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Crisis Economics
Book

Crisis Economics

A Crash Course in the Future of Finance

Nouriel Roubini and Stephen Mihm
Penguin Group (USA), 2011
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Editorial Rating

8

Recommendation

Nouriel Roubini is the rare economist who, in the midst of a speculative bubble, accurately warned that the financial crisis of 2008 was coming. His bona fides established – and his “Dr. Doom” nickname well earned – Roubini and economics professor Stephen Mihm offer an insightful, entertaining look at the history and future of crashes. Get ready, Roubini warns: After a period of relative calm after the 1930s Great Depression, financial markets are in for a wild ride. He expects financial crashes to continue and offers advice for mitigating the damage, such as restructuring Wall Street bonuses and reining in big banks, although you may suspect that his recommendations will go unheeded. getAbstract recommends this book to investors and business leaders seeking a deeper understanding of the markets’ gyrations.

Summary

“Crisis Economics” Replaces the “Efficient Markets Hypothesis”

If you think the “Great Recession” of 2008 and 2009 was unique, think again. It was strikingly similar to a long list of financial meltdowns, from the South Sea Bubble of 1720 and the crash of 1825 to the Great Depression, the 1980s US savings and loan debacle, and the Japanese Lost Decade of the 1990s.

While the details change from crisis to crisis, the broad outlines are the same. In the run-up, easy credit abounds. Consumers, investors and business owners embrace optimism and leverage themselves recklessly. Negligent regulators, asleep-at-the-wheel central bankers and enabling politicians prime the pump of speculative excess as financial innovation creates new ways to invest in the craze of the moment. After the most recent crisis, details emerged about bankers’ and traders’ outsized paychecks as well as about arcane derivatives, imprudent securities backed by subprime mortgages. Believing that Wall Street greed has reached new levels is tempting, but, in fact, the greed level hasn’t changed. Instead, a new breed of bonuses based on short-term profits raised greed’s payoff. The more-interconnected nature...

About the Authors

New York University economics professor Nouriel Roubini founded Roubini Global Economics and served in the White House from 1998 to 2000. University of Georgia history professor Stephen Mihm writes about economics and history for The New York Times Magazine.

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