Taking Credit for Crunching the Facts

As regular readers will know, despite my general attitude to Amazon being a little ambivalent to say the least, one facet I do recommend is the Kindle Deal of the Day.  If you haven’t subscribed to this daily email, then I urge you to dig around your local Amazon website and sign up.  I can’t say whether that is likely to be an easy task or not – when I signed up I really had to search the site to find the link, but maybe they’ve made it easier now.

When I signed up originally there was literally one book a day, but more recently they have increased the daily offering to three books at least, with odd days offering larger amounts at £0.99 each.  I assume the deal is the same in Dollars or Euros, and often the books are missable from my perspective.  I suspect Amazon might be attempting to target books after a fashion as I loaded a host of romance books onto my Kindle using my account for my wife to read on holiday and I have noticed an exceptionally large amount of romance titles offered since.  Be careful what you buy from Amazon, is my advice.

Increasingly I’ve found myself downloading non-fiction titles when I find ones offered that appeal to me, but then often leave them languishing in my online library while I read my downloaded fiction titles.  However I’ve recently dug out two books that I bought on the deal of the day at different times but happen to be very closely related.  They both discuss the causes and fallout from the Credit Crunch – I think it’s important we all try to understand what happened and why, plus I’d like to know what happened to my money, pension and life prospects.  As I’m not working in banking I’ve been negatively affected like most of you.

The first book, ‘How Did We Get Into This Mess?’ is written by Robert Peston, the main BBC financial commentator with a long history of financial journalism.  I used to enjoy his columns in the Daily Telegraph before he jumped ship to work for the BBC and have enjoyed his reporting there since. Robert has a conversational style that borders on bawdy at times and does have a tendency to over-use some phrases throughout the book, such as inter alia, amongst other things. The book has the feel of a dictated manuscript in some parts as a result of this, which is a shame as Robert expertly reduces the complex financial jargon into plain English.

He makes it clear that there were multiple events that conspired to create the perfect storm of the credit crunch, not least the extensive deregulation that preceded it both sides of the Atlantic, although the abandonment of the separation between investment banking and consumer banking, put in place after the recession in the 1930s, was a particularly pivotal event.

But it seems that many things put in place to de-risk the economy ended up doing the exact opposite. Peston doesn’t mince his words when describing the actions of bankers but he also demonstrates that government, industry and, yes, you and I all played a part, consuming more than we could afford, gorging on credit that seemed too good to be true, because it was. I may sound a little defensive here because actually I’ve been a conspicuously careful consumer. I did buy a house while the market was bubbling, luckily nowhere near the peak, but in defence I had just left the military and felt my family would appreciate a roof over their heads. I also paid a substantial part of the purchase price with savings, unlike the many speculators who were buying on 100% mortgages at that time, pushing house prices up.

However, Peston is correct, we all spent as if the party would never end to some degree. He was one of the few journalists who spotted the liquidity crisis before it happened and was vilified for doing so, as if his reporting created the problem.  Robert doesn’t have any definitive answers to the ongoing pain we are experiencing apart from gritting our teeth and working through it. If you want to understand the background to the crunch then this book is a good primer.

The second book I read was by Canadian mathematician David Orrell, called ‘Economyths’.  David’s book complements Peston’s in many ways and he shares the honours of warning of a crash in an earlier version of this book that pre-dated the crunch. However David takes a significant detour from Peston’s analysis and looks at the origins of economic theory and how it has developed over the last 150 years or so. In particular he looks at how modern economic theories, as taught in business schools and even by David’s current employer, Oxford University, are not only based firmly on these old origins but also on assumptions that are fundamentally flawed, particularly with regard to a self-regulating market. He makes a strong argument that if markets were self-regulating then we wouldn’t have experienced the crash in the eighties, the dot com bubble or the credit crunch.  He starts off by demonstrating that the ‘law of supply and demand’ is also fundamentally flawed and continues to smash through the pseudo-science employed in modern economics. On the way David introduces a fair bit of mathematical history and an excellent guide he proves.

I felt that the book was going to suggest an alternative approach that is mathematically sound – and indeed David does push society towards the goal of determining a fair, equitable and auditable economic system but suggests that is a major body of work yet to be undertaken. He also makes the point that any system needs to be grounded in ethics, a radical concept in finance it seems. The Achilles heel in all of this is that regardless of the appropriateness or otherwise of the current business models (and otherwise appears to be the most likely option in a free vote after reading these two books), the real issue is that the financial sector appears to be controlled by greedy bastards who don’t give a damn about the consequences of their actions. Or at least that’s the inference I detected in these two books, if not explicitly stated.  Sure these guys (and it appears there is a gender element at play here) hope the party continues forever, but as long as they can squirrel their multi-million Dollar, Pound or Euro bonuses somewhere safe along the way then they will continue to do what they’ve done for the last thirty years.

David clearly realises that the functional parts of the economic system is broke and possibly beyond repair so he ends up targeting the next generation of economists, those currently in training, motivating them to insist on a better curriculum in the hope that they can build a fairer society. Of course, if he'd read Digital Life Form then he might have recognised that the financial industry is run on the same two rules the DLF industry is - life ain't fair and shit happens.  But to be fair to David he doesn't see that it has to be this way, to his credit.

David does spend a fair amount of time on his soapbox, but he does make a number of valid and well-argued points along the way. If you have a more than passing interest in the economy then you should consider picking up an eCopy of this book too.



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