In the wake of the financial crisis it has been easy to lay blame squarely at the feet of greedy bankers and lax financial services regulation.
But in Don’t Be Fooled Again, Meyrick Chapman argues that at the heart of the crisis lay a complex web that led to a domino effect around the world.
He traces the causes of financial crashes and notes the resemblance with seemingly unrelated past crises and the crash of 2007/08.
Chapman, an investment banker with 28 years’ experience, says crises are not simply born out of greed and poor regulation. Instead he argues that as regulators and central banks chase economic growth they become blind to the bigger picture.
And contrary to the widespread view that the people working in financial markets in the run-up to the crash put Wall Street’s Gordon Gekko in the shade he says today’s bankers are no more greedy than their forebears.
He also says that until now financial commentators sizing up the latest crisis have neglected the fact that innovative financial products were created to get around rules already in place.
Chapman makes the now familiar observation that the cause of the current crisis – as with previous downturns dating back to the 1970s – was a huge inflow of foreign money becoming too much to cope with, resulting in skewed access to credit.
So the trouble started with massive inflows of credit from China to the US – Chimerica was the term coined by historian Niall Ferguson to describe this process in his book The Ascent Of Money.
One of the big themes running through Don’t Be Fooled Again is that if crises have many characteristics in common, why don’t we see them coming?
“There was a line of almost constant financial crisis from 1990 to 2008,” Chapman says. “It originated in Japan, spread to south Asia and progressed to the dotcom boom before its final flourish in Western housing and financial markets.”
He notes that the Asian crisis of the 1990s was almost earth-shattering yet within the space of 10 years it seems lessons had been unlearnt, thanks either to the reach of global capitalism or simply remarkably short memories.
Chapman analyses many aspects of how we’ve got to where we are – love of the dollar, governments’ mishandling of home ownership policies and the lessons of financial innovation.
The trouble with Don’t Be Fooled Again is that in looking at the perils and benefits of global finance it is incredibly heavy on technical details.
Many of the early chapters are a chore rather than insightful, and you have to wade through too many details to get to the more interesting sections.
But if you push on through the pain you will find some coherent explanations about the way money and the financial markets work. And some nice stories that illustrate the peculiarities of the US market too.
In a discussion about the impact of the internet Chapman mentions a US website called YouWalkAway.com.
Apparently, the website claims to ’stop your mortgage company from calling you’ by offering advice on how long a borrower in arrears can live in their property without paying and how to stop repossession damaging your credit rating.
Now that’s what I call innovation.
Book review by Natalie Holt