Mitch Feierstein is a highly successful hedge-fund manager, and very interested in green issues. He divides his time between London & New York.
The Big Short referenced in passing that the sub-prime fiasco was one big Ponzi scheme. This is the whole tenet of Feirestein’s book:
“A Ponzi scheme is a type of pyramid scheme – a fraud. Depositors are promised huge returns, but these returns are a mirage, paid out only as long as there is money coming in from new investors. As long as the scheme is expanding, everything looks fine – but you can’t tell how bad a Ponzi scheme is by how you experience the ride. It’s not the ride that matters, it’s the way it ends. And it always ends badly.”
There’s a lot to like about this meticulously referenced, well-written and accessible book, which includes both notes and an index. Feierstein repeatedly invites the reader to check the facts independently, and not take what he says on trust. He reminds us that, historically, countries only took debt on for crucial threats (wars). Also, he stresses the power of lobbyists in USA (UK too, presumably) in ensuring (lack of) regulation. I really like his great images to illustrate the size (for example) of a billion, to show that these are not just numbers with loads of noughts. The scandal involves frighteningly, eyewatering amounts. Feierstein doesn’t just stay with America. He covers Britain & mainland Europe too, as well as the rest of the world, so his analysis is global. He also emphasises the interrelatedness of the financial system, with the inevitable knock-on consequences if one part of it goes down. (Though he is positive about new Zealand!)
If I were to recommend one book for the four I’ve read, it would be this one. Feirestein even has a website ( www.planetponzi.com ) for interested readers to keep up-to-date with the issues (blog, videos, etc). The main downside of the book for me was that I found it profoundly depressing. Even though Feirestein says it’s not his intention to depress, and he remains an optimist!
Interesting article in the Independent last month. Stephen Foley (‘US Outlook’ 28th April 2012) commented:
“ …. public ire has been turned on the bonus-hungry bankers whose actions exacerbated the crisis. …. Far too little has been turned on the people who built and validated the deranged intellectual framework that prevented bankers, and the rest of us, from seeing what was happening. …. A lot of the over-complexity of finance can be traced back to a faith in economic models whose flaws are baked in at the level of academic economics. …. These traditional models from the economics profession laid the shaky foundations of our house of cards. So why has there been no revolution? …. There are stirrings. Last November, students at Harvard staged a walkout from the class of Gregory Mankiw, whose Principles of Economics is a standard textbook in universities. …… Forget the bankers. It’s the economists, stupid.”
Hot off the presses, news only last week about the difficulties of JP Morgan Chase, now headed by Jamie Dimon (whose rise was documented in ‘Fool’s Gold’). When JP Morgan originally developed complex derivatives in the 1980s, they were sufficiently prudent to manage the associated risk. Consequently, they survived when the pack of cards brought down other banks which had been irresponsible. So what happened last week, when their trader nicknamed ‘The London Whale’ lost the bank $2bn (and counting)? Have they learned nothing? And what were the regulators doing? Jamie Dimon (vociferously opposed to greater banking regulation (!)), has put his hands up to the problem. Here’s a link to just one of the articles: JPMorgan Chase boss Jamie Dimon: 'I was dead wrong' http://www.independent.co.uk/news/business/news/article7743625.ece