failed, at the expense of the majority of the US population (he calls the bank rescue program "The Great American Robbery"). Stiglitz appears to favour some sort of bankruptcy proceeding for banks, as well as legislating for a return to the separation of commercial banks from investment banks, amongst other measures.

Next Stiglitz looks at the mortgage industry, particularly the sub-prime segment of it. The details of the practice of this industry in the US (and even in the UK where 42% of mortgages applications are apparently still self-certified) is enough to make the jaw drop of even the most cynical of readers. This is followed with a more general appraisal of Americas position with rising public debt, it's relationship with China, and a still dysfunctional financial sector.

One of the more interesting chapters is Stiglitz look at the rise and failure of the free-market economics: one still awaits its fall or it being reduced to its proper place. Issues highlighted include persistent failure to deal with reality as opposed to the asinine assumptions it makes regarding it, the poor record it has regarding growth, and its failure to improve the circumstances of the American population (US GDP grew by 10% between 2000 and 2008, median household income fell by 4%!). The final chapter "Towards a New Society" steps back from the crisis and looks at how we can begin to move towards a society that works for the majority of the population, rather than one run in the interests of the few.

A stimulating read, that packs a surprising amount of narrative, analysis and thinking into 300 pages. One shortcoming is that despite being fully referenced the book omits an index. I assume this will be rectified when "Freefall" is published in paperback? A book that I would have no problems recommending to anyone interested in how the economic crisis came about, the resulting response, it's roots, as well as some more fundamental thinking on the whole debacle.

[Clif · Rating 4 out of 5]

This is an excellent account in simple language about what caused the financial crises of 2007-8 and contains welcome suggestions about corrections to the financial system that need to be made in order to avoid a repeat in the future.

Stiglitz is a Keynesian (CANE-zee-un), a person who believes that government regulation and intervention in the market is a necessity, who worked with the International Monetary Fund and has seen his share of financial panic in countries other than the United States, so he brings expertise to this subject. He makes a strong point when he talks of how the IMF made demands on other countries in trouble that the U.S. government spectacularly ignored when it came to addressing the same irresponsibility in America. His writing could not be clearer and his suggestions are well argued.

He argues that the "free market" model was irresponsible, not because bankers are particularly greedy, but because they were protected by the government standing by to bail them out even as they claimed to be regulating themselves conscientiously. This "moral hazard" allowed the banks to take foolish risks, investing in a huge overstock of housing that has crashed, while useful, needed investments were neglected.

He is not impressed with the half measures that have been taken so far and feels that the financial industry is out to talk the crisis to death while strenuously resisting regulation until the demand for it wanes.

The huge, unprecedented bailout strained even the world's strongest economy to the limit. Another such cannot be supported as the Fed and other central banks have played out all their cards and sit with a zero or even negative interest rate that all are terrified to raise.

Not a long or difficult read, I would highly recommend Freefall to anyone who wants a clear account and insight on the series of events that have financially devastated many Americans.

UPDATE, 12 years later significant regulation has yet to appear. Too big too fail still exists.

[Clif Hostetler · Rating 3 out of 5]

Now that I’ve read this book I have the dangerous idea that I understand economics. I learned about this book from this review by Travis. Therefore, blame him for my new know-it-all melancholy demeanor caused by exposure to the “dismal science.”

The author makes many suggestions on how to change world economics to better serve human interests. The suggestions offered seem to be good ideas to me. But I’m convinced none of the author’s suggestions will be enacted because the moneyed interests of the world, in addition to being “too big to fail,” are too politically influential to allow changes that may diminish their incomes. Welcome to the new corporate welfare state.

Financially stressful times are opportunities to make improvements. Many improvements were made to the banking system during the 1930s depression, but the author indicates that's not what has happened during the current crisis:
"With the banking system at the brink of collapse in the fall of 2008, lending dried up and the government stepped in to bail out the banks. This was the perfect time to start thinking about developing a truly efficient financial system that directs capital to where it is needed and where it is most productive in an efficient way, one that helps households and corporations alike to manage risk and that provides the basis of a fast and low-cost payment system. Instead, two separate presidential administrations undertook a series of measures to help the financial system, with little thought of the kind of financial system the country should have when if finally emerges from the crisis."

An irony that arises from the aggressive steps taken to prevent total financial collapse into a severe depression is that, by avoiding it, the public perception is lulled into thinking that things weren't so bad after all. And so now the members of congress who voted for TARP are now under attack for wasting so much money.

Another variation on this are those who say the whole mess could have been avoided if the collapse of Lehman Brothers would have been prevented. Maybe so, but there's a political side to the question to consider. The following quotation sums it up:

"A third view holds that Lehman's collapse actually saved the entire financial system: without it, it would have been difficult to galvanize the political support required to bail out the banks. (It was hard enough to do so after its collapse.)"

In other words, sometimes a bit of hardship is required to concentrate the mind.

The author of this book offers a lot of criticism on how things were done and suggests better approaches to the problems. He suggests that it would have been better to target small banks instead of big banks and home owners over bankers. He also says it would have been better to have more oversight on how the banks used money given to them by the government. I'm sure the author is correct, but I'm not convinced that his suggestions would have been administratively practical. Varied targeting and increased oversight would have required more time and increased government bureaucracy. (And we all know how popular government bureaucracy is.) Furthermore, the bankers and big investors would have complained so much that it would have become politically untenable. I think if both sides of the actions taken could be fully discussed and explored, I suspect what the Bush and Obama administrations did is about all that was possible. The author refers to it as muddling through. (Democracy and making sausage have a lot in common.)

It hurts me to say the things in the above paragraph. I would have loved forcing all investment bankers to have their salaries reduced to minimum wage until all government money was paid back. (The concept of paying big bonuses for losing money drives me crazy.) The author provided the following comparison of CEOs in various countries:

"In Japanese society, a CEO who was responsible for destroying his firm, forcing thousands of workers to be laid off, might commit harikari. In the United Kingdom, CEOs resigned when their firms failed. In the United States, they are fighting over the size of their bonuses."

The author doesn't seem to have much respect for the conservative politicians who believe that tax cuts can fix all problems:
"Unfortunately, especially in the United States, many shibboleths have inhibited figuring out the right role of the state. One common aphorism, a crib from Thomas Paine, asserts, 'The government that governs best is the government that governs least.' Conventional wisdom on the Republican campaign trail is that tax cuts can cure any economic ill -- the lower the tax rate, the higher the growth rate. Yet Sweden has one of the highest per capita incomes, and in broader measures of well-being ... it outranks the United States by a considerable margin."

We may be witnessing the end of American triumphalism:
"The fall of the Berlin Wall in 1989 marked the end of communism as a viable idea. ... historians will mark the twenty years since 1989 as the short period of American triumphalism. September 15, 2008, the date that Lehman Brothers collapsed, may be to market fundamentalism (the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth) what the fall of the Berlin Wall was to communism."

[Mike · Rating 5 out of 5]

If you want to understand what went wrong with the financial system in 2007-08, and what needs to change to avoid it happening again, then read this book. A combination of incorrect economic theory, absence of regulation, and moral failure in the financial community (helped along by ignorant or venal politicians, and the buying of influence in governance)created the mess. Wall St led on all of this though many bankers and countries around the world willingly followed. What is most discouraging is that there was no real accountability - those causing the problem actually got rewarded out of the public purse in the bailout. Furthermore, comparing what Stiglitz says needs to change (writing in 2010) versus what has actually changed (as of early 2015) is very discouraging for the 99% of us.

While the economic arguments are interesting, I'm particularly taken by Stiglitz's arguments about moral failure in the American society

[Michael Cabus · Rating 5 out of 5]

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+

[Eric · Rating 4 out of 5]

The narration by Dick Hill seems to bring exactly the right tone to the author’s work. Stiglitz has taken a very complex economic story, and given the reader a fair amount of insight into how the economic crisis of the recent past came to be. It will make one angry, whether you view things from the right or the left. For example, Reagan-era deregulation takes a fair amount of lumps without totally losing sight of the worth of markets and the profit motive. While his explanation is cogent as to why it should work, I am still left with a bit of reticence at his claim that “more stimulus” is still the answer. This is balanced by a small admission that, just maybe, too much cheapening of the currency COULD lead to even worse problems. On one subject of his work I am still torn, and that is on the issue of trust. The subject comes up late in the work, so perhaps was less than fully developed as a unique subject. It is easy to make the case that exorbitant bonuses and out-of-control stock options have pitted the giants of Wall Street and the banking industry against the interests of “main street” – there is plenty of data to support that stand. The author underplays, I think, the huge benefits to capitalism, and the world, of the role that mutual trust has paid in allowing trade to flourish through recent history, a la, Fukuyama in “Trust: The Social Virtues and The Creation of Prosperity.”

[Terry Cornell · Rating 4 out of 5]

This book is a must read for anyone wanting to understand the financial meltdown that started in 2008. Joseph Stiglitz was the Chairman of President Clinton's Council of Economic Advisers, was an executive at the World Bank and teaches at Coumbia University. His economic viewpoints are politically moderate, and while serving under Clinton the Economic Council had more right leaning and left leaning members. According to Stiglitz, most of the blame for the financial meltdown is on the greed driven Wall Street bankers who sacrificed sound long-term slower growing financial health over making risky fast-paced gains destined to fail. Also to blame are the policy makers in D.C. who allowed this to happen. Stiglitz has plenty of criticism for both the Bush and Obama administrations, and states his own remedies that should have been taken to correct our shattered economy. I've been a long time believer in a free market economy, but as Stiglitz points out, our economic system isn't a true free market. As long as government policies regulate the market, it truly isn't a free market. Every one of our representatives in D.C. should read this book. Some of Stiglitz's suggestions still need to be acted on to prevent another financial meltdown.

[Caren · Rating 4 out of 5]

I am still trying to understand the causes of the Great Recession. Noting that the author is a Nobel Prize winner in economics, I picked this book up. It was not easy reading for me, as I have no background in economics. It is meant for the lay reader and doesn't have lots of jargon. It does, however, go into a lot of detail about economic theory and at times got a bit dry. I came away from the book with the appreciation that ideas do, indeed, have consequences. Since the late 1970s the free market ideas of Milton Friedman and the University of Chicago have been in ascendancy, gradually replacing the Keynesian ideas of FDR in the Great Depression. I also came to appreciate that there needs to be a balance between free markets and government regulation. (I believe the recession we have just experienced is the result of extreme deregulation. ) At any rate, I'd like to go through the book again using a personal copy, (rather than the library copy I just read) and take notes/highlight. There is a lot---a LOT--of value here and I think it would be time well spent.

[... · Rating 4 out of 5]

في رحلة مع هذا الكتاب..رحلة تشمل 5 كتب اقتصادية لعلماء الاقتصاد الأمريكيين جوزيف ستيغلتز وبول كروغمان.

أعطيت الكتاب تقييم 5 لأنه وضح لي الصورة القاتمة بشكل شامل عن ما حدث في الأزمة المالية العالمية وجشع من أوصل الاقتصاد الأمريكي والعالمي إلى فترات كساد عظيمة أضرت بكثير من البشر.

جوزيف ستيغلتز هو اقتصادي امريكي حائز على جائزة نوبل وسبق له العمل في المجلس الاستشاري الاقتصادي للؤئيس كيلنتون وكذلك العمل ضمن الخبراء الاقتصاديين في البنك الدولي لذلك هو من أهم الأصوات التي تسمع ارائها في مواجهة مشاكل الإقتصاد.

يدين المؤلف كثيرا موقف الإدارة الأمريكية في التعامل مع الأزمة بشكل ضعيف ادى لاستمرارها ويلقي باللائمة إيضاً على اللوبي المتكون من اقتصاديين سابقين مثل لاري سامرز والان غيرنسبان وهم من قاوم فرض أي رقابة او تنظيم على الأسواق المالية او ادواتها الخطرة مثل المشتقات بحجة حرية الأسواق في الانظمة الرأسمالية.

أخيراً اشيد بالترجمة الرائعة والدقيقة لعمر سعيد الأيوبي بارك الله فيك على جهدك

رابط لتحميل الكتاب

http://www.mediafire.com/download/c0v...

[Vera · Rating 5 out of 5]

A Keynesian view of the economy and the 2007 Great Recession.

Makes several good points:
- The financial market has proven that it can't be trusted to regulate itself
- The aggregate supply outweighs greatly the aggregate demand
- GDP isn't a valid way to measure how well off regular people are
- People should have better insurance (safety net) against losing their job and/or home
- Regular people will feel the end of the recession when employment is restored, not when there's economic growth

[Mat Davies · Rating 4 out of 5]

Capitalism can't work if private rewards are unrelated to social returns. But that is what happened in late twentieth century and early twenty first century American Style Financial Capitalism
P.110

This is a welcomed analysis by the Nobel Prize winning economist, former Chairman on the Council of Advisors during the Presidency of Clinton, and later chief economist at the World Bank. He shot to fame after his damning critique of the response by the IMF and World Bank to the East Asian Financial Crisis in his book Globalisation and its Discontents. This analysis of the global financial crisis was written just after the bail packages were injected and before the emergence of the crisis in the Eurozone. Unfortunately, it is still a highly relevant text.

Stiglitz argues that deregulated markets and a toxic mix had led financial failure. In contrast to managing risk an allocating capital, the structure and policies of global capitalism had encouraged the creation of risk and misallocation of capital. The response to market failure is seen as too small and reliant on tax cuts based on the ideology which led to the crisis in the first place. The author then illustrates the damage wrought by predatory capitalism in what he calls the great mortgage scam. A scam which was birthed through financial ingenuity to securitize and circumvent the forms of regulation and followed by a regime of welfare for irresponsible banks, undermined, under-regulated, over leveraged and lacking accountability.

One of the reasons why the fed was able to get away with what it did was that it was not directly accountable to congress or the administration … for putting at risk hundreds of billions of taxpayers dollars
P 141 to 142

Indeed the governance of the too big to fail banks robbed the tax payer of their future, whilst propping up zombie banks by independent central banks, the vehicles of the so called rational market are examples of the failure of the deregulatory regime of the past thirty years. The mortgage scam and great American robbery is explored through the lens of the regulatory regime leading to mushrooming derivatives and the rolling back of speculative limiting laws such as the glass Steagall Act. Alas, accordingly a cocktail of flawed incentives systemic risk and unforeseen externalities bludgeoned the economic system, and the Washington consensus of deregulation it was built upon.

The economic rationality of the epistemic community is criticized throughout the book. The author shows how predictably irrational man can be through examples such as Easter island, where a community annihilated themselves by destroying their habitat honoring their gods. He says that there is P.243 no scientific basis for the presumption that markets were efficient and goes on to point out that P.248 the belief in rationality is deeply ingrained in economics … irrationality committed to the assumption of rationality. The social dimension of economics stands out in tandem of the call for a new capitalist order, built on different values, and fundamentally an awareness of global aggregate demand.

In general the work is incredibly rich in examples backing the authors assertions, and the prose is clear and crisp. The policy prescriptions, however, are vague and lack detail. For example, transparency as information, closing tax loopholes and government intervention are sound ideas. Yet, the challenge for the left today is how to translate ideas into action. To do so requires a link between ideas and formal mechanisms such as committees, levels of governance or influential channels. Nevertheless, the well articulated examples of deception and disingenuous forms of capital exchange and exploitation is worthy weaponry for those of a democratic socialist persuasion. And ultimately the explanation of the crisis and its relationship to ,macroeconomic ideas, finance and the economics of innovation are clearly layed out for all to see, and explains why an alternative discourse could not safeguard us from the crisis.

No one challenging the prevailing view would be treated as credible. Showing similar views was part of being socially and intellectually acceptable. P.253

Gramscian hegemony as common sense indeed. Beyond the macroeconomic arguments , however, there are clear lessons for today. The deregulatory regime has not been rolled back accordingly, and the losses continue to be incurred by the public sector through the austerity agenda being inflicted across the USA and Europe. Today unemployment is masked in Britain by zero contracts and temporary and short term work. A fundamental principle emphasized by Stiglitz is worth reiterating here. The difficulty of achieving full employment should be clear. With the Labor force growing at its normal pace and productivity growing at its normal rate of 2 to 3%, in order for unemployment not to increase, the GDP has to grow by 3 to 4%
P.63

Unfortunately, the spectre of market failure still haunts our economy 2 years after this book has been written, and five years since the financial crisis began to attract the medias attention.

[Patrick · Rating 5 out of 5]

What we got here is a nonfiction book by the winner of the Nobel Prize in Economics. This book explains step by step why our economy is in the shithouse and why I fucking lost half of my IRA fund. Next to pissing me off like the way Saving and Loan scandals pissed me off in high school, it is one of the reason I mostly vote Democrat even though I sometimes laughed at the funniest of the racist jokes that had been told to me. (Dear black, Asians, Jewish, gays, and hispanic people, I was wrong to laugh, no excuse, and am really sorry about that.)

This is what happen when corporate goes on welfare AFTER ponificating on free markets, incentatives, free enterprises and other things that self proclaimed capitalist priests claim to believe in. They are DEFINETELY the capitalist priests, the bad kinds whom the cutest altar boys end up testifying against in courtrooms. The blame lies on the bank owners, loan agencies, investment firms, Wall Street firms who misdeeds overlaps each other, causing a bubble in which billions of dollars are bet on how long will that bubble last before it burst. And I think the current adminstration is too buried in health care to regulate the financial firms. You can call me a commie pinko but at least the communists like China are able to manage the damages, and the Japan had a great idea of having a CEO commit hari kari each time he or she fucked up in a job with a terrific salary and benefits. It would have been the last mistake he or she ever would make. Here, it seems accountability is unAmerican from the way the corporate pigs snuffle in the welfare trough meant for poor people in dire need of decent housings, food, and health benefits. Hey, how 'bout throwing some money our way instead of taking them all for yourselves?

I wish Obama can slam regulations on top of all the free money that he took from the taxpayers and just HANDED over to the very same people who gambled away our future and took over homes and hopes from everyday American who just want to have a job, house, food, and medical services and some left over for retirement. Yeah, Mr. President, the next time I see a skinny twerp choke on his own tie in rage in public, I would be sure to back off, going, "Whoa, he's pissed. Let's get out of here." and not laugh at that guy. Although it would be a bitter kind of laughter. I would vote for the president who would have AT THE VERY LEAST do the the Karate Kid's crane jump knee up and then trick kick each wealthy banker right in the balls for even coming in the Oval Office and asking to be bailed out of their predatory loan practices and gambling mistakes.

China is beating the shit out of us when it comes to helping poor Africans/Third World countries and winning them over in using economic rights over the so called free capitalism and democracy by building roads and supplies routes back and forth. And fixing the damages that us big bad Americans had caused. If the investment bankers actually believe in free capitalism then they should have not go on welfare and figure out a way to actually use their so called skills in wise investments like in biotech and artisan jobs like the Germans are doing.

[Juan Nikolas · Rating 4 out of 5]

Espléndido libro que reafirma el fracaso de la filosofía desreguladora y las políticas neoliberales, tanto en los países desarrollados como en vías de desarrollo. El autor propone como solución un viraje absoluto en el rumbo de las ciencias económicas: repensar el rol del mercado y del estado en la sociedad, teniendo como paradigma, más allá de la generación de riqueza, lograr bienestar y calidad de vida para la gente. Stiglitz destaca la importancia de mayor regulación sobre el sector financiero, en especial sobre el mercado de derivados, operaciones extra-bursálites y fondos de inversión.

También, el autor hace referencia el actual orden de cosas en la economía mundial está llevando al capitalismo a colapsar y a contradecirse en sus propios cimientos, debido a una valoración errónea de las externalidades y fallos de mercado, la estructura perversa de los incentivos en la gobernanza corporativa que ha provocado, entre otras cosas, que los intereses individuales se contrapongan a los beneficios sociales. Como contracara, Stiglitz propone leyes que reformen la gobernanza corporativa, la innovación y la competencia sana, en desmedro de las mega corporaciones y bancos "muy grandes para quebrar". Atenuar las desigualdades, fomentar oportunidades y aprovechar lo mejor de la economía de mercado son las justificaciones del autor.

Es por ello que en esta obra se rescata el rol del Estado y del Sector Público en el desarrollo, no solamente como regulador y garante de buenas leyes, sino también como ente activo que estimule la economía mediante la inversión en infraestructura, sustentabilidad medioambiental y capital humano. El autor nos recuerda que no es viable aplicar propuestas o escuelas de pensamiento anacrónicas, es por ello que hace énfasis en la formulación de políticas económicas que, sin prejuicios de ningún tipo, aborden los retos de nuestra sociedad: pobreza, crecimiento económico, cambio climático, desigualdad, corrupción, globalización, acceso a los mercados, etc.

Finalmente, se puede resumir este libro en la idea central de que Stiglitz aboga por un equilibrio entre el papel del Mercado y el Estado en la economía moderna, pues ambos son fundamentales y cada uno tiene un rol que cumplir.

[Michael · Rating 2 out of 5]

First, a confession. I find economics to be an incredibly boring subject and my eyes usually glaze over whenever I have to read about it. So that may be a factor in my rating.

For the most part, the book is a fairly readable review of the 2008 economic meltdown and the factors that led to it. Much of the same ground was covered, in a much more entertaining way, in the movie, "The Big Short." Stiglitz has a definite point of view favoring greater governmental regulation and oversight of the financial industry and he makes a good case for his viewpoint. He also recommends various reforms, including reforms of the field of economics itself. There are a lot of warnings in the book, such as the fact that the US and its citizens are living beyond their means and that such a situation can't last forever, and there is pain to be had down the road. He also ridicules (correctly, in my opinion) the notion that economic conclusions can be drawn while assigning no weight whatever to the environmental consequences of certain choices, such as the continued reliance upon fossil fuels.

The book became less interesting as I progressed through it and there were a couple of chapters that I skimmed more than read. One of the problems was that I was reading a book in 2016 that was published in 2010 about a crisis that occurred in 2008. I think that the book would have been better if he'd waited longer to write it and saw how things played out rather than anticipating how things would play out. He was correct in some of his predictions, however, particularly that politicians would be too weak and beholden to corporate interests to enact real reforms or hold high-level executives accountable.

The viewpoint was refreshingly progressive and he also talks about things like trust and ethics and the fact that the market isn't the answer to all problems. So that was all good.

So, not bad, not great. Now I can move on to something more interesting.

[Edwile Mbameg]

To say that Joseph E. Stiglitz is an "Insanely great Economist" is a truism. This book indicates -once more- that Stiglitz thinks beyond the realm of economic concerns. A must read for everyone and can be understood by anyone regardless of their level of education. It addresses economic matters and a lot more; the nature of inequities within American society and how these inequities have pervasive consequences beyond what we can see and by so doing compromising the long term prosperity of all.
All over the course of history, Revolutions occurred because of imbalances in the wealth distribution within societies. It was the case in France in 1789; it was the case in Russia in 1917. The unequal distribution of wealth within America is staggering and if continued at the current pace will affect the country’s Social Mobility hence dealing a blow to its democracy. 25 years ago, the wealthiest 12 percent took 33 percent of the country’s wealth home. Since then, this trend has worsened. Today, 1 percent of the wealthiest Americans take home 40 percent of the country’s wealth. Growing inequality indicates shrinking opportunities for the vast majority. Inequality equally leads to monopoly, preferential tax treatment for the wealthy which in turns reinforces inequality and even distorts the very markets the disciples of laissez-faire have so long touted as perfect.
A society's well being cannot be solely and accurately assessed through the level of its GDP, the profits garnered by financial firms or the bonuses CEOs bag home, let alone the number of fortune 500 companies we have. Economics and the well being of a society is a lot more than that. This is what Stiglitz makes clear in this book in a convincing way.
Beyond the profits and beyond the bonuses, inequities sap the structure and cohesive nature of a society.

[Fabio Parisini · Rating 4 out of 5]

Un bel libro. Stiglitz riesce a scrivere di economia creando suspance e aspettativa da parte del lettore non addetto ai lavori. Gli argomenti trattati sono chiari ed esaustivi, la chiave di lettura è lucida e si ha la sensazione di non aver trascurato nessun aspetto importante dell'argomento.
Il libro parla della crisi che ha colpito gli Stati Uniti (e poi il resto del mondo) nel 2008, del modo in cui le amministrazioni Bush e Obama l'hanno gestita, di quali sono state le responsabilità della finanza, la colpevole carenza di regolamentazione, le lobby che hanno fatto sì che ci fosse questa carenza, del meccanismo perverso di individualismo e necessità di fare profitti nel breve termine che domina il mercato, dell'ipocrisia dei finanzieri nel considerare il mercato perfetto quando fa comodo (quando invece non lo è) e chiedere aiuti allo stato quando ci sono dei problemi, della rapina ai danni dei contribuenti che è stata perpetrata per cercare (male) di uscire dalla crisi, della reponsabilità della FED, di come si sarebbero potuti mitigare gli effetti della crisi ma non si è fatto, del rapporto con le altre nazioni, del fatto che gli Stati uniti hanno vissuto finora al di sopra delle loro possibilità ma presto dovranno smettere di farlo, di come sia necessaria una presenza dello stato nei sistemi economici per via delle importanti esternalità che esistono, prima fra tutte quella ambientale, che il mercato trascura completamente.
Tutto il libro racconta i difetti del modello attuale, insieme a tanti correttivi che potrebbero migliorarlo, e sul finale viene descritta l'idea che un altro approccio è possibile, meno individualista, meno miope, con obiettivi diversi e dichiarati di benessere per i cittadini.

[Jose Gaona · Rating 4 out of 5]

Stiglitz centra su análisis en el presente volumen en las causas y razones de la todavía, por desgracia, actual crisis. El Nóbel de economía dispara sus habituales dardos contra las políticas neoliberales, que él identifica como las principales causantes de la crisis. Políticas sustentadas en el dogma de la infabilidad del mercado, en este caso financiero, y que se ven manifiestamente contradichas por el proceder de esos mismos portavoces del neoliberalismo, los cuales "juegan" y "apuestan" en ese mercado (¿por qué apostar en ese mercado si supuestamente es imbatible y, por tanto, infalible?). El dogma de la infalibilidad del mercado presupone que los agentes son racionales, pero para que sean racionales, detecta Stiglitz, han de tener pleno acceso a la información. Pero la opacidad es una de las características de los mercados financieros...

Stiglitz centra sus esfuerzos en comprender el panorama en EEUU, pero en tanto que origen y motor de la crisis, sus dilucidaciones arrojan luz sobre el resto de panoramas. Por tanto, este libro es de interés tanto para conocer los entresijos de la economía estadounidense como para comprender, en las soluciones que aporta, posible vías de solución aplicables en el resto del orbe.

[Doug · Rating 4 out of 5]

I was talking to a banker friend and he was complaining that people who don't know what they're talking about are blaming the bankers for the whole mortgage crisis. Well, Joseph Stiglitz knows what he's talking about and he's blames the bankers. Most of the other books I read about the mortgage deal with anecdotes about some of the major players, but this books was the most comprehensive book I've read so far that deals with the underlying mechanics. I really hope this book (or something, ANYTHING else) can help debunk the myth that free markets aren't the answer; for a perfectly functioning free market to exist, so many assumptions must hold true, assumptions that simply do not exist in the real world. The bankers asked for deregulation the same way that the frogs asked for a king in the Aesop fable, only Jove decided to give out a multi-trillion dollar bailout to the frogs after the stork came down. But all in all, I really like reading Joseph Stiglitz, if I ever go to b-school or study economics, I'd love to go to Columbia to take one of his classes.

[غَـيـن · Rating 4 out of 5]

نظرة ثاقبة لانهيار الاقتصاد العالمي او فضيحة أو أزمة الرهن العقاري التي أثرت في الإقتصاد العالمي أجمع و العولمة و آثارها السلبية في اقتصاد الدول . ان هذا الكتاب يجمع ما بين العوامل التي ساعدت في تضخيم المشكلة وماترتب على ذلك من مساوىء في الولايات المتحدة وفي دول لعالم . طرح الكاتب الكثير من وجهات النظر و الايدليوجيات الاقتصادية والصراع المتضارب بينها التي حدثت قبل وإبان هذه الأزمة وما دورها في خلق تلك الأزمة وأزمات أخرى قد تحدث في المستقبل بسبب قلة المسؤلية وتفشي الفساد الأخلاقي لدى المسؤولين المهتمين بجني الأرباح على حساب غيرهم والأهم من ذلك نقص الرؤية المستقبلية لهذا النظام العالمي . ومن أهم المواضيع المتناولة في هذا الكتاب هي الرأسمالية الحديثة و ضعف الرقابة على المؤسسات المالية بل عدمها وما أدى ذلك من ضرر للإقتصاد الأميركي والعالمي . ما أثار إعجابي رؤية الكاتب التنبؤية لبعض اقتصادات بعض الدول وبخاصة تلك التي تخص الاتحاد الأوربي و أزمة اليونان التي فاقت أوجها السنة الماضية. كتاب يفصل تلك الأحداث تفصيلاً بارع وان كنت انصح كل قارى بأن يكون مطلع على المصطلحات الاقتصادية المهمة خشية حدوث تشتت وضياع أثناء القراءة وإن كان اسلوب الكاتب مبسط بحيث لا يصعب استيعاب المضمامين الأساسية للمعلومات المذكورة.

[Conor Ahern · Rating 4 out of 5]

Stiglitz is my guy, I think. He's not quite as peevish as Chomsky or restrained as Krugman. He is openly and notoriously left/liberal, and animated by a compelling conviction.

This text was not only more informative but also more accessible than other books I have read on the 2008 Recession. Notably, it does an excellent job of warning that our recovery therefrom was less purgative than nepenthe.

In the coming era of further deregulation, with our focus on all sorts of other shenanigans, I wonder if we will have the courage and foresight to reign in the excesses of a financial industry that already poses a threat to our democracy and our world's safety and prosperity. I wouldn't say I'm optimistic, and for that reason, as soon as this book ended I eagerly loaded up Stiglitz's The Price of Inequality: How Today's Divided Society Endangers Our Future to broaden my understanding of our country's ills according to his understanding of them.

[Brenda · Rating 5 out of 5]

Excellent discussion of several complicated subjects. Even if you're not interested in learning how and why the the Great Recession of 2008 occurred, I recommend reading the last four or five chapters on how we could improve today's American-style capitalism, which leaves so many people behind.

[Ale · Rating 3 out of 5]

3.5

Maria Alejandra eres al parecer la única que pasó del grupo.
Y eso resume Por Qué y Para Qué me leí el libro.
Muy aburrido, buen enfoque pero la economía es más divertida que la explicación de Stiglitz

[William Breakstone · Rating 5 out of 5]

BOOK REVIEW

FREEFALL: America, Free Markets, and the Sinking of the World Economy

by Joseph E. Stiglitz, W. W. Norton & Company, 2010

Reviewed by Bill Breakstone, February 8, 2010

Here is yet another enlightening book about the current global financial crisis, written by the 2001 winner of the Nobel Prize in Economics, and a former member of President Clinton’s Council of Economic Advisors. There have been many worthy and highly interesting accounts of the current crisis, and they generally fall into one of two categories—either detailed “inside” accounts of the failures or rescues of various financial firms, such as Andrew Ross Sorkin’s current “Too Big To Fail,” or books such as Stiglitz’s “Freefall” or John Cassidy’s “How Markets Fail,” that deal with the underlying economic theories, causes, and possible future remedies to prevent a repeat of the mistakes made leading up to our current situation. There will no doubt be many more, and those to come, as this one, have the benefit of a wider time line or perspective looking both back to past actions, and judging present policies that have been put forward.

Though Stiglitz is a Keynesian economist, his participation in Clinton era policymaking took place at a time when financial deregulation reached its peak, in 1999, with the passage of the Financial Services Modernization Act, and the repeal of the Depression era Glass-Steagel Act, which separated the functions of commercial and investment banks. It would be very interesting indeed to read the minutes of the “Council”, and discover what position Steiglitz took against the likes of Robert Rubin and Larry Summers.

“Freefall” is reviewed in Sunday’s New York Times Book Review Section by Kevin Phillips, a writer with a Republican background, but also, since 1993, an author of several economic texts highly critical of the effects of securitization on the American economy. His review is highly favorable, but not without several qualifications.

“Freefall” traces the origins of the “Great Recession,” offers critiques on policies that were initiated to deal with it, and offers alternative remedies for future policies that might better address a still developing crisis. What the book has in common with so many others on this subject is that the system is broken, and we can only fix it by examining the underlying theories that have led us into what the author describes as “bubble capitalism.”

There are certain underlying threads that Stiglitz shares with other authors on this subject. One is the effect that the 30-year reliance on free market economic theories (market fundamentalism) expressed by the “Chicago School” that became popular originally under the Reagan Administration had upon the American economy, in contradiction of the lessons learned and safeguards that were put in place following the “Great Depression.” Others are the re-ordering of incentives in the financial services sector of the economy to put emphasis on short-term performance over long-term societal goals. Yet another is the political power that the financial services industry wields over economic policymaking and the inherent conflicts of interest that such power has over issues that legislative and executive initiatives have historically been delegated to deal with such challenges.

An examination of historical policies followed by our governmental leaders since the “Great Depression” provides lessons that, with the benefit of hindsight, make clear the nature and causes of what can only be referred to as an extreme market failure. Central to that are the past and future role that government plays in the oversight and control of our economy. Following is an extended quote from the close of Chapter Seven, in which Steiglitz examines this in great detail, and concludes that:

“The United States will have regulation, just as government will spend money on research and technology and infrastructure and some forms of social protection. Governments will conduct monetary policy and will provide for national defense, police and fire protection, and other essential public services. When markets fail, government will come in to pick up the pieces. Knowing this, the government has what it can to prevent calamities.

The questions then are, what should the government do? How much should it do? And how should it do it?

Every game has rules and referees, and so does the economic game. One of the key roles of the government is to write the rules and provide the referees. The rules are the laws that govern the market economy. The referees include the regulators and the judges who help enforce and interpret the laws. The old rules, whether they worked well in the past, are not the right rules for the twenty-first century.

Society has to have confidence that the rules are set fairly and that the referees are fair. In America, too many of the rules were set by and for those from finance, and the referees were one-sided. That the outcomes have been one-sided should not come as a surprise. There were alternative responses that held open at least an equal chance of success, but which put taxpayers less at risk: if only the government had just played by the rules, rather than switching midcourse to a strategy that involved unprecedented gifts to the financial sector.

In the end, the only check on these abuses is through democratic processes. But the chances that democratic processes will prevail will depend upon reforms in campaign contributions and electoral processes. Some clichés are still true: he who pays the piper calls the tune. The financial sector has paid the pipers in both parties and has called the tune. Can we citizens expect to have regulations passed breaking up the too-big-to-fail, too-big to resolve, or too-big-to-manage banks if the banks continue to be the too-big-to-ignore campaign contributors? Can we expect even to restrict the banks from engaging in excessively risky behavior?”

[Now weigh in the recent decision by the U. S. Supreme Court removing prohibitions on political contributions by corporations, and start shaking your heads.]

“Dealing with this crisis—and preventing future crises—is as much a matter of politics as it is economics. If we as a country don’t make these reforms, we risk political paralysis, given the inconsistent demands of special interest and the country at large. And if we do avoid political paralysis, it may well be at the expense of our future: borrowing from the future to finance today’s bailouts, and/or creating minimal reforms today, passing on the larger problems to a later date.”

As Steiglitz implies in the above paragraph, it will be up to the Administration to call for the needed reforms, but it will then fall to the Congress to pass enabling legislation. And a quick look to Capitol Hill will be enough to put the fear of God into anyone who considers reforms to be so necessary. As Paul Krugman writes on The Times Op-Ed page today, “The truth is that given the state of American politics, the way the Senate works is no longer consistent with a functioning government. Senators themselves should recognize this fact and push through those rules [procedural rules], including eliminating or at least limiting the filibuster. This is something they could and should do, by majority vote, on the first day of the next Senate session. Don’t hold your breath. As it is, Democrats don’t even seem able to score political points by highlighting their opponent’s obstructionism”

“Today, the challenge is to create a New Capitalism. We have seen the failures of the old. But to create this New Capitalism will require trust—including trust between Wall Street and the rest of society. Our financial markets have failed us, but we can not function without them. Our government failed us, but we can not do without it. The Reagan-Bush agenda of deregulation was based on mistrust of government; the Bush-Obama attempt to rescue us from the failure of deregulation was based on fear. The inequities that have become manifest as wages fall, unemployment rises, but bank bonuses soar, or as corporate welfare is strengthened and the corporate safety net is expanded as that for ordinary citizens is cut back, generates bitterness and anger. An environment of bitterness and anger, of fear and mistrust, is hardly the best one in which to begin the long and hard task of reconstruction. But we have no choice: if we are to restore sustained prosperity, we need a new set of social contracts based on trust between all the elements of our society, between citizens and government, between this generation and the future.”

The concluding chapters of “Freefall” offer some specific remedies and reforms that need to be discussed as the world moves from the current crisis into a future that will, hopefully, be brighter and more prosperous for all its citizens. As Phillips points out in his review, many of his suggestions are controversial and will be criticized by fellow economists. But they will be at least worthy of consideration and discussion.

Steiglitz’s concluding words from “Freefall” are worth noting:

“I write this book in midstream. The sense of freefall has ended. Perhaps by the time the book is out, the sense of crisis will be over. Perhaps the economy will have returned to full employment—though that is unlikely.

I have argued that the problems our Nation and the world face entail more than a small adjustment to the financial system. Some have argued that we have had a minor problem in our plumbing. Our pipes got clogged. We called in the same plumbers who installed the plumbing—having created the mess, presumably only they knew how to straighten it out. Never mind if the overcharged us for the installation; never mind that they overcharged us for the repair. We should be grateful that the plumbing is working again, quietly pay the bills, and pray that they do a better this time than the last.

But it is more than just a matter of “plumbing”: the failures in our financial system are emblematic of broader failures in our economic system, and the failures in our economic system reflect deeper problems in our society. We began the bailouts without a clear sense of what kind of financial system we wanted at the end, and the result has been shaped by the same political sources that got us into the mess. We have not changed our political system, so we should perhaps not be surprised by any of this. And yet, there was hope that change was possible. Not only possible, but necessary.

That there will be changes as a result of the crisis is certain. There is no going back to the world before the crisis. But the questions are, How deep and fundamental will the changes be? Will they even be in the right direction? We have lost the sense of urgency, and what has happened so far does not portend well for the future.

In some areas, regulations will be improved—almost surely, the excesses of leverage will be curbed. But in other areas, as this book goes to press, there is remarkably little progress—the too-big-to-fail banks will be allowed to continue much as before, the over-the-counter derivatives that cost taxpayers so much will continued almost abated, and finance executives will continue to receive outsized bonuses. In each of these areas, something cosmetic will be done, but it will fall far short of what is needed. In still other areas, deregulation will continue apace, shocking as it may seem: unless a popular outcry prevents it, it appears that basic protections of ordinary investors will be undermined with a critical weakening of the Sarbanes-Oxley Act, passed in the aftermath of the Enron and other dot-com scandals, by a Republican Congress and signed into law by a Republican president.”

He continues:

It has become a cliché to observe that the Chinese characters for crisis reflect “danger” and “opportunity.” We have seen the danger. The question is Will we seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between means and ends? We now have the opportunity to create a new financial system that will do what human beings need a financial system to do: to create a new economic system that will create meaningful jobs, decent work for all those who want it, one in which the divide between haves and have-nots is narrowing, rather than widening; and, most importantly of all, to create a new society in which each individual is able to fulfill his aspirations and live up to his potential, in which we have created citizens who live up to shared ideals and values, in which we have created a community that treats our planet with the respect that in the long run it will surely demand. These are the opportunities. The real danger now is that we will not seize them.”

Those thoughts were composed in November of 2009. Since that time, there has been little progress indeed in making the reforms that the author calls for. Instead, we have seen political gamesmanship and legislative paralysis. The economy has improved, but joblessness remains too high. The sense of urgency that Steiglitz notes has continued to diminish. What do we need to get things back on track? Another deep recession or worse?

[Patrick · Rating 5 out of 5]

The one book on economics everyone should read

JDN 2456341 EDT 15:44.

In Freefall, Joseph Stiglitz, one of the great economists of our time (Krugman called him "an insanely great economist"), outlines what caused the crisis in 2008, the depression from which we are still recovering today. He saw it coming at the time, and tried to warn regulators, but they wouldn't listen. (If you're reminded of Keynes in the Great Depression, the comparison is apt on many levels.)
He describes himself as a centrist, and he basically agrees with Eisenhower or maybe Nixon; as you can imagine, he is derided as a far-left socialist by Republicans and Libertarians. That's how far right we have shifted in this country; the mere suggestion that markets sometimes fail and need to be corrected by careful taxation and regulation is now considered radical socialism.
Stiglitz believes in capitalism; he just doesn't believe in it blindly. He understands that it has faults and limitations, and understands that government and nonprofits have important roles to play. One role he'd like to see more of: Academics and nonprofit leaders in regulatory agencies. For too long, there has been a revolving door between Wall Street and the people who are supposed to be regulating it. The fox guards the henhouse, and has for decades.
Indeed, Stiglitz shows us a striking fact about the 2008 crisis: It wasn't really capitalist at all. It wasn't socialist either; no, it was something else, some terrible third alternative. Corporatism, corporatocracy, maybe even crypto-fascism. The government refused to help homeowners and the unemployed, because that would be socialist; but doling out trillions of dollars in free loans to banks? That was just fine. Moral hazard was considered a grave concern when it came to saving people's jobs and homes (I mean, my god, what if someone got a nice home and didn't quite deserve it? It would be the end of the free world, I'm sure), but not when it came to writing a blank check to the banks whose insane risks had toppled the world economy. Government became, not a regulatory framework for markets, not a safety net for the helpless, but an ATM for business executives. We did install some new regulations (some very long and complicated new regulations that I don't think anyone fully understands), but on the whole we put the same people back in charge who had caused the crisis in the first place.
Stiglitz chronicles abuse after abuse, actions that range from unethical to criminal. Securities were packaged without anyone having the faintest idea what risk they contained. Accounting rules were fudged to make failing banks look solvent. Financial products were sold as the highest quality when the people selling them knew they were destined to fail. Exorbitant fees were charged at every level. Some banks even spent their entire bailout funds paying "retention bonuses" to their executives. Our entire system of banks, credit rating agencies, and regulators failed on a catastrophic scale. A few people became spectacularly rich while the rest of us suffered.
Stiglitz is highly critical of Republicans, but he is also critical of Obama for failing to stand up to Republicans. Where America needed a unified Keynesian response, our leaders faltered, succumbing to the demands of far-right radicals (Why would you want deficit reduction in the middle of a depression!?), and muddling through with far too many compromises. As Stiglitz rightly points out, a larger, more regulated stimulus would have seemed like a big expenditure; but in fact, the route we took will be far more costly in the long run.
Everyone should especially read chapter 4, "The Mortgage Scam". This one hit close to home for me (literally, I suppose), because my parents are still facing foreclosure as a result of the unethical and fraudulent practices of too-big-to-fail banks. Our equity has gone under water, our interest rate has exploded, now we're waiting for our foreclosure hearing with some unknown investor we've never met who apparently somehow owns our loan (or the majority share or something; it's all so complicated I'm not sure anyone understands it really). When we financed, we were promised that we were taking a low-risk plan, that the market for homes was rising steadily and we would never have to worry about losing our equity. We fell for it; and of course, so did millions of other people, including most economists.
It all started when HSBC bought our mortgage, and I want you to think about that phrase, "bought our mortgage"; a mortgage is not a thing, it is a promise. How can you buy a promise? We never signed a contract with HSBC, and would not have if they had offered one. Instead, we signed a contract with another bank, who went behind our backs and signed a contract with HSBC, and yet... somehow we are the ones who have to pay HSBC, not the bank we originally signed up with. How is that a free market?
Many people said at the time that "we had no choice" but to bail out the banks with trillions of dollars in unsecured debt that may never be repaid. Stiglitz does an excellent job of debunking this claim, pointing out all sorts of alternative policies that could have worked better, faster, cheaper, and with less moral hazard. One of his proposals is one that always made sense to me: Why not have the government refinance every mortgage in America at 3%? (Funded by the Fed discount window at a profit, or by selling Treasury bonds at break-even. Honestly, don't a 30-year T-bill and a 30-year mortgage seem like they're made for each other?) Would that be "socialist"? No, it really wouldn't, seeing as people are still paying for things and getting what they pay for. It's just a fair interest rate without excessive middlemen, and apparently unfair rates and middlemen have come to define what we think of as "capitalism". Indeed, what we actually did involved an unprecedented level of government intervention into the financial system, costing taxpayers hundreds of billions of dollars for very little gain.
I even felt some personal connection as he discussed the rise of brokerage fees; I currently have a stock portfolio that has made money, but not for me. All my stocks have risen in price, but not enough to pay back the ridiculous fees my online broker charges me. (And I've looked it up; my broker is actually one of the cheapest available, charging $10 per trade where most charge $20; of course, most trades actually cost something like $0.00001...) It actually acts like a regressive tax; the larger amounts you trade, the less you feel the fees (often they even waive them for large accounts!). So basically, it's a good way of keeping the middle class from meddling in the stock market, which obviously belongs to rich people. It's also a good way for brokers to make money regardless of how the market goes. (If $10 doesn't sound like a lot to you, I want you to think about the fact that a 1% gain on a stock in a month is pretty good. So that $10 gets wiped out if your trade is for any less than $1000.)
I shared his exasperation at the concept of "high-frequency trading", in which computer algorithms execute trades on the order of microseconds, to the point where speed-of-light limitations are becoming a problem. Why do we need that? What could it possibly do, except distort our market and make it unstable? Well, I suppose it does do one other thing: It skims off money for those who own the computers. It's a good way to get rich, in much the same way as bank robbery.
I like so many things about this book--seriously, go read it--that it's hard to pick my favorite, but if I had to, it would be the final chapter, in which talks about the "moral deficit", the way that our market has been taken over by corrupt psychopaths whose sole goal in existence is making more money for themselves. We've lost our way as a society; we've forgotten that our lives have a purpose besides narrow self-interest. You want to talk about moral hazard? That's our moral hazard.

[Degenerate Chemist · Rating 3 out of 5]

"Freefall" is an excellent overview of the 2008 market crash, probably the best one I have read to date. It is a pretty thorough analysis with one big old glaring flaw which I will get to in the course of this review. Stiglitz argues that the market crash was caused by many factors all of which indicate the fundamental need to restructure the US economy and even to consider a new type of economics to solve our problems. The issue presented in this book is that solutions to the 2008 market crash did not go far enough. They are basically band aids to the fundamental faults in the US economy so these problems are certain to reappear unless they are dealt with.

And looking at this book 12 years after its publication it is pretty hard to disagree with him. Here were are in a financial capitalist hellscape of deregulation, income inequality, skyrocketing inflation, and another housing bubble. I'm sure its nothing to worry about.

The one big glaring issue that annoyed me with this book is that Stiglitz never investigates the relationship between Government and Wall Street. He criticizes both separately in equal measure, but he never connects the two together. And without exploring any motives shared between the US Government and Wall Street we miss a big piece of the picture- like why was it so easy for banks to influence regulatory legislation.

It gets even more irritating. Stiglitz proposes more regulation as a solution to the problems of 2008. So how is that supposed to work if it is so easy for banks to influence regulatory legislation? Do you hear yourself? He talks about how the Fed and to big to fail businesses were rewarded for failing out one side of his mouth and then talks about expanding the role of government out the other side of his mouth. So his solution to these problems is to give more power to a government that already failed us?

This book is a very good breakdown of the 2008 market crash. However, the solutions Stiglitz proposes are not all that helpful. I think he is seeing the world through some rose colored glasses.

[Franz · Rating 4 out of 5]

In his preface, Stiglitz writes about the aim of this book: “Its view is that essentially all the critical policies, such as those related to deregulation, were the consequence of political and economic ‘forces’—interests, ideas, and ideologies—that go beyond any particular individuals.” (xvii) He notes that “[w]hen the world economy went into freefall [hence the title of the book] in 2008, so too did our beliefs. Long-standing views about economics, about America, and about our heroes have also been in freefall.” (xvi) Stiglitz is correct to focus on the systemic relations and structures that led to the crisis, but nothing has changed as far as the “long-standing views about economics”.

In the first couple of chapters he gives what may be the best short description and analysis I’ve read of the events leading up to the September, 2008 crisis and its immediate aftermath. In chapters 3-6 he describes in more detail the political and economic changes, though gradual over the course of several decades, that stealthily reintroduced Robber Baron economics masked as the inevitable victory of a free market system that would solve all economic problems. In fact, the markets were, and still are, rigged. There is nothing more than a truly free market that corporations and most of the top .1% of the wealthy hate. They, and the orthodox economists who support them, have somehow convince the rest of us that the best markets are largely unregulated, but that markets should be the final arbiters of economic, social, political, and personal decision making. In chapters 7-9, Stiglitz offers his pie-in-the-sky solutions to remaking markets so that they are indeed free and not rigged. Pie-in-the-sky not because they are impractical—they are policies that have worked in the past; pie-in-the-sky in the sense that his ideas have no chance of being implemented.

The same economists espousing the same orthodox economics hold the same levers of influence they held prior to the crisis. Instead of being tarred and feathered for failing to foresee the crisis and even assisting in the economy’s near demise, they still teach at the same universities, hold the same powerful positions in government, and pontificate to a deluded audience. If, as economists claim, economics is a science, how did their models and theories fail to predict the crisis? A cornerstone of a science is its ability to make testable predictions. Perhaps they reply that their predictions failed and only need corrections, hardly a view to inspire confidence. Yet as late as the summer of 2008, Bernanke, chair of the Fed and expert on the Great Depression, and the majority of other economists ignored obvious signals and assured everyone that the economy was hunky-dory despite the housing crash and the beginnings of a recession. They were literally blind to those signals because they did not fit into their models. Others, many of them not economists, disagreed and recognized the signals as foreshadowing a doomsday scenario. (See Michael Lewis’s The Big Short, an entertaining account of some investors who saw the disaster coming and profited hugely when it arrived.)

Four years after Stiglitz wrote the words in his preface we seem to be headed toward a similar disaster with an overvalued stock market; with millions of people unemployed, underemployed, or despairing of any employment while Republicans in the House of Representatives twiddle-twaddle and refuse to assist the long-term unemployed with meager benefits (“Those lazy bums should get jobs instead of living off the government dole!” Unfortunately, there is a limit to how many greeters Wal-Mart can hire.); with fat cats, especially on Wall Street, getting fatter; with too-big-to-fail corporations getting even bigger; the big banks getting even richer while hanging on to their money; and the only thing preventing poverty rates—set ridiculously low—from rising higher is the government’s barely adequate safety net. In other words, the reality is that we as a society learned little from the crisis, and the same suspects who through blind ideology and short-sighted greed helped create the crisis continue to be honored, at least financially, instead of reviled. They were, and are, like the blind locomotive engineer running his train through a pitch-black tunnel at full speed into an iron wall. Perhaps if we had followed Stiglitz’s advice as outlined in his book, we and the economy might be better off.

It should be noted that after the Great Depression, laissez faire economics suffered a wholesale rejection largely because of competition from fascism and communism, both which seemed more responsive to workers and economic efficiency than capitalism as it was practiced in the ‘20s and early ‘30s, and both which eventually failed as effective ways of organizing society. (See my review of Fear Itself by Ira Katznelson for capitalism’s competition with fascism and communism about the time of the Great Depression). The Keynesian option adopted in the United States saved capitalism from its worst excesses. Not so since the 2008 crisis and during what has become laughably known as the Great Recession. That kind of stark competition between economic and political structures has disappeared. It took several decades, but the economics as promoted by Friedman, Hayek, and others of their ilk, has so far dominated the field in the last thirty years. The irony is that the economic and political policies of Friedman, Hayek, et. al. that led to the Great Recession are closely similar to the economic and political policies that led to the Great Depression: loosely regulated markets leading especially to chicanery, the financial markets being a prime example. Although there are different forms that capitalism can take, alternatives that may be credible are either unknown or ignored. Perhaps the next time the economy hits the iron wall inside the railway tunnel society will be ready for a more equitable and efficient form of capitalism.