BLUFF

A financial cri de coeur from a banking insider.

Hoda, an erstwhile derivatives trader with J.P. Morgan and Swiss Re, among other houses too big to fail, offers a variation on the trope that the last great financial crisis was the product of “the greed and deceit of commercial and investment bankers and traders.” There was that, to be sure, but the instability that has followed suggests, she argues, that a more complete truth lies elsewhere. She locates this in the complex interplay of central banks with the larger financial world, serving up a program that encourages investors to borrow even if it leads to more debt, “trying to create economic momentum by intimidating people with a continued reduction in purchasing power.” Tied up in this is an oddly tilted, sometimes paradoxical system that punishes thrift—because too much thrift leads to impoverishment in an economy premised on consumer spending—by lowering interest rates below that of inflation, “effectively taxing our savings.” In a sense, the banks’ bluff is that the game can continue even as people realize that it’s rigged. Hoda examines the evolution of central banks over a long, bumpy history of previous financial panics, offering sidelights on the abandonment of the gold standard. Of more immediate interest is her take on the difficulty of investing in such a climate of uncertainty, with the real winners being the traders who “aim to extract value by anticipating the actions of the central banks.” Writing accessibly and without undue reliance on jargon, Hoda dissects efforts at regulating the financial industry, such as the Dodd-Frank Act, which she considers one that “confused correlation with causality,” and advocates for zero inflation, job creation, and other stability-improving policies. On the present course, writes the author in closing, “investors will stop believing the central banks, even when they should.”

Sound post-Keynesian economic reasoning well argued—a book that one hopes, against the odds, the heads of the Federal Reserve and the Bank of England will entertain.