Review- Crisis Economics: A crash course in the future of finance, Nouriel Roubini and Stephen Mihm

From Hugo Domic

This book is a good book. It describes very well several aspects of the financial industry that lead to the crisis.

They expose in a better way the relation between politics and the finance indstry and the corruptive power of this relation than the book of Krugman for example.

Their exposition of the financial products (CDO’s,etc) altough informal go deep in explaining the market mechanism that created and sold this products, and more importatly the mechanisms used to priced them, this is very good because we see the “failure” of the entire system on the pricing of these products. The “” are used because it was not a failure, as Roubini and Mihm expose very well, it was everybody interest to “fail” to price this products because everybody won in that case! Troughout the book Roubini and Mihm make us see the perverse system that rules the financial industry, they have every interest to cheat, manipulate and screw others (including the shareholders and investors of the company).

And for this I think this book is worthwhile!

The first part of the book that we may say is the diagnosis part allows us to see the problems of the finance system in many spheres, from principal-agent problems, to regulation problems. This is one of the best short and informal analysis of the crisis I’ve read.

The second part of the book was the “cure” for the problems pointed in the first part. I think this is a good strategy for this type of books it allows the reader to get familiar with the problems and then in a logical sequence the reader is presented with the solutions. One astonishing thing was the fact that theRoubini and Mihm are very well aware that their solutions can only be temporary, because the financial system is very creative and will always try to get away of regulation. Thus their solutions have a more realistic touch then most, and some are adaptive in nature so it allows regulation to catch up the financial industry in short periods.

Not all solutions are good, applicable or realistic but the authors ackowledge this and present their solutions in a informal way in order to reflect this fact.

Many of this solutions will be applied in the future, and this is a good source to understand them now and their implications.

Overall I think is a worthwhile read, the insights of Roubini are always interesting and is always good to keep up with the Cassandres. This is a stimulating read to graduate economists altought an informal book, you read it very quick so is good, and as the subtitle of the book states this is a good short course in the future (an present) of finance. Furthermore is a rather good read for the populace also, so it’s a Popular economics book.

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