An academic review of 21 books on the financial crisis

January 22, 2012 11:10 PM

Andrew Lo reviews 21 books on the financial crisis. In a 41-page paper, Andrew Lo, from the MIT Sloan School of Management, does a comparative review of 21 books about the financial crisis - some from academics and some from journalists and Secretary Paulson, looking for common threads. Tyler Cowen comments.
posted by falameufilho (30 comments total)

David Harvey's typology of interpretations, animated. older, but still relevant.
posted by eustatic at 11:49 PM on January 22, 2012 [1 favorite]

The extract uses 46 words to politely say that the entire field of Economics is full of shit.

Pfft. You scienticians. Always wantin numbers, and facts, and pdfs to read.
posted by Ahab at 12:00 AM on January 23, 2012 [1 favorite]

Thanks for sharing that video eustatic, haven't seen it before and it's a very entertaining way of telling a complex story (reminded me of Introducing Kafka).

That being said, I'm not a big fan of the "MARX SAW IT ALL COMING!" crowd, because they are the personification of a broken clock telling time correctly twice... in a century.
posted by falameufilho at 12:07 AM on January 23, 2012

Oh not Rashomon again. Nobody seems to get it. Rashomon is not a whodunit, because nobody done it. It's just a tale told between two guys who are sitting around, waiting for it to stop raining.
posted by charlie don't surf at 12:28 AM on January 23, 2012 [1 favorite]

Rashomon is not a whodunit, because nobody done it. It's just a tale told between two guys who are sitting around, waiting for it to stop raining.

That's not how I remember it.
posted by lucien_reeve at 1:08 AM on January 23, 2012 [27 favorites]

No mention of ECONned by Yves Smith of the Naked Capitalism blog. Maybe that was too wide in scope since it talks about the economy in general, but it's the best book I've read on the crisis. It helps that she has a good perspective as someone who understands the economics, but has been worked in the markets herself.
posted by TheophileEscargot at 3:25 AM on January 23, 2012 [1 favorite]

*rimshot*
posted by qwip at 3:27 AM on January 23, 2012

In a 41-page paper two words, Andrew Lo, from the MIT Sloan School of Management, Fizz does a comparative review of 21 books about the financial crisis

We're fucked.
posted by Fizz at 3:59 AM on January 23, 2012 [2 favorites]

[This study] underscores the desperate need for the economics profession to establish a single set of facts from which more accurate inferences and narratives can be constructed.

Well, bless your heart, economists.
posted by fuq at 4:09 AM on January 23, 2012 [2 favorites]

a broken clock telling time correctly twice

Its almost like some people don't like the 10 planks of Communism.

Commentary on the 10 Planks of the Communist Manifesto and how they are active in America.
posted by rough ashlar at 4:46 AM on January 23, 2012 [2 favorites]

I was also shocked to see that John Lanchester's Whoops!: Why everyone owes everyone and no one can pay didn't make the list of the 21 books.
posted by The River Ivel at 4:50 AM on January 23, 2012

Commentary on the 10 Planks of the Communist Manifesto and how they are active in America.

I had no idea Lord Byron was still alive, yet alone running a "School of Law" in which he shows us all how scripture can help us to understand what "Carl Marx" [sic] got wrong. Quite the troll.

At least he seems a little less self-deceiving than most communists, in that he does realise that a functioning version of what we think of as modern society is impossible without quite a large element of socialism.

Oh, and he appears to be someone quite comfortable with eating into the time of others to benefit himself: "Finally, just before noon, I called in my secretary and asked her to drop by the public library on her lunch break and pick me up a copy of the Communist Manifesto."

What a lovely man.
posted by lucien_reeve at 4:54 AM on January 23, 2012 [1 favorite]

No single narrative emerges from this broad and often contradictory collection of interpretations, but the sheer variety of conclusions is informative, and underscores the desperate need for the economics profession to establish a single set of facts from which more accurate inferences and narratives can be constructed.

Desperate, how's that for subtlety. And as much as I like the idea of a single megaset of facts, there might be some problems with the secrecy/privacy that is likely to surround many relevant transactions, not mentioning facts that may not be already routinely collected , as in off balance sheet transactions (read, shadow banking system).

Unlike the so called "real scientist", who can study the propreties of a system by...accessing the system... economists and, more generally, people studying social systems have an hard, hard time at getting to know some data exist, let alone getting the data.
posted by elpapacito at 5:01 AM on January 23, 2012 [1 favorite]

Oh, and he appears to be someone quite comfortable with eating into the time of others to benefit himself

Or, the one plank of capitalism, as it's also known.

And, "... 'So,' you ask with baited breath..."? His readers eat worms?
posted by titus-g at 5:23 AM on January 23, 2012 [1 favorite]

The Bible vs Communism. It's like an ideological comic book battle.
posted by Edison Carter at 6:55 AM on January 23, 2012

Tyler Cowen comments on everything. All the time. Seriously, how does he do this?
posted by srboisvert at 6:58 AM on January 23, 2012 [1 favorite]

The Economist had a good review of this book last week.

The troubling thing about the conclusion is that it suggests that economics is more of a historical discipline than a scientific one. That the truth of things is not perceivable, particularly so close to the events. The Internet snark brigade is now nodding their heads and saying "of course!"

Except we have a lot of people who treat economics like a science, a phenomenon that can be engineered. And they're tooling away right now in the US and the EU, setting interest rates, cash policy, trade policy, trying to keep our world economy running smoothly. If they can't even perceive what the causes of the economic failures of the past few years are, it's trouble.
posted by Nelson at 7:32 AM on January 23, 2012 [1 favorite]

srboisvert: "Tyler Cowen comments on everything. All the time. Seriously, how does he do this?"

It's his day job, and their department is funded by generous donors with an agenda. I'm guessing it's a just a bit easier when you teach just one graduate level course and skip the grant writing process.
posted by pwnguin at 8:11 AM on January 23, 2012 [1 favorite]

The troubling thing about the conclusion is that it suggests that economics is more of a historical discipline than a scientific one.

The fact that economics is a historical discipline doesn't mean that it can't yield insights - there's a lot that we can learn from the crisis even if the entirety of the disaster leaves some questions unanswered. Just as, for example, the 1918 Influenza Epidemic remains mysterious on some levels (where did it originate, precisely? From what other species did it originally come?), but nevertheless has been a gold mine of insights into how epidemics spread and interact with other environmental factors such as war, economic performance, and media coverage/public awareness (despite its lethal force, it quickly became "the forgotten pandemic").

We're never going to get to a point where someone writes the book that explains the whole of the Crash perfectly, but we can learn a great deal about the various stress points in our economy, the sort of practices that need to be avoided or engineered around to limit future such disasters. Which is what at least some of those folks who are "tooling away" are trying to ensure.
posted by AdamCSnider at 8:12 AM on January 23, 2012 [3 favorites]

What a lovely man.

As charming as all who 'discuss' communism or economics.

(To be fair, there is the 10 Planks of the Communist Manifesto and some of them are 'in force' in America. Progressive tax is considered "a good idea" by a very large %age of the population. Same with public education. So he's got a point that one can see if one removes his hat.)
posted by rough ashlar at 8:27 AM on January 23, 2012

Props to Lo for comparing (in a footnote) the Rashomon box office take to that of the first Pokemon film.

Obviously someone needs to remake Rashomon using Pikachu & Blastoise & Ash Ketchum.
posted by chavenet at 8:48 AM on January 23, 2012

Let's see … Tyler someone, somebody Paulson, something about crashing the financial system …

Are you sure we should be talking about this?
posted by kcds at 9:06 AM on January 23, 2012 [1 favorite]

That's not how I remember it.

Yes, that's what everyone says. It's Kurosawa's monumental misdirection, his work of genius. The entire meaning of the movie Rashomon occurs in the first five minutes, and the last five minutes. You can go watch the movie if you don't believe me. Just watch the first 5 minutes, and the last, skip the middle. Most people who have seen the movie don't even remember the opening and closing.

Rashomon isn't about how every person has a different way of seeing the world. It declares there are only two ways, pessimism and optimism.

To tie this back to the FPP, economics is called "the dismal science." It's fundamentally pessimistic, opposing the innate hopefulness of mankind in his search for meaning and growth.
posted by charlie don't surf at 9:17 AM on January 23, 2012 [1 favorite]

Thanks for the response, AdamCSnider, I wish I shared your optimism. The problem with economics-as-history is that proper history requires time, distance from the events, before you can begin to get an objective understanding of the truth of events.

What I get from Lo's review (or honestly, the reviews of Lo's review) is that all these books written about the crash of the past few years are hopelessly muddled by the biases of whoever wrote them. So some authors blame the SEC rule changes about broker-dealer debt limits, others blame regulatory weakness, or Fannie Mae management, or whatever that author's hobbyhorse is. They're too close to events to understand them.

But the folks setting financial policy act as if economics is an objective science, that they can examine recent past events and divine the truth of them. At least, probabilistically. And apply that understanding to engineering today's finance. Lo's review suggests this kind of analysis does not work in the case of the turmoil of the past five years.
posted by Nelson at 9:34 AM on January 23, 2012

Most economics is not fundamentally pessimistic, regardless of that 'dismal science' tag. It is ideology-driven and optimistic, usually hiding some utopian scheme (free markets make everything good! proletarian revolution is inevitable!) behind rather dodgy maths.

And yes, I know that Rashomon is as much about he framing device as the flashbacks. But it is more complex and profound than the choice between optimism and pessimism. It is powered by Kurosawa's existentialism and the question of where we can find good in the world. But the point and power of the final moments would be lost without the profound skepticism about authority and other people that the rest of the movie creates. If even the dead are not beyond lying, what is good in humanity? Nothing? And yet, the woodcutter is prepared to take on another human being he can ill afford to support, in defiance of (coincidentally) every maxim of rational selfishness.

Economics cannot save us, but compassion might.
posted by lucien_reeve at 10:52 AM on January 23, 2012

42 books showing 42 different perspectives suggests we are still in the middle of whatever it is and so don't really understand what it is yet since it's not over.
posted by stbalbach at 11:12 AM on January 23, 2012

lucien, I wrote a longer post about Rashomon but deleted it since it seemed like too much a threadjack. But perhaps it is not. I am less inclined to your existentialist interpretation, I'll cite stbalbach to bring this back on the thread:

42 books showing 42 different perspectives suggests we are still in the middle of whatever it is and so don't really understand what it is yet since it's not over.

And that is the message of Rashomon: Godel's incompleteness theorem. It is not possible to create a self-consistent system within a frame of reference, without stepping outside that frame of reference. In both economics and Rashomon, contradictory views cannot be reconciled. When we pull back one step outside the frame, we can add the missing component that resolves the seemingly irresolvable conflicts.

This also has a lot to do with the classical Sino-Japanese literary convention of kishotenketsu. The theme is established at the beginning, then the story takes a total change of direction, while it loops obliquely around the central theme several times from different directions, never explicitly invoking it, merely leaving the reader to infer the connection for himself. Then the loops end and the story abruptly returns to the main theme, and a conclusion explicitly invokes the theme, but in a way that gives more than one possible interpretation.

Anyway, this is now becoming a threadjack. I have a degree in Japanese Literature so this is kind of my specialty, and Rashomon was my professor's specialty and thus it became one of mine. But you are perhaps on the right track when you see this as a question of where good can be found. It is a question of economics. Good, like goods, must be created. It is an act of faith. Economists, in their efforts to create a scientific, rational interpretations on summum bonum, can only produce a dismal philosophy.
posted by charlie don't surf at 11:43 AM on January 23, 2012 [2 favorites]

What's at the heart of all this, is that Capitalism is no longer the clearly superior system that was thought after the Cold War ended. It is deeply, deeply flawed and susceptible to corruption, and disastrous systemic decay.

And what's at the root of that isn't so much economics as it is a sort of almost cultural mythology that began to conceive of the "Free Market" as having almost God-like perfection.

People like Greenspan who literally worship ideologically stunted fools like Ayn Rand. The Wall Street neo-aristocrats who see themselves as above the limitations of mere mortals.

Economists like Lo, can study the mechanisms and the exact failures in the system and that's important, but not even a black box on a plane, the metaphor he uses for the scientific level of understanding and exactitude economics should have of these things, is going to be able to tell someone before the fact what's going to happen in the future. That takes a whole different set of metrics.

What's at stake is saving the myth of Capitalism and the Free Market, and some are desperate to do that, and maybe they can, but I ultimately think, and this is pure hypothesis and conjecture, that the rot at the heart of the financial crisis probably has it's closest analogue to the rot that brought down the Soviet Union and the Iron Curtain.

I see the same hubris, mythos, arrogance, corruption, privileged class and incompetence.
posted by Skygazer at 12:08 PM on January 23, 2012 [2 favorites]

And in spite of a black box and all that crucial viable information that can be used to foresee mechanisms that must be adjusted or re-tooled. What good is it, if in the engineering and manufacturing phases of building that plane there are no exact specifications, or standards, and QUALITY CONTROL, skilled and thorough and well-trained machinists, who put the lives of the future passengers of the plane as paramount to short term and short-sighted goals like saving a penny on good materials or lowering labor costs.

I think this Lo fellow would do well to look at how the plane is manufactured and the stringent controls (regulations), and oversight and standards of quality that need to be met if he wants to advance the study of economics to a science.

In other words, if the science and methodology isn't there in the first page and the "free market" is functioning on a myth and dogma, it would seem to me economists should stop trying to be scientists and should perhaps study mysticism and theology or at the very least sociology or anthropology.

No one ever said, "hey, let's let the wisdom of entropy build this 747...."
posted by Skygazer at 2:04 PM on January 23, 2012

is that Capitalism is no longer the clearly superior system that was thought after the Cold War ended. It is deeply, deeply flawed and susceptible to corruption, and disastrous systemic decay.

Is "the system" actually "Capitalism" or some other "-ism"?
posted by rough ashlar at 8:56 PM on January 23, 2012