The author is a nobel laureate and regarded well as a balanced and sensible economist. One of those economists who keeps looking at the right economics model which can shape up a good and equitable social order without being a complete leftist.Argues about the need not to be blinded by the self correcting mechanism of markets. Opponent of the highly theoretical perfect market group.
- Making of a crisis
- Freefall and its aftermath
- A flawed response
- The Mortgage scam
- The great american robbery
- Avarice triumphs over prudence
- A New Capitalist order
- From Global recovery to Global prosperity
Just a few random points to be put in order
MBO s- Mortgage backed securities. Bankers lending to a local community would know great details about the client. Securitisation takes out the personal element. Securitisation is nothing but packaging loans in to certficates , making an assessment of the overall risk ( by a rating agency with use of mathematical tools ) and selling the same. In fact the derivatives were several layers removed.
Sub prime- Lending to below par credit based on capital values rather than based on repaying capability
CDO- Collateralised debt Obligation which is nothing but packaged loans bundled and sold.
CDS- Credit default swaps
Slioced and diced and sold in packages with varying "risk". Further repackaged etc, knowledge of the real risk not known at all.
Insurance for such securities
Moral hazard of bailing banks out. Deposit Insurance does extend risk insurance to deposit holders
Banks" incentive system front ended and lopsided, profit , share of the same goes to top bosses , losses borne by tax payers. The reward system was suhc that there was incentive for risks and with no downside since deposit also insured and employees not required to share losses. Case of, heads I win, tails you lose.
Huge disparity between CEO salaries and lowest
GDP is a poor measure, median income better measure. US median income in real terms down by 4%
Keynesian - Governmt spend to prime the economy. Bush not Obama went the full hog. Half measures
Too big to fail - Banks and moral hazard of bailing them out. If they are too big to fail they are too big to exists
Criticis of IMF which squeezed economies in bad shape and made them get in to deeper hole case in point Indonesia.
Brings home the point that the bankers made sure that Banks were deregulated . Poor oversight led to this
Govt should have acted well in time and in good measure to bail out Lehman Bros and not let it fail. The crisi could have been restricted in terms of the size of the bubble.
Borrowings by US. How US and a lot of current activites whose cost is in future is ingnored like environmental costs etc
Author talks of the attempt by economics to make Economics get in to realms of equilibrium as is the case in physical and matural sciences.Equilibrium theory of Walras , what is termed as Walrasian equilibrium.
Also lambasts the perfect market hypothesis, which holds that the market prices everything based on need and at correct prices. He debunks the same with the fact that varying information with varying people makes market imperfect and also Author is clear that we can not be always be looking markets to decide the direction of the society.
Harps on the need to revive the market by pumping in money and making sure investments happen. Also cautions on the high consuming US society.
Cries for a economic order which can extend employment possibilities to all starting from the low rung.
Talks for need for education and healthcare.
