Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis
Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis
Product Details
- Amazon Sales Rank: #4904 in Books
- Published on: 2008-07-19
- Number of items: 1
- Binding: Hardcover
- 288 pages
Editorial Reviews
Review
As seen on CNN Issue #1, CNBC's Kudlow & Company and Fox Business with Dagen McDowell
From the Back Cover
The subprime financial crisis is the decade's #1 financial story. What happened? How did it occur? And how can we prevent similar crises from happening again? Dr. Mark Zandi answers all these critical questions - systematically, carefully, and in plain English. Zandi begins with a fast-paced "history" of the crisis: where it started, how it spread, and where the fallout has landed. Next, he illuminates its deepest causes, ranging from the psychology of homeownership to Alan Greenspan's missteps. You'll watch the "flippers" at work and the real estate agents who cheered them on. You'll learn how Internet technology and access to global capital transformed mortgage lending, helping irresponsible lenders "drive out" good ones. Zandi demystifies the complex financial engineering that enabled lenders to hide growing risks and shows how global investors eagerly bought in, despite key warning signs. You'll discover how homebuilders contributed to the crisis, and how flummoxed regulators and policymakers failed to prevent it. Zandi offers indispensable advice for investors who must recognize emerging bubbles, policymakers who must improve oversight and citizens who must reduce their risks, so they can survive whatever comes next.
About the Author
Mark Zandi is Chief Economist and co-founder of Moody’s Economy.com, Inc., where he directs the firm’s research and consulting activities. Moody’s Economy.com is an independent subsidiary of the Moody’s Corporation and provides economic research and consulting services to global businesses, governments and other institutions. His research interests include macroeconomic and financial economics, and his recent areas of research include an assessment of the economic impacts of various tax and government spending policies, the incorporation of economic information into credit risk analysis, and an assessment of the appropriate policy response to real estate and stock market bubbles. He received his PhD from the University of Pennsylvania, where he did his PhD research with Gerard Adams and Nobel Laureate Lawrence Klein, and his BS degree from the Wharton School at the University of Pennsylvania.
Customer Reviews
Best book on the subprime bubble and its consequences
I have read all of the recent books that have come out on this topic and Zandi's book is the only one to clearly explain how all of the different pieces fit together. If you want to understand what happened, why, and what is likely to happen going forward this is the book to read.
Zandi's book is the latest in an explosion of well prepared and documented books which carefully dissect and examine the sub prime mortgage backed bonds fiasco that threatens the basic foundation of the American financial and banking system.Zandi does a very good job of explaining the interconnections between the mortgage lenders and brokers,ratings agencies(Moody's),underwriters,commercial banks(Bank of America),savings and loans(Washington Mutual),the Wall Street investment banks(Bear Stearns,Merrill Lynch,Lehman Brothers,etc.)and the spread of 6 trillion dollars worth of bonds that were both highly risky and uncertain in the sense that there was very little knowledge on how this particular application of banker securitization would perform over time.
The heart of Zandi's analysis is that "...hamstrung government regulators couldn't keep up with lenders who were constantly devising ways to elude oversight..."(p.18)."An even more important factor was a philosophical distaste for regulation that seemed to pervade the Federal Reserve...Without Fed leadership....the... Comptroller of the Currency,the Federal Deposit Insurance Corporation,and Office of Thrift Supervision were deterred from taking action." Zandi also mentions the abject failure of the Securities and Exchange Commission(SEC)to act.Zandi overlooks the fact that a competent regulatory board has not existed at the SEC since Bill Casey was at the healm of the SEC.None of this fiasco could have occurred under his watch.Unfortunately,the SEC has been run by pro Wall Street types who have worked overtime to undermine the regulatory powers of the SEC.This ,ofcourse,is the result of the deregulation and privatization wave pushed by Milton Friedman and his University of Chicago allies during the Reagan administration, based on their incorrect Subjectivist ,Bayesian belief that there is no such thing as uncertainty,only risk.There is only risk that can be calculated and insured against by using VAR models.Risk can always be represented by the standard deviation of a normal probabiltiy distribution even though no University of Chicago economist ever did a single goodness of fit test to chack and see if the time series data actually fit the normal distribution
Zandi also is correct in emphasizing the connections between speculative banker behavior and the constant attempt by the private profit maximizing banking industry to apply securitization to all types of debts(credit card debt ,car loans,etc.),and not just home mortgages.
I have deducted 1/2 of a star because Zandi does not provide the reader with a beginning chapter that provides a historical overview of what is in fact a constant and recurring problem in American and World history-speculative behavior by the private commercial banking system that systematically creates a series of bubbles that inevitably leads to manias,panics,and crashes that create inflationary,deflationary,or stagflationary problems that negatively impact hundreds of millions of people worldwide.Bernanke's decision to try and save the big Wall Street banks has led to a severe case of stagflation,collapse of the dollar,and bubbles in commodity prices and oil.These costs are borne by the consumer.
Adam Smith had already arrived at the solution in his the Wealth of Nations(WN) back in 1776.Smith carefully examined the commercial banking industry on pp.250-340 of the WN.His conclusion was that there had to be an independent central bank that would enforce a policy of credit restriction against the member banks.They would be required to maintain low fixed rates of interest in the long run and be prohibited from making loans to projectors(J M Keynes's speculators and rentiers),imprudent risk takers,and prodigals(see Smith,pp.339-340,Modern Library(Cannan) edition)
Another problem I have is Zandi's reference to "..what economists call the ' animal spirits' of investors and entrepreneurs"(2008,p.2,p.243).Actually,there is realy only one economist who has emphasized the problems of pessimism and optimism in the financial markets when using the term 'animal spirits' and that economist's name is J M Keynes.Keynes's use of the term occurs in chapter 12 of the GT(General Theory,1936)and is used to complement his analysis of the impact of uncertainty(Ellsberg's ambiguity)on stock market outcomes, as opposed to the risk concept overwhelmingly used by the economics profession.It would have been a good idea for Zandi to have made it clear to the reader exactly who, historically,is the individual who recognized and emphasized the importance of this variable,especialy when connected to the extremely important uncertainty versus risk conflict. I recommend that this book be purchased along with the much earlier exposition made by Warren Brussee on the sub prime loan mortgage fiasco in his 2004 book that is,unfortunately,mistitled.
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