A Failure of Capitalism : The Crisis of ’08 and the Descent Into Depression

The financial and economic crisis that began in 2008 is the most alarming of our lifetime because of the warp-speed at which it is occurring. How could it have happened, especially after all that we’ve learned from the Great Depression? Why wasn’t it anticipated so that remedial steps could be taken to avoid or mitigate it? What can be done to reverse a slide into a full-blown depression? Why have the responses to date of the government and the economics profession been so lackluster? Richard Posner presents a concise and non-technical examination of this mother of all financial disasters and of the, as yet, stumbling efforts to cope with it. No previous acquaintance on the part of the reader with macroeconomics or the theory of finance is presupposed. This is a book for intelligent generalists that will interest specialists as well. Among the facts and causes Posner identifies are: excess savings flowing in from Asia and the reckless lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fuelled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and the highly leveraged balance sheets of large financial institutions. Posner analyzes the two basic remedial approaches to the crisis, which correspond to the two theories of the cause of the Great Depression: the monetarist—that the Federal Reserve Board allowed the money supply to shrink, thus failing to prevent a disastrous deflation—and the Keynesian—that the depression was the product of a credit binge in the 1920’s, a stock-market crash, and the ensuing downward spiral in economic activity. Posner concludes that the pendulum swung too far and that our financial markets need to be more heavily regulated. Read Richard Posner's blog, and his latest article in The Atlantic. (20090501) From The Publisher: The Financial And Economic Crisis That Began In 2008 Is The Most Alarming Of Our Lifetime Because Of The Warp-speed At Which It Is Occurring. How Could It Have Happened, Especially After All That We've Learned From The Great Depression? Why Wasn't It Anticipated So That Remedial Steps Could Be Taken To Avoid Or Mitigate It? What Can Be Done To Reverse A Slide Into A Full-blown Depression? Why Have The Responses To Date Of The Government And The Economics Profession Been So Lackluster? Richard Posner Presents A Concise And Non-technical Examination Of This Mother Of All Financial Disasters And Of The, As Yet, Stumbling Efforts To Cope With It. No Previous Acquaintance On The Part Of The Reader With Macroeconomics Or The Theory Of Finance Is Presupposed. This Is A Book For Intelligent Generalists That Will Interest Specialists As Well. Among The Facts And Causes Posner Identifies Are: Excess Savings Flowing In From Asia And The Reckless Lowering Of Interest Rates By The Federal Reserve Board; The Relation Between Executive Compensation, Short-term Profit Goals, And Risky Lending; The Housing Bubble Fueled By Low Interest Rates, Aggressive Mortgage Marketing, And Loose Regulations; The Low Savings Rate Of American People; And The Highly Leveraged Balance Sheets Of Large Financial Institutions. Posner Analyzes The Two Basic Remedial Approaches To The Crisis, Which Correspond To The Two Theories Of The Cause Of The Great Depression: The Monetarist-that The Federal Reserve Board Allowed The Money Supply To Shrink, Thus Failing To Prevent A Disastrous Deflation-and The Keynesian-that The Depression Was The Product Of A Credit Binge In The 1920's, A Stock-market Crash, And The Ensuing Downward Spiral In Economic Activity. Posner Concludes That The Pendulum Swung Too Far And That Our Financial Markets Need To Be More Heavily Regulated. The Depression And Its Proximate Causes -- The Crisis In Banking -- The Underlying Causes -- Why A Depression Was Not Anticipated -- The Government Responds -- A Silver Lining? -- What We Are Learning About Capitalism And Government -- The Economics Profession Asleep At The Switch -- Apportioning Blame -- The Way Forward -- The Future Of Conservatism. Richard A. Posner. Includes Bibliographical References (p. 333-336) And Index. Not shying away from calling the current economic crisis in the US a "depression," rather than a "recession," prominent judge and legal scholar Posner (who sits on the US Court of Appeals and is a lecturer at the U. of Chicago Law School) offers a general audience a review of the crisis, its causes, and the lessons that can be learned. He attributes the crisis to three key causes--excessive deregulation, neglect of warning signs (such as the massive rise in housing prices), and insouciance about the decline in the rate of personal savings and the safety of such savings--and calls for re-regulating, rather than restructuring, finance and banking, writing that comprehensive structural reform should wait for better days. Annotation ©2011 Book News, Inc., Portland, OR (booknews.com) The financial and economic crisis that began in 2008 is the most alarming of our lifetime, if only because of the warp-speed at which it is occurring. How could it have happened, especially after all that we've learned from the Great Depression? This title presents a non-technical examination of this mother of all financial disasters.