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The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (Vintage) | |||||||
 
| 80% Recommended by our customers. Publisher: Vintage Catalog: Book Release date: 2008-10-29 Media: Paperback Number of pages: 208 Ean: 9780307473455 Book Isbn: 0307473457  Tip: compare prices with similar booksAuthor:
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| Professional Review: |
| In a series of disarmingly simple arguments financial market analyst George Cooper challenges the core principles of today's economic orthodoxy and explains how we have created an economy that is inherently unstable and crisis prone. With great skill, he examines the very foundations of today's economic philosophy and adds a compelling analysis of the forces behind economic crisis. His goal is nothing less than preventing the seemingly endless procession of damaging boom-bust cycles, unsustainable economic bubbles, crippling credit crunches, and debilitating inflation. His direct, conscientious, and honest approach will captivate any reader and is an invaluable aid in understanding today's economy. |
| User Reviews: |
 Written on September 22, 2008 Summary: 4.5 stars-Cooper has connected all of the dots except one-he missed Keynes Cooper has written a book that currently must be judged to be superior to any other book written on the Subprime mortgage backed bond catastrope that has led the American Treasury Secretary Paulson to advocate the government purchase of about 1 trillion dollars of bank and investment bank assets about which no one has the slightest idea of what their true worth is. Cooper simply and easily dismantles the Efficient Market Hypothesis(EMH)that is the foundation of modern finance theory.This hypothesis is also the foundation of ALL modern macroeconomic theory.The EMH goes under the name rational expectations,real business cycles,New Classical Economics,and New Keynesian Economics in macroeconomics.Underlying both is the Subjective Expected Utility(SEU)decision theory,a hybrid of the Frank Ramsey,Bruno De Finetti,and Leonard J. Savage subjectivist theory of probability that is combined with the Von Neumann and Morgenstern expected utility theory.This theory assumes that the weight of the evidence available to decision makers is complete.This means that all decision makers know and can apply a unique probability distribution's mean and standard deviation, or act " as if " they did,before they make any decision.This case is a very special case of Keynes's weight of the evidence variable,w, where w=1.w is defined on the unit interval between 0 and 1 (Ellsberg's rho variable gives the same results as Keynes's w because rho is also defined on the unit interval.A rho =1 means that the decision maker has complete confidence in his information set and can specify a unique probability distribution). The efficient market hypothesis assumes that w and rho =1,just as the rational expectations hypothesis does.Cooper,unfortunately,overlooks the fact that Minsky's financial fragility hypothesis,which shows how waves of speculation ,magnified and amplified by bank loans to speculators ,will morph into Ponzi finance schemes that lead to the collapse of the bubble and a crash , is directly built on Keynes's Chapter 21 analysis in his General Theory(1936;GT) which integrated Keynes's weight of the evidence analysis concerning w from chapters 6 and 26(sections 7 and 8) of the A Treatise on Probability(1921;TP)into his elasticity analysis on pp.304-306 of the GT.The crucial result is that a complete information set requires that the macro elasticity e = 1(or ed subscript =1).A e = 1(this means the same thing as w = 1 or rho = 1)means that there is a complete information set that allows decison makers to calculate the riskiness of different alternative portfolios.The Efficient Market Hypothesis and Rational Expectations hypothesis will both hold.There will be no uncertainty or ambiguity(Ellsberg's term),only risk.However,Keynes points out that the general case is that e < 1(so both w < 1 and rho < 1).Uncertainty exists and results in a speculative demand for money.The greater the speculative demand for money is the greater the amount of involuntary unemployment and economic instability that will result.I have deducted 1/2 of a star because Cooper overlooks the fact that Keynes had already demonstrated theoretically that a Minsky crisis can occur whenever w or rho or e is less than 1.Minsky himself had absolutely no understanding of the technical results derived by Keynes in chapter 21 of the GT because he never read either chapter 20 or chapter 21.There is nothing new,original,or innovative in Minsky's work. Cooper redeems himself by showing how Mandelbrot's analysis of his general 4-parameter model, built around the Cauchy distribution's dangerous wild risk ,that, practically, goes out as far as 25 standard deviations ,demonstrates the special case nature of both modern finance theory and modern macroeconomic theory.Both theories are built on the Normal distribution's plus or minus 3 standard deviations covering 99.7 % of all outcomes.The Normal distribution is a special case of the Cauchy distribution.Heavy government regulation of the financial and banking system,aimed at stopping banker financed speculation ,can, as argued by Adam Smith(The Wealth of Nations,1776,Modern Library(Cannan)edition,pp.260-340) over 230 years ago in his 80 page discussion of why a central bank was needed,prevent the boom-bust turbulence of the Cauchy distribution from arising.A heavily regulated financial and macroscopic system can artificially create normally distributed outcomes with no more than plus or minus 3 standard deviations ,thus preventing the wild risk of the Cauchy from destroying the financial system.Deregulation and privatization automatically unleach the destructive potential of the Cauchy.Cooper covers this satisfactorily,but somewhat unevenly,in chapters 2,4,7,and 8 of his book. This book is not meant for the general reader.The potential buyer needs to be familiar with both modern finance theory(EMH) and macroeconomic theory(REH) ,as well as Mandelbrot's work,to understand why the world's financial markets can be destroyed in a deregulated environment of the type that has been constructed between 1978 and 2008 in the United States and the World. Written on September 17, 2008 Summary: timing could not be better Superb read and we all somehow always knew that our growth models cannot work forever. Just loved it - as hard as it was not to put it away in between and run to sell some stock. Written on September 16, 2008 Summary: Review in "The Economist" FYI--this book receives a good review in "Credit and blame: a must-read on the origins of the crisis," The Economist 388(8597), 13 September 2008:79. "The [credit] crunch has lasted long enough to spawn its own publishing mini-boom, as authors have raced to give their diagnoses in print. George Cooper, a strategist at JPMorgan, an investment bank, has produced by far the best so far, skewering both academic orthodoxy and central bank policy in the process...Mr Cooper's book is by far the most cogent and reasoned of the modern-day 'credit excess' school." |
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| Collectible price | - | - | - | $35.00 | - | - |
| Catalog | Book | Book | Book | Book | Book | Book |
| Release date | 2008-10-29 | 2008-11-13 | 2008-12-01 | 2008-08-24 | 2008-09-23 | 2008-11-17 |
| Media | Paperback | Hardcover | Hardcover | Hardcover | Hardcover | Hardcover |
| Number of pages | 208 | 432 | 224 | 208 | 248 | 352 |
| Ean | 9780307473455 | 9781594201929 | 9780393071016 | 9780691139296 | 9780801890482 | 9780393065145 |
| Book Isbn | 0307473457 | 1594201927 | 0393071014 | 0691139296 | 0801890489 | 0393065146 |
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