Friday, October 22, 2010

How Did the Global Financial Crisis and Bubble Happen?

By Lance Winslow
Former FED Chairman Alan Greenspan made a very interesting comment when he testified before congress after the Global Financial bubble burst of late 2008. When asked how did this happen, he made a number of astute observations and comments, of course the most telling and one that has been repeated the most was; "I couldn't believe that bankers would act this way against their own interests" or something to that point.

Was it more irrational exuberance, only this time aimed at the banking sector? Well, if you'd like to read an extremely good book on the reality of "rational investment" on Wall Street than boy to I have a good book recommendation for you. The book is a really good read, but very detail oriented and philosophically based, which 100s of names, theories, examples, observations and a good bit of history on economic thought, and financial theory. The book is:

"The Myth of Rational Markets; A History of Risk, Reward, and Delusion on Wall Street" by Justin Fox; Harper Business Book Publishers; New York, NY; 2009.

As the author takes you through some 350 pages, he never actually answers the question, which is the suggested in the title of the book; are markets rational? But, that is okay, as the reader, if intellectually endowed will have a very good understanding by the time they finish. All the pros and cons, and theories of this question are addressed.

I very much enjoyed the history, and his lectures on the evolution of economic and financial thinking. There were many folks listed in the book, as well as all their arguments. I enjoyed the comments about Warren Buffet, and the top academic scholars on investment theory, portfolio allocation schemes, capital asset pricing, and option pricing. Action packed with references galore, it's all here. Think on this.


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