Two professors explain how we got into the current economic mess and offer a prescription for the way out.
Roubini (Economics/New York Univ.; co-author, New International Financial Architecture, 2006, etc.) and Mihm (History/Univ. of Georgia; A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States, 2007, etc.) define crisis economics as “the study of how and why markets fail.” The origins of the current upheaval, they contend, are deeply structural—far more severe than simply a housing bubble and the securitization of bad loans—and the storms will persist. They preface their proposed remedies with a whirlwind tour of past crises, a survey of economic thinkers who offer insights into why markets collapse, an analysis of how today’s unstable moment compares with past market traumas and a look at the special dangers posed by our integrated global economy. Critiquing the unprecedented emergency measures taken recently to right the economic ship, they warn of the unintended consequences likely to flow from hasty decisions made under extreme pressure. We should use this moment of relative calm, they argue, to institute necessary changes. These range from the fundamental—reform of Wall Street’s compensation system, the securitization process and private ratings agencies, and a crackdown on derivatives and bank supervision—to the radical—thoroughly rethinking the nature and composition of regulatory agencies, tackling the problem of financial institutions currently deemed “too big to fail” and using the government’s tools to discourage predictable and disastrous economic bubbles. Notwithstanding their argument’s scholarly scaffolding, Roubini and Mihm manage a smooth translation of the dismal science. Their challenging yet accessible narrative will reward general readers, many of whom are stunned by recent developments and suddenly seized with questions about how our economy works—and doesn’t.
An impressive, timely argument on behalf of transparency and stability for a financial system conspicuously lacking both.