A thorough, authoritative postmortem, highly recommended for professional economists, scholars, and university students.



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.

Pub Date: Jan. 5, 2017

ISBN: 978-1-137-59749-6

Page Count: 255

Publisher: Palgrave Macmillan

Review Posted Online: March 27, 2017

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An enlightening, scary journey.



A world tour of nations that have collapsed financially or that played a role in the collapse of others.

In his previous book, The Big Short (2010), Lewis dug deep into the housing-market failure that precipitated the economic collapse of 2007-08. Here the author tours Iceland, Greece, Ireland, Germany and California to compose a broader picture of what went wrong. Like Lewis’ other bestsellers, this book is alternately wry, snarky, laugh-out-loud humorous, serious and, most importantly, filled with insights. The author is a master at explaining financially complex realms by casting them as narratives of individuals. In each place, he finds people famous, infamous and nearly anonymous who can fairly be rendered as villains or heroes. Each chapter started as an article for Vanity Fair, yet the seemingly disparate features coalesce nicely in the book. Lewis is willing to court danger by generalizing about the characteristics within each nation that led to unexpected consequences. As usual, the author delivers a nice balance of trenchant analysis and lucid writing. In regards to Greece, the most distressed nation of all, "it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it."

An enlightening, scary journey.

Pub Date: Oct. 3, 2011

ISBN: 978-0-393-08181-7

Page Count: 224

Publisher: Norton

Review Posted Online: Nov. 3, 2011

Kirkus Reviews Issue: Nov. 15, 2011

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A unique examination of the limits of models and theories in understanding and predicting human behavior, and a nice...



A fascinating cross-disciplinary exploration of how and why financial and scientific models fail.

Derman (Financial Engineering/Columbia Univ.; My Life as a Quant, 2004) is a former theoretical physicist turned Wall Street financial engineer, or quantitative analyst (“quant”). Having previously written about the world of quantitative finance, he now sets out to discover why existing financial models failed to predict the economic crisis of 2007-08. Quants use mathematics and physics to create their predictions of how markets work; Derman argues that these models fail to account for the human element, or what John Maynard Keynes called “animal sprits.” Drawing on his experience as a child in Apartheid South Africa, the author exposes the failure of models and theories when applied to politics. By incorporating philosophy, physics, social theory and economics, he presents an eclectic, multidisciplinary discussion about what happens when models are taken too seriously and the human factor is ignored. “The greatest conceptual danger is idolatry; believing that someone can write down a theory that encapsulates human behavior and thereby free you of the obligation to think for yourself,” he writes. Derman draws intriguing connections between the language of physics and economics, and while the material may be complex for nonphysicists, the author’s prose writing is fluid and makes many of these complicated theories accessible.

A unique examination of the limits of models and theories in understanding and predicting human behavior, and a nice rejoinder to the equations-can-solve-or-explain-everything crowd.

Pub Date: Oct. 25, 2011

ISBN: 978-1-4391-6498-3

Page Count: 240

Publisher: Free Press

Review Posted Online: Oct. 3, 2011

Kirkus Reviews Issue: Oct. 15, 2011

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