An international economist’s deep dive into the causes, consequences, recovery, and lessons of the 2008-09 financial collapse.
Elson (Governing Global Finance, 2011, etc.), a former International Monetary Fund staffer and World Bank consultant who’s taught at Duke, Johns Hopkins, and Yale, offers a study of the aforementioned crisis, which was triggered by the subprime mortgage market. As he digs into its details, he dissects the flawed assumptions that it exposed: the macroeconomic consensus that financial markets were efficient and self-stabilizing, credit-rating agencies that improperly assessed risks, and regulatory regimes that ignored “shadow” banks. He offers granular analyses of the responses by governments, central banks, and international bodies, such as the IMF expanding its governance from the G7 (Group of Seven) countries to the G20. He identifies systemic weaknesses, such as the lack of an international lender of last resort or a means to enforce capital standards. Elson also discusses how the crisis prompted a general rethinking of economic education, elevated debate around wealth and income inequality, and sparked interest in behavioral economics and complexity theory. He devotes the final chapter to summarizing 25 lessons, and the fiscal, monetary, structural, and policy reforms that they imply. Elson’s prose throughout blends erudition and experience. However, his pervasive use of the passive voice may distract some readers. Although he provides plenty of background regarding his various subjects, readers will still need some familiarity with such things as historical macroeconomic theories, equilibrium models, the Basel international banking accords, and sovereign debt restructuring mechanisms. Acronyms abound, and with no quick-reference list, readers may be forced to retrace their steps or search the index. Helpful notes appear after each chapter, though, and the pacing never falters. Overall, the book ably reflects a technocrat’s vision of progressively integrated international financial systems and governance. Recent counter-trends—such as the United Kingdom’s vote to leave the European Union and Donald Trump’s presidential victory—are conspicuously absent, presumably because the book was already in production at the time.
A thorough, authoritative postmortem, highly recommended for professional economists, scholars, and university students.