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The Financial Crisis: Who Is to Blame?

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There is still no consensus on who or what caused the financial crisis which engulfed the world, beginning in the summer of 2007. A huge number of suspects have been identified, from greedy investment bankers, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone among the denizens of trading There is still no consensus on who or what caused the financial crisis which engulfed the world, beginning in the summer of 2007. A huge number of suspects have been identified, from greedy investment bankers, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone among the denizens of trading floors. There is not even agreement on whether the crisis shows a need for more government intervention in markets, or less: some maintain that government encouragement of home ownership lay at the heart of the problem in the US, in particular. In The Financial Crisis Howard Davies charts a course through these arguments, and the evidence advanced for each of them. The reader can thereby assess the weight to be attached to each, and the likely effectiveness of the remedies under development.


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There is still no consensus on who or what caused the financial crisis which engulfed the world, beginning in the summer of 2007. A huge number of suspects have been identified, from greedy investment bankers, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone among the denizens of trading There is still no consensus on who or what caused the financial crisis which engulfed the world, beginning in the summer of 2007. A huge number of suspects have been identified, from greedy investment bankers, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone among the denizens of trading floors. There is not even agreement on whether the crisis shows a need for more government intervention in markets, or less: some maintain that government encouragement of home ownership lay at the heart of the problem in the US, in particular. In The Financial Crisis Howard Davies charts a course through these arguments, and the evidence advanced for each of them. The reader can thereby assess the weight to be attached to each, and the likely effectiveness of the remedies under development.

30 review for The Financial Crisis: Who Is to Blame?

  1. 5 out of 5

    Danny Quah

    (This review appears also in LSE Connect) This book - its analytical objective is made clear in its title - surprises pleasantly at many different levels. The book sets down 38 different distinct possible causes for the 2008 Global Financial Crisis (GFC), deftly gets to the heart each in 5 bite-sized pages on average (including references!), and then concludes. These 38 are grouped into seven categories that, following the book's own taxonomy, I paraphrase as: The Big Picture (the global (This review appears also in LSE Connect) This book - its analytical objective is made clear in its title - surprises pleasantly at many different levels. The book sets down 38 different distinct possible causes for the 2008 Global Financial Crisis (GFC), deftly gets to the heart each in 5 bite-sized pages on average (including references!), and then concludes. These 38 are grouped into seven categories that, following the book's own taxonomy, I paraphrase as: The Big Picture (the global macroeconomy, 4 distinct causes); Triggers (2); Regulatory Failure (14); Ratings Agencies (3); Financial Markets (8); Economic Theory (3); and Wild Cards (4). Simply as a matter of arithmetic then, Regulatory Failure and Financial Markets together attract 114 pages, or 60% of the book's 190 pages of content. It seems clear where the potential culprits have been working. This impression, however, will turn out to be somewhat misleading. The book leaves the reader refreshed, and -in the way of many good educational books- hungry for more, if not necessarily of learning further about every single one of these 38 causes, at least knowing where next to turn for further understanding. The reader comes away reassured that reading this book has been time well spent. To be clear, since practically every expert is expert really in only one or two things, the breadth of knowledge and understanding evident in the book's panoramic overview has something to teach everyone. I said earlier that this book about the 2008 GFC pleasantly surprises. This is not to make inappropriate light of the seriousness and utter waste in a global financial crisis that has left unemployed millions more people worldwide; generated peak to trough declines in output of more than 5% in the major developed economies; and thrown up recapitalization costs for the global financial system amounting to perhaps US$16 trillion. What I mean is, except extremely subtly, the author reveals little of the strength of his own views on the causes of the GFC: His assessment of the 38 suspects is dispassionate and balanced, and derives mostly from a judgement of what the other writers have offered. The reader has an erudite friendly companion on this journey of learning, rather than is being lectured at by someone with an axe to grind. In this regard, the book is magisterial and a success. This is a sharp contrast to many, many other books out there pushing their own pet villain for the 2008 GFC, and lecturing the rest of us about it. Multiply surprising here is that the author is one of perhaps just a small handful of individuals who does deserve to lecture at the rest of us. As Project Syndicate puts it, Howard Davies has for years, not least from his position as founding Chairman of the UK's Financial Services Authority, long called "for deep structural revision of how financial markets around the world are regulated". He had a frontline look at how global economic and financial systems evolved. And, at the end, he reveals (p. 216) how "the political environment within which regulators worked were unfavourable to measures which tightened financial conditions, and in any event the tools regulators had at their disposal were..." too weak. In this last chapter [and in presentations he has made based on this book] he tells us how many current policy changes - popular as they might be - don't get at the true root causes of the GFC. Among these misdirected policies are restrictions on hedge funds, short selling, and proprietary trading - policies that have been pushed along with some populist fervor in the EU and the US. Deep ongoing and substantive problems - global macroeconomic balances, the patchwork US regulatory system, ignorance on appropriate countercyclical monetary policy - have nowhere been addressed seriously on the policy front. My own hunch is that these problems are at this point too global to satisfy any one country's thirst for self-improvement. They are hard problems that don't satisfy the natural human desire for easy revenge. On this score, the book's subtitle "Who is to Blame?" is perhaps the author's sly dig at the rest of us. That question is the wrong one, to try and ferret out evil bankers or vampire squid or Chinese exporters. Instead, we should be putting our heads down and getting to work, fixing the global economy.

  2. 4 out of 5

    Lucas

    Remarkable little book; top of my list for easy to understand, engaging overview of the financial crisis. The last chapter summary is particularly good.

  3. 4 out of 5

    Jan

    This is a very well researched and well balanced book, but somehow this situation calls for a bit of hysteria and hair-pulling. Some terrific scatological name calling at the very least.

  4. 4 out of 5

    Meryl Reyman

  5. 5 out of 5

    Iridebikes

  6. 5 out of 5

    Henry

  7. 4 out of 5

    John

  8. 5 out of 5

    Eamonn

  9. 5 out of 5

    Jonathan Hew

  10. 4 out of 5

    Vr

  11. 5 out of 5

    Jorisl

  12. 5 out of 5

    Laurence

  13. 5 out of 5

    Julia Schvarcova

  14. 5 out of 5

    Sharon Li

  15. 5 out of 5

    Mia

  16. 5 out of 5

    Phyllis

  17. 4 out of 5

    Jønathan Hernandez

  18. 5 out of 5

    Middlethought

  19. 5 out of 5

    Nettra

  20. 4 out of 5

    Mark Emery

  21. 5 out of 5

    Defailure

  22. 5 out of 5

    Katerina Bakulina

  23. 4 out of 5

    Dennis

  24. 5 out of 5

    Eva Hartshorn-Sanders

  25. 5 out of 5

    John

  26. 5 out of 5

    Herman

  27. 4 out of 5

    BP

  28. 5 out of 5

    Josh

  29. 5 out of 5

    Bernard

  30. 5 out of 5

    Matt

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