Download Epub Format á Naked Money PDF by á Charles Wheelan bricksnboho.co.uk

Download Epub Format á Naked Money PDF by á Charles Wheelan Naked Money, by Charles Wheelan, has a primary goal and two secondary goals The primary goal, admirably accomplished, is to simply, but not simplistically, explain monetary policy One secondary goal, also well accomplished, is to defend fiat money against those who call for going back to a currency backed by gold or some other physical asset The other secondary goal, less well accomplished, is to justify aggressive government action, in particular by central banks, to shore up the American financial system during the 2008 crisis.
Wheelan says this was a difficult book to write, and I believe him I certainly struggle with understanding money and monetary policy It is easy enough to say abstractly what money is, though even that is often attended with confusion It is harder to precisely grasp how, especially in a world of fiat money that can be created or destroyed at will, money affects society, both the overall economy and individual lives Of course, attempting to get too firm a grasp on economics concepts is a fool s errand, since economics is not a science despite frequent claims to the contrary , and trying to pin down a precise, linear answer to a specific question is often like grasping smoke But Wheelan s book occupies a middle ground clearly explaining undisputed concepts, without making too broad claims for that knowledge.
Wheelan begins, in his Introduction, by clearly laying out the topics he intends to cover He divides the book into two major parts Part I covers What It Is money, that is and Why It Matters Thus, Part I is focused on descriptions and economic analysis Part II is focused on history through the lens of that analysis, coupled with recommendations for the future based on that history Naturally enough, he begins by defining money, distinguishing it from cash and assets, and noting its traditional role as unit of account, store of value, and medium of exchange He imparts interesting facts such as that prisoners in the federal prison system use foil packs of mackerel as money, ever since smoking was banned several years ago Wheelan notes that modern money depends on confidence, as well as on social customs in a given location thus, torn notes are accepted by people in the US, but not in India, even though the banks accept them equally in both places, and in Somalia, money issued by the defunct central government is still accepted as money It is also here that he introduces his convincing objections to the gold standard, on which he expands in later chapters And he points out that a suggested alternative, a currency backed by a basket of commodities, is in many ways exactly what we have now after all, you can in fact exchange your money for those commodities, and what you receive for a set amount of dollars does not fluctuate much.
The next chapter covers inflation and deflation This, like almost all of the book, consists of crystal clear exposition free of ideological cant Wheelan seems aligned with no particular school of economists he says as much positive about Paul Krugman as Milton Friedman, though he says nothing about the Austrian School Thus, the book is not at all a polemic, other than perhaps with respect to justifying government action in the 2008 crisis Wheelan illustrates inflation and its impacts with, among other pithy examples, airline frequent flyer miles Most importantly, to me at least, he gives a clear explanation of velocity and its impact on inflation, noting that it is poorly understood and impossible to use as a clear prediction or calculation device, which explains, perhaps, why I ve never understood it but I think I do now Velocity at least in part explains why not all spending is equal where the money ends up and how it is treated affects the economy as a whole Finally, Wheelan notes that while mild, predictable inflation is beneficial for a variety of reasons high, unpredictable inflation is a disaster for most people This topic anchors much of his discussion about central banking, along with its evil cousin, deflation.
Wheelan then turns to price calculation, including the CPI and its variants, and its effects Here shows up, though, the only annoying part of this book, which is that literally way than half of the quotes, cites and attributions in the book are to the Economist magazine I am not exaggerating It is almost like this book is an advertisement for the magazine to which, as far as I know, Wheelan has no connection Sure, the magazine has some clever phrases, but really, so does Wheelan, and the Economist is not some Nobel Prize winning authority on economics, so the reader gets tired of references to it Anyway, here Wheelan continues his argument that a country s goal should be to achieve mild, predictable inflation, basically because it falsely makes everyone feel richer and better off the money illusion , it prevents slipping into deflation, and it gives central banks room to maneuver using simple mechanisms to affect the interest rate and money supply, rather than aggressive quantitative easing Following this, Wheelan pivots to Credit and Crashes He gives an excellent explanation of the mechanics of central banking, showing that the Federal Reserve s main tasks are managing the money supply and acting as a lender of last resort He discusses how open market operations work to affect the money supply, and therefore interest rates, as well as the mechanics of other tools such as reserve ratios for banks Using It s a Wonderful Life, he explains how financial crashes work, for banks or for the broader universe of financial firms sometimes people want their money now He distinguishes liquidity and solvency, such that a firm can be solvent but not adequately liquid and in particular, how In a crisis, illiquidity can turn into insolvency just like George Bailey s bank would have become insolvent had depositors withdrawn their money because banking means illiquid loans are made with theoretically liquid actual deposits, and fractional banking means loans exceed deposits, which is good when times are good and not so hot in a bank run It is this possibility of insolvency, widespread across the system, that Wheelan fears would have occurred in 2008 absent government action.
Unfettered praise for such government action is my main problem with Wheelan s book Wheelan feels very strongly that central bank action, in the United States and abroad, saved the world in 2008 A threshold problem is definition Wheelan doesn t adequately distinguish between providing liquidity in the crisis, in order to prevent illiquidity from metastasizing into insolvency like George Bailey , and the bailouts handouts that characterized programs such as TARP and cash for clunkers In fact, he deliberately conflates the two The former, done through lowering interest rates and then further increasing the money supply through quantitative easing, certainly risked future harms, such as massive inflation, but did not directly reward bad actors and is a traditional central banking mechanism TARP, on the other hand, was a new tool designed to address insolvency directly while benefiting the people, equity holders, who created the problem as well as their friends in government These two things are very different Naked Money tells us, again and again, that the entire globe would have come crashing down had the government not, through TARP, rescued firms that might become insolvent We are told that Bernanke, advising Congress, came in with Secretary Paulson and a couple of staff They sat down, and without any sort of opening remarks, Chairman Bernanke simply said, If Secretary Paulson doesn t get what he s asking for, and he doesn t get it within seventy two hours, the entire banking system of the United States will fail, and it will bring the world banking system down with it We are told that Alistair Darling, British chancellor of the Exchequer at the time, has said I think we came within hours of a collapse of the banking system We are told that Darling s staff told him Chancellor, we don t know exactly how, but we think that there is a significant probability that every credit card in the world and every cash machine will stop working tomorrow Buried in that last quote is the reality none of these people knew exactly how More accurately, they were just guessing, in a self interested way, where the actions demanded of the politicians would cost the bankers nothing and would hugely benefit them, whereas not acting had no possible upside to them, since no reward is given for good results following from inaction, and inaction might have easily saved the financial system but still wiped them and their friends assets out.
Wheelan endlessly compares the 2008 crisis to a fire, where to save the neighborhood we must also save the house of the fool who stored gasoline next to the furnace But nowhere at all are we told why or how this parade of horribles would actually have happened why the fire would have spread if not for TARP We are assured, by way of a hypothetical rice merchant in a hypothetical village, that small individual businesses would have been wiped out How is not explained, other than vague references to being unable to get even a basic, well collateralized loan to keep his business running But most small businesses do not need loans and usually cannot get loans The reality is that if Goldman Sachs went bankrupt, and its equity holders were vaporized, the firm s assets would still have had the same value, just under new ownership, and there is no reason that liquidity for normal course business loans would have dried up, for long if at all.
Instead of vaporizing the equity holders, though, Congress, as demanded by Treasury and the Fed, handed them unlimited money and absorbed their bad assets so they did not have to deal with the consequences of their actions If Goldman had been declared bankrupt, new investors say, Warren Buffett could just have assumed ownership of Goldman s assets, and continued its profitable lending activities, while those who invested in now worthless assets took the consequences on the chin, sold their houses in the Hamptons to meet their personal debts, then moved to Des Moines to work at Target Sure, there would likely have been a variety of short term disruptions to society and operating businesses But Wheelan adduces no evidence or arguments that they would have been particularly dramatic or long term He only give us hysterical conclusions made by people with massive personal conflicts of interest, demanding action by bankers and political leaders with their own massive personal conflicts of interest, to use the money and resources of the people at large to insulate risk takers from the consequences of their risk taking and allow them to keep their rich rewards We should not forget that Paulson s TARP proposal, which as we saw above he demanded be accepted right now by Congress, or else, included such gems as Decisions by the Secretary pursuant to the authority of this Act are non reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency Congress didn t bite on that, but the gall is literally unbelievable, and gives a window into the Master of the Universe thinking of men such as Paulson that is not a compliment Yes, Wheelan sees clearly, and fully admits, the moral hazard to future decision making resulting from the bailouts But he ignores the moral hazards confronting the government in its 2008 decision making, and, importantly, the overwhelming conflicts of interest.
The reality is that no liquidation of financial firm equity holders would actually have destroyed value Any value destruction had already occurred So what if this was an old fashioned financial panic, where firms and institutional investors were demanding their cash back from financial firms like Bear Stearns, Lehman Brothers, Citibank, and the other names you ve seen in the news After all, the first two disappeared and their assets were redistributed So what Why not do that to everyone It s not just me who thinks along these lines Take, for example, Luigi Zingales, professor at the University of Chicago s Booth School of Business which Wheelan loves, since he keeps citing its professors as authorities, and also it s my own business school, so I agree with Wheelan on that and author of A Capitalism For The People He says, criticizing the bailouts, The problem is that people who have spent their entire lives in finance have an understandable tendency to think that the interests of their industry and the interests of the country always coincide When Treasury Secretary Paulson went to Congress in the fall of 2008 arguing that the world as we know it would end if Congress did not approve the 700 billion bailout, he was serious And to an extent he was right his world the world he lived and worked in would have ended had there not been a bailout Goldman Sachs would have gone bankrupt, and the repercussions for everyone he knew would have been enormous But Henry Paulson s world is not the world in most Americans live in or even the world in which the economy as a whole exists Zingales also notes that all decision makers only were able to obtain information and advice from the same insular group of people, creating self reinforcing groupthink.
In fact, Wheelan himself notes that now Dodd Frank requires institutions to create a living will, which is a hypothetical bankruptcy plan showing that the institution can collapse without bringing down the rest of the financial system It s pretty obvious, at least to someone not in bed with Goldman Sachs, that if this is possible now, it would have been equally possible to create a bankruptcy plan on the fly for Goldman Sachs and other institutions in 2008 After all, that s what bankruptcy is for to wipe out equity holders and replace them with new owners who will run things better In fact, many normal course bankruptcies are done in great haste Wheelan claims that Bernanke reckoned there was no orderly process for allowing a handful of giant troubled firms to go bankrupt in a way that would not cause the rest of the system to unravel Maybe But likely, as Zingales said, is that the cushy, insular world of Bernanke and Paulson would have unraveled, and the system would have done just fine, even in the short term and it was that prospect of his world unraveling that, magically, made Bernanke unable to see an alternative orderly process for bankruptcy.
Wheelan makes a great deal of the role of a central bank as a lender of last resort, and claims this was the role of the Fed in the crisis But if the central bank does that, and it s necessary a somewhat different question than TARP as executed, but closely related why can t it lend in exchange for equity, wiping out the guilty and then reselling the equity to new owners That s how many prepackaged bankruptcies are structured Or, as Paul Krugman suggested, equity capital could be provided to the banks directly in exchange for preferred stock, again harming common equity holders without affecting the broader financial markets Or why couldn t Congress place a 100% tax on equity held by stockholders in firms accepting last resort lending, say, above a value held of 100,000 Or, as Zingales suggested at the time, we could add a new section to the bankruptcy code to simply and easily convert bank debt to equity, diluting existing equity holders involuntarily Instead, the government simply absorbed bad assets and left the existing, responsible equity holders with the benefits of their bad acts Why I ll tell you why my background as a lawyer is largely in this world, as is my M.
B.
A education, and I could probably pretty easily have worked for Goldman had I chosen to do so The reason is because a tight, insular clique of people who all basically know each other, view the world the same way, and have parallel financial motives and incentives, made all the decisions and received all the benefit If Ben Bernanke had wiped out equity holders, he wouldn t have been invited to all the right parties, and his friends would have cut him off How terrible Much better that the little American get screwed, both now and in the future as a result of moral hazard not having any consequences All you need to know, really, is that the man chosen to administer the 2008 TARP bailout, Neel Kashkari, was a 2002 Wharton M.
B.
A before which he was an engineer , whose only job in school and thereafter was working for Goldman Sachs, until he went to Treasury in 2006, as the hand picked aide to the Secretary of the Treasury, Paulson Paulson, of course, also worked for Goldman his whole life, including as CEO and chairman, and held hundreds of millions of dollars in Goldman stock until the instant he became Secretary Paulson surprise, surprise brought along numerous other Goldman employees I bet every single person in Paulson s meeting with Congress referred to above was a former Goldman employee And Paulson actually also hired Goldman to be his formal external advisors To nobody s surprise, after his TARP work, Kashkari then got a job with the investment firm Pimco, where his performance was miserable but his compensation was not Again to nobody s surprise, as the New York Times noted, Pimco s publicly stated strategy during the TARP program was to invest money in areas that would benefit from the government s rescue efforts It s almost like it s all a nasty little circle where those outside the charmed group are milked for the benefit of the in group Certainly, by Ockham s Razor or its debased modern usage , that s the most likely explanation True, I m picking on Goldman Although it is the worst offender with the smartest people, the problem is, of course, much widespread though confined to a relatively small world and group of people But Goldman is the ringleader and one should always begin with monsters by chopping off their heads.
Wheelan ignores all this He also, in passing and without explanation, rejects that lenient government policy toward Fannie Mae and Freddie Mac, or forced lending by banks to bad credit risks as the result of the Community Reinvestment Act, had any significant role Moreover, by not distinguishing liquidity increases from TARP bailouts, he fails to make clear that TARP was not technically a central bank action at all It was a Congressional action one dictated to the people s representatives by self interested central bankers, screaming that the sky was falling Further, that TARP supposedly, in the long run, made a small profit is meaningless First, it s probably false, since that s a self interested government calculation where lying would involve no penalty at all and the benefits to the liars are immense Second, any profit does not alleviate the structural and moral defects of the program All of this passes by Wheelan in silence, doubtless with Wheelan absentmindedly rubbing the head of his brass statute of Bernanke for good luck in the future Review finishees as first comment.
Consider The BillIt Has No Value, As A Simple Slip Of Paper, Than Monopoly Money Yet Even Children Recognize That Tearing One Into Small Pieces Is An Act Of Inconceivable Stupidity What Makes A Bill Actually Worth Twenty Dollars In The Third Volume Of His Best Selling Naked Series, Charles Wheelan Uses This Seemingly Simple Question To Open The Door To The Surprisingly Colorful World Of Money And BankingThe Search For An Answer Triggers Countless Other Questions Along The Way Why Does Paper Money Fiat Currency If You Want To Be Fancy Even Exist And Why Do Some Nations, Like Zimbabwe In The S, Print So Much Of It That It Becomes Valuable As Toilet Paper Than As Currency How Do Central Banks Use The Power Of Money Creation To Stop Financial Crises Why Does Most Of Europe Share A Common Currency, And Why Has That Arrangement Caused So Much Trouble And Will Payment Apps, Bitcoin, Or Other New Technologies Render All Of This Moot In Naked Money, Wheelan Tackles All Of The Above And , Showing Us How Our Banking And Monetary Systems Should Work In Ideal Situations And Revealing The Havoc And Suffering Caused In Real Situations By Inflation, Deflation, Illiquidity, And Other Monetary Effects Throughout, Wheelan S Uniquely Bright Eyed, Whimsical Style Brings Levity And Clarity To A Subject Often Devoid Of Both With Illuminating Stories From Argentina, Zimbabwe, North Korea, America, China, And Elsewhere Around The Globe, Wheelan Demystifies The Curious World Behind The Paper In Our Wallets And The Digits In Our Bank Accounts Good structure and organization and the author is very good at explaining complicated things in a simple way.
2008.
Naked Money, by Charles Wheelan, has a primary goal and two secondary goals The primary goal, admirably accomplished, is to simply, but not simplistically, explain monetary policy One secondary goal, also well accomplished, is to defend fiat money against those who call for going back to a currency backed by gold or some other physical asset The other secondary goal, less well accomplished, is to justify aggressive government action, in particular by central banks, to shore up the American financial system during the 2008 crisis.
Wheelan says this was a difficult book to write, and I believe him I certainly struggle with understanding money and monetary policy It is easy enough to say abstractly what money is, though even that is often attended with confusion It is harder to precisely grasp how, especially in a world of fiat money that can be created or destroyed at will, money affects society, both the overall economy and individual lives Of course, attempting to get too firm a grasp on economics concepts is a fool s errand, since economics is not a science despite frequent claims to the contrary , and trying to pin down a precise, linear answer to a specific question is often like grasping smoke But Wheelan s book occupies a middle ground clearly explaining undisputed concepts, without making too broad claims for that knowledge.
Wheelan begins, in his Introduction, by clearly laying out the topics he intends to cover He divides the book into two major parts Part I covers What It Is money, that is and Why It Matters Thus, Part I is focused on descriptions and economic analysis Part II is focused on history through the lens of that analysis, coupled with recommendations for the future based on that history Naturally enough, he begins by defining money, distinguishing it from cash and assets, and noting its traditional role as unit of account, store of value, and medium of exchange He imparts interesting facts such as that prisoners in the federal prison system use foil packs of mackerel as money, ever since smoking was banned several years ago Wheelan notes that modern money depends on confidence, as well as on social customs in a given location thus, torn notes are accepted by people in the US, but not in India, even though the banks accept them equally in both places, and in Somalia, money issued by the defunct central government is still accepted as money It is also here that he introduces his convincing objections to the gold standard, on which he expands in later chapters And he points out that a suggested alternative, a currency backed by a basket of commodities, is in many ways exactly what we have now after all, you can in fact exchange your money for those commodities, and what you receive for a set amount of dollars does not fluctuate much.
The next chapter covers inflation and deflation This, like almost all of the book, consists of crystal clear exposition free of ideological cant Wheelan seems aligned with no particular school of economists he says as much positive about Paul Krugman as Milton Friedman, though he says nothing about the Austrian School Thus, the book is not at all a polemic, other than perhaps with respect to justifying government action in the 2008 crisis Wheelan illustrates inflation and its impacts with, among other pithy examples, airline frequent flyer miles Most importantly, to me at least, he gives a clear explanation of velocity and its impact on inflation, noting that it is poorly understood and impossible to use as a clear prediction or calculation device, which explains, perhaps, why I ve never understood it but I think I do now Velocity at least in part explains why not all spending is equal where the money ends up and how it is treated affects the economy as a whole Finally, Wheelan notes that while mild, predictable inflation is beneficial for a variety of reasons high, unpredictable inflation is a disaster for most people This topic anchors much of his discussion about central banking, along with its evil cousin, deflation.
Wheelan then turns to price calculation, including the CPI and its variants, and its effects Here shows up, though, the only annoying part of this book, which is that literally way than half of the quotes, cites and attributions in the book are to the Economist magazine I am not exaggerating It is almost like this book is an advertisement for the magazine to which, as far as I know, Wheelan has no connection Sure, the magazine has some clever phrases, but really, so does Wheelan, and the Economist is not some Nobel Prize winning authority on economics, so the reader gets tired of references to it Anyway, here Wheelan continues his argument that a country s goal should be to achieve mild, predictable inflation, basically because it falsely makes everyone feel richer and better off the money illusion , it prevents slipping into deflation, and it gives central banks room to maneuver using simple mechanisms to affect the interest rate and money supply, rather than aggressive quantitative easing Following this, Wheelan pivots to Credit and Crashes He gives an excellent explanation of the mechanics of central banking, showing that the Federal Reserve s main tasks are managing the money supply and acting as a lender of last resort He discusses how open market operations work to affect the money supply, and therefore interest rates, as well as the mechanics of other tools such as reserve ratios for banks Using It s a Wonderful Life, he explains how financial crashes work, for banks or for the broader universe of financial firms sometimes people want their money now He distinguishes liquidity and solvency, such that a firm can be solvent but not adequately liquid and in particular, how In a crisis, illiquidity can turn into insolvency just like George Bailey s bank would have become insolvent had depositors withdrawn their money because banking means illiquid loans are made with theoretically liquid actual deposits, and fractional banking means loans exceed deposits, which is good when times are good and not so hot in a bank run It is this possibility of insolvency, widespread across the system, that Wheelan fears would have occurred in 2008 absent government action.
Unfettered praise for such government action is my main problem with Wheelan s book Wheelan feels very strongly that central bank action, in the United States and abroad, saved the world in 2008 A threshold problem is definition Wheelan doesn t adequately distinguish between providing liquidity in the crisis, in order to prevent illiquidity from metastasizing into insolvency like George Bailey , and the bailouts handouts that characterized programs such as TARP and cash for clunkers In fact, he deliberately conflates the two The former, done through lowering interest rates and then further increasing the money supply through quantitative easing, certainly risked future harms, such as massive inflation, but did not directly reward bad actors and is a traditional central banking mechanism TARP, on the other hand, was a new tool designed to address insolvency directly while benefiting the people, equity holders, who created the problem as well as their friends in government These two things are very different Naked Money tells us, again and again, that the entire globe would have come crashing down had the government not, through TARP, rescued firms that might become insolvent We are told that Bernanke, advising Congress, came in with Secretary Paulson and a couple of staff They sat down, and without any sort of opening remarks, Chairman Bernanke simply said, If Secretary Paulson doesn t get what he s asking for, and he doesn t get it within seventy two hours, the entire banking system of the United States will fail, and it will bring the world banking system down with it We are told that Alistair Darling, British chancellor of the Exchequer at the time, has said I think we came within hours of a collapse of the banking system We are told that Darling s staff told him Chancellor, we don t know exactly how, but we think that there is a significant probability that every credit card in the world and every cash machine will stop working tomorrow Buried in that last quote is the reality none of these people knew exactly how More accurately, they were just guessing, in a self interested way, where the actions demanded of the politicians would cost the bankers nothing and would hugely benefit them, whereas not acting had no possible upside to them, since no reward is given for good results following from inaction, and inaction might have easily saved the financial system but still wiped them and their friends assets out.
Wheelan endlessly compares the 2008 crisis to a fire, where to save the neighborhood we must also save the house of the fool who stored gasoline next to the furnace But nowhere at all are we told why or how this parade of horribles would actually have happened why the fire would have spread if not for TARP We are assured, by way of a hypothetical rice merchant in a hypothetical village, that small individual businesses would have been wiped out How is not explained, other than vague references to being unable to get even a basic, well collateralized loan to keep his business running But most small businesses do not need loans and usually cannot get loans The reality is that if Goldman Sachs went bankrupt, and its equity holders were vaporized, the firm s assets would still have had the same value, just under new ownership, and there is no reason that liquidity for normal course business loans would have dried up, for long if at all.
Instead of vaporizing the equity holders, though, Congress, as demanded by Treasury and the Fed, handed them unlimited money and absorbed their bad assets so they did not have to deal with the consequences of their actions If Goldman had been declared bankrupt, new investors say, Warren Buffett could just have assumed ownership of Goldman s assets, and continued its profitable lending activities, while those who invested in now worthless assets took the consequences on the chin, sold their houses in the Hamptons to meet their personal debts, then moved to Des Moines to work at Target Sure, there would likely have been a variety of short term disruptions to society and operating businesses But Wheelan adduces no evidence or arguments that they would have been particularly dramatic or long term He only give us hysterical conclusions made by people with massive personal conflicts of interest, demanding action by bankers and political leaders with their own massive personal conflicts of interest, to use the money and resources of the people at large to insulate risk takers from the consequences of their risk taking and allow them to keep their rich rewards We should not forget that Paulson s TARP proposal, which as we saw above he demanded be accepted right now by Congress, or else, included such gems as Decisions by the Secretary pursuant to the authority of this Act are non reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency Congress didn t bite on that, but the gall is literally unbelievable, and gives a window into the Master of the Universe thinking of men such as Paulson that is not a compliment Yes, Wheelan sees clearly, and fully admits, the moral hazard to future decision making resulting from the bailouts But he ignores the moral hazards confronting the government in its 2008 decision making, and, importantly, the overwhelming conflicts of interest.
The reality is that no liquidation of financial firm equity holders would actually have destroyed value Any value destruction had already occurred So what if this was an old fashioned financial panic, where firms and institutional investors were demanding their cash back from financial firms like Bear Stearns, Lehman Brothers, Citibank, and the other names you ve seen in the news After all, the first two disappeared and their assets were redistributed So what Why not do that to everyone It s not just me who thinks along these lines Take, for example, Luigi Zingales, professor at the University of Chicago s Booth School of Business which Wheelan loves, since he keeps citing its professors as authorities, and also it s my own business school, so I agree with Wheelan on that and author of A Capitalism For The People He says, criticizing the bailouts, The problem is that people who have spent their entire lives in finance have an understandable tendency to think that the interests of their industry and the interests of the country always coincide When Treasury Secretary Paulson went to Congress in the fall of 2008 arguing that the world as we know it would end if Congress did not approve the 700 billion bailout, he was serious And to an extent he was right his world the world he lived and worked in would have ended had there not been a bailout Goldman Sachs would have gone bankrupt, and the repercussions for everyone he knew would have been enormous But Henry Paulson s world is not the world in most Americans live in or even the world in which the economy as a whole exists Zingales also notes that all decision makers only were able to obtain information and advice from the same insular group of people, creating self reinforcing groupthink.
In fact, Wheelan himself notes that now Dodd Frank requires institutions to create a living will, which is a hypothetical bankruptcy plan showing that the institution can collapse without bringing down the rest of the financial system It s pretty obvious, at least to someone not in bed with Goldman Sachs, that if this is possible now, it would have been equally possible to create a bankruptcy plan on the fly for Goldman Sachs and other institutions in 2008 After all, that s what bankruptcy is for to wipe out equity holders and replace them with new owners who will run things better In fact, many normal course bankruptcies are done in great haste Wheelan claims that Bernanke reckoned there was no orderly process for allowing a handful of giant troubled firms to go bankrupt in a way that would not cause the rest of the system to unravel Maybe But likely, as Zingales said, is that the cushy, insular world of Bernanke and Paulson would have unraveled, and the system would have done just fine, even in the short term and it was that prospect of his world unraveling that, magically, made Bernanke unable to see an alternative orderly process for bankruptcy.
Wheelan makes a great deal of the role of a central bank as a lender of last resort, and claims this was the role of the Fed in the crisis But if the central bank does that, and it s necessary a somewhat different question than TARP as executed, but closely related why can t it lend in exchange for equity, wiping out the guilty and then reselling the equity to new owners That s how many prepackaged bankruptcies are structured Or, as Paul Krugman suggested, equity capital could be provided to the banks directly in exchange for preferred stock, again harming common equity holders without affecting the broader financial markets Or why couldn t Congress place a 100% tax on equity held by stockholders in firms accepting last resort lending, say, above a value held of 100,000 Or, as Zingales suggested at the time, we could add a new section to the bankruptcy code to simply and easily convert bank debt to equity, diluting existing equity holders involuntarily Instead, the government simply absorbed bad assets and left the existing, responsible equity holders with the benefits of their bad acts Why I ll tell you why my background as a lawyer is largely in this world, as is my M.
B.
A education, and I could probably pretty easily have worked for Goldman had I chosen to do so The reason is because a tight, insular clique of people who all basically know each other, view the world the same way, and have parallel financial motives and incentives, made all the decisions and received all the benefit If Ben Bernanke had wiped out equity holders, he wouldn t have been invited to all the right parties, and his friends would have cut him off How terrible Much better that the little American get screwed, both now and in the future as a result of moral hazard not having any consequences All you need to know, really, is that the man chosen to administer the 2008 TARP bailout, Neel Kashkari, was a 2002 Wharton M.
B.
A before which he was an engineer , whose only job in school and thereafter was working for Goldman Sachs, until he went to Treasury in 2006, as the hand picked aide to the Secretary of the Treasury, Paulson Paulson, of course, also worked for Goldman his whole life, including as CEO and chairman, and held hundreds of millions of dollars in Goldman stock until the instant he became Secretary Paulson surprise, surprise brought along numerous other Goldman employees I bet every single person in Paulson s meeting with Congress referred to above was a former Goldman employee And Paulson actually also hired Goldman to be his formal external advisors To nobody s surprise, after his TARP work, Kashkari then got a job with the investment firm Pimco, where his performance was miserable but his compensation was not Again to nobody s surprise, as the New York Times noted, Pimco s publicly stated strategy during the TARP program was to invest money in areas that would benefit from the government s rescue efforts It s almost like it s all a nasty little circle where those outside the charmed group are milked for the benefit of the in group Certainly, by Ockham s Razor or its debased modern usage , that s the most likely explanation True, I m picking on Goldman Although it is the worst offender with the smartest people, the problem is, of course, much widespread though confined to a relatively small world and group of people But Goldman is the ringleader and one should always begin with monsters by chopping off their heads.
Wheelan ignores all this He also, in passing and without explanation, rejects that lenient government policy toward Fannie Mae and Freddie Mac, or forced lending by banks to bad credit risks as the result of the Community Reinvestment Act, had any significant role Moreover, by not distinguishing liquidity increases from TARP bailouts, he fails to make clear that TARP was not technically a central bank action at all It was a Congressional action one dictated to the people s representatives by self interested central bankers, screaming that the sky was falling Further, that TARP supposedly, in the long run, made a small profit is meaningless First, it s probably false, since that s a self interested government calculation where lying would involve no penalty at all and the benefits to the liars are immense Second, any profit does not alleviate the structural and moral defects of the program All of this passes by Wheelan in silence, doubtless with Wheelan absentmindedly rubbing the head of his brass statute of Bernanke for good luck in the future Review finishees as first comment.
Surprisingly enjoyable book on monetary policy I still can t get a handle on exchange rates, but I understand much better the role of a central banking system and why moving back to the gold standard is silly unworkable.
Unfortunately lost this physically about 3 4 the way through Might grab from the library and finish at a future date Surprisingly enjoyable book on monetary policy I still can t get a handle on exchange rates, but I understand much better the role of a central banking system and why moving back to the gold standard is silly unworkable.
Unfortunately lost this physically about 3 4 the way through Might grab from the library and finish at a future date 1971 1 3 1 3 0 1 100 98 5 100 5 105 10 105 94.
5 105 10.
Excellent This is not a personal finance book, but rather a deeply informative book about what money is and how it works, what banks are and how they work and what happens when they stop working it even goes a little bit into why that happens This naturally includes a lot of difficult concepts such as inflation, deflation, central banking i.
e The Fed , Bitcoin and etc which are explained in a fun, humorous, easy to understand way, without an obvious political bias and with a positive outlook that didn t leave me cowering in fear about the future, but without downplaying the serious issues the world faces in the future such as the precarious situation between China and the U.
S.
Great nutshell economic history, but not much discussion about the debates about all of these things It s billed as an explanation, but many of these principles are hotly contested and are by no means settled principles But it s still worth a read.
This is not a get rich quick book It s a book about money not wealth.
Have you ever wondered about inflation, deflation, the federal reserve, financial crises including the recession in 2008 Then this book is for you It s fun It s witty It s concrete and easy to understand It s most of all just a great read.
I ended up following Ben Bernanke and the Federal Reserve on Twitter because of this book It s because I can see how interesting money is and what role it plays in our modern lives.
Probably 4 stars for the layperson, I get a lot of exposure to monetary policy at work That said, author does a fine job explaining fiat money, prices inflation, central banks, and exchange rates His explanation of the Great Depression France hoarded gold while the US had tight monetary policy, causing an artificial shortage of reserves includes the example of George Bailey in It s a Wonderful Life which is quite relevant and accurate In the US, there wasn t enough currency to go around, and as a result businesses, people, and even governments accepted scrip IOUs or even common goods The segment on the 2008 financial crisis is strong and succinct It is worth borrowing this book for that segment alone, and calls out how Fed Chair Bernanke had a background in the mistakes made during the depression, which guided him to make sure the Fed was ready to lend to anyone except Lehman, I guess.
My main takeaway was that central banks have a trilemma 1 Make the economy open to international flows of capital, allowing citizens to diversify and foreign investment to come in.
2 Use monetary policy to help stabilize the economy, using interest rates and the money supply to prod or slow the economy 3 Maintain stability in the exchange rate Central banks can t get all 3, so trade offs must be made.
I like the book for its neat overview on multiple fronts which include but not limited to Inflation, Euro, US China and Bitcoin Most of the book was interesting with the help of analogies, I liked the way he explains things in a simple way because this is a dry subject to some and it can get bland easily I, however, have to disagree with his assessment on Bitcoin, I think Bitcoin is here to stay and thrive as it is decentralized and valuable.
Good structure and organization and the author is very good at explaining complicated things in a simple way.