Here is a great review of a book which I consider to be the most inciteful of all of the books I have read on this topic by my friend Jonathan Finegold Catalán. The book takes a position which is contrary to the MSM and left wing blather of ‘under regulation’ and being too nice and complacent to the abuses of greedy wall street banksters, and also avoids embracing the overly simplistic idea that free markets, left alone, always produce optimal results. Instead the authors conclude that “hey, the global economy is a very complex beast and people make mistkes…even when their decisions flow from relatively rational proceses.
I would have liked to see this short (150 pages) book spend more time discussing the role of the non commercial banks (like Countrywide and AIG). People with a limited knowledge base on the subject of bank regulation may find it to be pretty dry reading and will most certainly fail to appreciate the issues raised in this book. Suffice it to say that these guys get to the heart of what caused the financial crisis better than anyone else. Why is it important for us to understand the real causes of this crisis:
“because once one recognizes that ” deregulated ” capitalist finance did not cause the crisis, but rather that regulatory ignorance and ideology, apparantly transmitted to the regulators by modern democracy‘s most trusted academic experts, may have caused it, one has to wonder whether modern democracy has a potentially fatal flaw: the mistakes that may flow from the cognitive limitations of modern democracy’s all-too -human decision makers”. (p.153)
That said …..Here is Jonathan’s review (Cross-posted over at the Mises blog.)
TOO BIG TO REGULATE
“The Ludwig von Mises Institute of Canada re-publishes my review of Jeffrey Friedman’s and Wladimir Kraus’ Engineering the Financial Crisis. I call the book “undoubtedly one of the best books written yet on the causes of the Great Recession” — simply stated, there are few scholars who have done the amount of historical research Friedman and Kraus committed themselves to (that being said, much of the book’s thesis, admittedly, is based on a number of journal articles published in a special 2009 issue on the financial crisis in the Critical Review journal).
The authors may not consider themselves “Austrian,” or at least may not necessarily sympathize with the entire corpus of Austrian theory, but Engineering the Financial Crisis is extremely compatible with the broader Austrian theory of intertemporal discoordination (malinvestment). The authors also borrow from and develop a particularly Austrian insight: radical uncertainty. Both Friedman and Kraus vehemently believe that, generally speaking, bankers had no idea that their assets would collapse, and thus discard the possibility that the financial crisis was caused by malintentioned financiers.