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| | Location: Home » Loans » General » Financial Shock: A 360 Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis | August 28, 2008 |
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| Financial Shock: A 360 Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis | 
 enlarge | Author: Mark Zandi
Publisher: FT Press
Category: Book
List Price: $24.99
Buy New: $14.90
You Save: $10.09 (40%)
Buy New/Used from $14.90
Avg. Customer Rating:  (3 reviews)
Sales Rank: 8724
Languages: English (Original Language), English (Unknown), English (Published)
Media: Hardcover
Edition: 1
Number Of Items: 1
Pages: 288
Shipping Weight (lbs): 1.7
Dimensions (in): 9.1 x 6.1 x 0.9
ISBN: 0137142900
Dewey Decimal Number: 332.7220973
EAN: 9780137142903
ASIN: 0137142900
Publication Date: July 19, 2008
Availability: Usually ships in 1-2 business days
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| Customer Reviews:
Clearest and Most Comprehensive August 17, 2008
1 out of 2 found this review helpful
Zandi does a masterful job of covering all of the bases and explaining how something so obviously risky could have possibly become so accepted and commonplace. Most notable is his explanation of how there were so many different players involved at so many different levels that everyone thought someone else was minding the store when in fact no one was. This is a classic explanation of how a feeding frenzy of greed can get started and what must be done to prevent them in the future.
Best book on the subprime bubble and its consequences August 13, 2008
2 out of 3 found this review helpful
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.
4.5 stars-Privatization and Deregulation lead to securitization,speculative bubbles,and recession July 25, 2008
12 out of 15 found this review helpful
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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