A trenchant analysis of the berserk market dynamics that laid low the American economy.
Rickety Wall Street innovations and systemic market failure caused the rise in housing prices and mortgage debt that precipitated the Great Recession of 2008, according to this study.
Georgetown law professor Levitin and Wharton economist Wachter reject prominent explanations of the housing bubble of the 2000s. It was not, they contend, primarily caused by the Community Reinvestment Act’s requirement that lenders make loans to poor borrowers or by loose monetary policy or by a global savings glut. The authors advance their own complex, systematic theory of financial markets gone awry. The problem started, they argue, when the traditional 30-year fixed-rate mortgage—“the hero of our story”—was supplanted with exotic, adjustable-rate mortgages or no-amortization loans that lured borrowers with low initial payments. These mortgages were pooled and sold to investors as “private-label securities” by unregulated lenders who grabbed a market share from the staid, federally regulated corporations Fannie Mae and Freddie Mac. Demand for more mortgages to sell to investors drove lenders to make loans to bad credit risks. These iffy mortgages were packaged in complicated, opaque collateralized debt obligations and sold to still more investors with no serious accounting of their risks. That expansion of cheap credit caused borrowers to bid up housing prices to unsustainable levels on mortgage-backed securities whose risks were not reflected in their prices—with no short-selling mechanism to let the market correct itself. Dysfunctions like these are intrinsic to housing markets, the authors contend, and can only be solved by a sweeping reregulation of housing finance that would entrench traditional fixed-rate mortgages under a more powerful, federally chartered corporation that they dub “Franny Meg.” Levitin and Wachter base their intricate, incisive argument on a close reading of the scholarly literature backed up by careful attention to economic evidence and price data, which they present in illuminating charts. The book is aimed at academics and policymakers, but interested lay readers can also tackle it thanks to the authors’ thorough explanations and prose that’s always lucid and even stylish. (“It took only a very small amount of dumb or conflicted money in CDOs to build an enormous pyramid of leverage in the housing market.”) The result is an indispensable analysis of the crisis and the far-reaching measures needed to prevent a recurrence.
A trenchant analysis of the berserk market dynamics that laid low the American economy.Pub Date: June 9, 2020
ISBN: 978-0-674-97965-9
Page Count: 400
Publisher: Harvard Univ.
Review Posted Online: Jan. 20, 2021
Kirkus Reviews Issue: March 15, 2021
Review Program: Kirkus Indie
Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.
“Quality of life means more than just consumption”: Two MIT economists urge that a smarter, more politically aware economics be brought to bear on social issues.
It’s no secret, write Banerjee and Duflo (co-authors: Poor Economics: A Radical Rethinking of the Way To Fight Global Poverty, 2011), that “we seem to have fallen on hard times.” Immigration, trade, inequality, and taxation problems present themselves daily, and they seem to be intractable. Economics can be put to use in figuring out these big-issue questions. Data can be adduced, for example, to answer the question of whether immigration tends to suppress wages. The answer: “There is no evidence low-skilled migration to rich countries drives wage and employment down for the natives.” In fact, it opens up opportunities for those natives by freeing them to look for better work. The problem becomes thornier when it comes to the matter of free trade; as the authors observe, “left-behind people live in left-behind places,” which explains why regional poverty descended on Appalachia when so many manufacturing jobs left for China in the age of globalism, leaving behind not just left-behind people but also people ripe for exploitation by nationalist politicians. The authors add, interestingly, that the same thing occurred in parts of Germany, Spain, and Norway that fell victim to the “China shock.” In what they call a “slightly technical aside,” they build a case for addressing trade issues not with trade wars but with consumption taxes: “It makes no sense to ask agricultural workers to lose their jobs just so steelworkers can keep theirs, which is what tariffs accomplish.” Policymakers might want to consider such counsel, especially when it is coupled with the observation that free trade benefits workers in poor countries but punishes workers in rich ones.
Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.Pub Date: Nov. 12, 2019
ISBN: 978-1-61039-950-0
Page Count: 432
Publisher: PublicAffairs
Review Posted Online: Aug. 28, 2019
Kirkus Reviews Issue: Sept. 15, 2019
SEEN & HEARD
Smart, engaging sportswriting—good reading for organization builders as well as Pats fans.
Prolific writer Benedict has long blended two interests—sports and business—and the Patriots are emblematic of both. Founded in 1959 as the Boston Patriots, the team built a strategic home field between that city and Providence. When original owner Billy Sullivan sold the flailing team in 1988, it was $126 million in the hole, a condition so dire that “Sullivan had to beg the NFL to release emergency funds so he could pay his players.” Victor Kiam, the razor magnate, bought the long since renamed New England Patriots, but rival Robert Kraft bought first the parking lots and then the stadium—and “it rankled Kiam that he bore all the risk as the owner of the team but virtually all of the revenue that the team generated went to Kraft.” Check and mate. Kraft finally took over the team in 1994. Kraft inherited coach Bill Parcells, who in turn brought in star quarterback Drew Bledsoe, “the Patriots’ most prized player.” However, as the book’s nimbly constructed opening recounts, in 2001, Bledsoe got smeared in a hit “so violent that players along the Patriots sideline compared the sound of the collision to a car crash.” After that, it was backup Tom Brady’s team. Gridiron nerds will debate whether Brady is the greatest QB and Bill Belichick the greatest coach the game has ever known, but certainly they’ve had their share of controversy. The infamous “Deflategate” incident of 2015 takes up plenty of space in the late pages of the narrative, and depending on how you read between the lines, Brady was either an accomplice or an unwitting beneficiary. Still, as the author writes, by that point Brady “had started in 223 straight regular-season games,” an enviable record on a team that itself has racked up impressive stats.
Smart, engaging sportswriting—good reading for organization builders as well as Pats fans.Pub Date: Sept. 1, 2020
ISBN: 978-1-982134-10-5
Page Count: 592
Publisher: Avid Reader Press
Review Posted Online: Aug. 25, 2020
Kirkus Reviews Issue: Sept. 15, 2020
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