The limits of Econned

Over the years, Naked Capitalism has provided a fine, if discouraging, play-by-play of the worsening corruption of our financial and governmental powers.  Dense daily posts, plus links to relevant news stories, supported by thoughtful and knowledgable commenters, makes it one of the few sites I really ought to read daily. (Cute animal pictures are a bonus.)

When chief blogger Yves Smith published Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, I was anxious to read it. Which I finally did over the last couple of weeks.

There are, of course, lots of books purporting to explain what brought on the global financial crisis, few of which I have or intend to read. So I can’t compare Econned to other books on the subject.  I can say that it is clearly written, extensively and helpfully footnoted, and draws on insider knowledge of the financial trade. It takes on the pretense of economics to being a “science,” the limitations of “free markets,” and the details of how traders are incentivized to bankrupt their employers.  It documents clearly how the government is controlled by financial interests and will be unable to regulate them properly unless voters develop some understanding of what is going on.

Much detail of mortgage securitization is included, and I actually, for at least a few minutes, understood how Magnetar and other hedge funds could create a demand for subprime debt, then profit from the inevitable defaults while bankrupting everyone else involved in the transaction.

In a brief concluding chapter, Smith provides some sensible recommendations, unlikely to be implemented by the current controlling classes, for reducing the scope of future crashes.

What we have here is a good explanation of why this crash may have been worse than any previous crashes, and why there’s little reason to expect the next crash not to be more severe yet. What we don’t have is any sense of why we have crashes at all.

By all means, if you want to understand the global financial crisis you should read Econned.  If you don’t have time to read this book, then watch Inside Job, which covers the main points tho necessarily missing a lot of detail.

But among the words entirely missing from the index (and I don’t recall even seeing in the book) are “land,” “real estate,” and even “speculation.” As long as we have a rentier economy, where it’s harder to gain wealth by production than by speculation and influence peddling, we will have crashes. If you want to understand why crashes occur, and how they could be prevented in the future, read Progress & Poverty and The Secret Life of Real Estate & Banking (the latter, renamed, is not free but you can buy it here.)

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