Recession, You Look Familiar (book review of "This Time Is Different: Eight Centuries of Financial Folly")
AFTER the financial markets melted down last year, there was some great political theater in Washington. Alan Greenspan, the former Federal Reserve chairman, told the House Government Oversight and Reform Committee that he couldn’t believe what had happened. “We are in the once-in-a-century credit tsunami,” he said.
Richard S. Fuld Jr., the last chief executive of the bankrupt Lehman Brothers, lamented that he, too, had been blindsided. No one, he assured the committee, “was prepared for this one.”
Such performances were gripping, in their way. But they may take on a level of absurdity after reading “This Time Is Different: Eight Centuries of Financial Folly” (Princeton University Press) by two economics professors, Carmen M. Reinhart of the University of Maryland and Kenneth S. Rogoff of Harvard.
The authors use copious amounts of data — well, actually, numbing amounts — to make the compelling case that any well-informed person should have seen the Great Recession coming. The essence of their book is that while financial crises come in different varieties, they are not mysteriously born of undersea earthquakes, but frequently occurring events that can be spotted and even controlled if politicians and regulators know what to look for.
“Our basis message is simple: We have been here before,” the authors write. “No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history. Recognizing these analogies and precedents is an essential step toward improving our global financial system, both to reduce the risk of future crises and to better handle catastrophes when they happen.”
These academics have found the same disturbing patterns in economic data from more than 66 countries: A nation’s political leaders loosen regulations governing the financial system. Banks use the new freedom to borrow money and earn juicy returns. Soon, these sovereign states are awash with money from foreign investors. But beware these torrents of outside wealth. They are accompanied by bubbles in stocks, commodities and real estate...
Read entire article at NYT
Richard S. Fuld Jr., the last chief executive of the bankrupt Lehman Brothers, lamented that he, too, had been blindsided. No one, he assured the committee, “was prepared for this one.”
Such performances were gripping, in their way. But they may take on a level of absurdity after reading “This Time Is Different: Eight Centuries of Financial Folly” (Princeton University Press) by two economics professors, Carmen M. Reinhart of the University of Maryland and Kenneth S. Rogoff of Harvard.
The authors use copious amounts of data — well, actually, numbing amounts — to make the compelling case that any well-informed person should have seen the Great Recession coming. The essence of their book is that while financial crises come in different varieties, they are not mysteriously born of undersea earthquakes, but frequently occurring events that can be spotted and even controlled if politicians and regulators know what to look for.
“Our basis message is simple: We have been here before,” the authors write. “No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history. Recognizing these analogies and precedents is an essential step toward improving our global financial system, both to reduce the risk of future crises and to better handle catastrophes when they happen.”
These academics have found the same disturbing patterns in economic data from more than 66 countries: A nation’s political leaders loosen regulations governing the financial system. Banks use the new freedom to borrow money and earn juicy returns. Soon, these sovereign states are awash with money from foreign investors. But beware these torrents of outside wealth. They are accompanied by bubbles in stocks, commodities and real estate...