Before getting to the text, I want to point out a few things about this book. First, the typography of the single word main title: ECONned. I _sort of_ understand the point: it's a pun on ECON as an academic discipline/course and being taken in a confidence game. The cover of the book (haven't seen a physical copy so I'm going off pictures online) is fairly lame, too: a silhouette of a guy on a tightrope, in a suit, with a briefcase, IIRC. All of this adds up, to me, to a huge vote of no confidence. Second, the publisher is Palgrave Macmillan; regular readers know my recent experience with a book published by Macmillan's academic imprint and it was not pretty. Again, an additional vote of _no_ confidence.
So why did I get this book?
Because Rortybomb recommended it and _13 Bankers_ as the go-to books to read to understand the financial crisis and make sense of regulatory approaches. All righty then.
Additional reason to love, love, love the idea of this book? It's another blogger turned author (and that actually turns out _really_ well, at least at this point in time) -- and she's a woman. She's a woman with depth and breadth of experience in economics and financial markets and that is so freaking rare it's difficult to convey to us ordinary humans.
Was it worth it? Yes. Absolutely and definitely. There are problems with this book, and with Ms. Smith's prose style in particular -- that's good, because it means I failed to find major problems with the content. I found while reading this book and having recently finished it that I often hear "news" stories that are ripped wholesale from its pages. And it has a release date of two months ago; textual indications suggest the bulk of the writing was completed by the fall of 2009.
The book's structure is excellent. Smith describes a little of the history of economics as a discipline and how its position within the social sciences and larger society morphed as it "mathed up" and started taking an active role in public policy decision making. She describes what she calls "neoclassical economics" more or less interchangeably with the phrase "mainstream economics", and then describes its failure to do a good job either describing reality, predicting the future, or even making much sense internally, relegating some of the math-ier bits to an appendix. She mentions behavioral economics and informational asymmetry as attempts to modify the theoretical structure and asserts that these really cannot be wedged in as they are too substantive a change to it.
Moving from economic theory to "free markets" and policy derived from "free markets" as an ideal, she spends time both on theoretical problems with approximations to "free markets" and what-actually-happens when people who are big believers in "free markets" get a disproportionate say in public policy. Chile comes up, obviously.
The remainder of the book zeroes in on the financial markets, mostly but not exclusively in the US. There's some history here on derivatives and creepy organizations like Bankers Trust (failing to escheat stuff to the state? What were they thinking?). She does the best job I've seen yet explaining why compensation is important -- I had no idea the bonus calculation works the way she says it does, but I can't find any indication that she's wrong. Freaky. Obviously, inappropriately aligned incentives get treated extensively, but she probably spends more time on the interaction between the shadow banking system and the people who probably should have been working a lot harder to regulate them, but actually seemed quite clueless as to what was going on, that it might possibly be a problem, and, in fact, _was_ a really big problem. Needless to say, Greenspan comes in for a beating here, but he's got a lot of company. I'll always cheer on anyone who can describe in detail why Larry Summers is a Bad Guy.
The final chapter, inevitably, includes her (depressed) perspective on the prospect of reform: she doesn't think it is particularly likely but fortunately that does not stop her from detailing what to look for and what might sound good but won't do jack.
Smith is being credited in some places for covering Magnetar and the Constellation CDS, and this is appropriate (the only problem being that she isn't getting _enough_ credit, when clearly the publication of this book was a major impetus to other coverage that has popped up in the last month or two). She does a much better job of explaining not only how the deals worked, but also laying out formulaically just how much money was involved (in terms of how much money was made available to be loaned out in the form of truly sucky subprime mortgages that would pay for a little while and then blow up). It is quite breathtaking to contemplate. I am mildly tempted to lay hands on a copy of Lewis' book, to see how his treatment of people shorting subprime compares. Certainly the secondary coverage of his book suggested sort of a, wow aren't these people bright, rather than the, holy fuck these people took a problem and turned it into a disaster, which would be a more reasonable response.
What's my prose style beef? Here's an example from relatively early on in the book (and this is an example that both displays the issue _and_ works fairly well -- unlike other examples later on):
"Yet the Great Moderation was, as bodybuilders describe steroid-abusers, a Cadillac body with a Chevy underneath. Its rate of expansion was lower than previous postwar growth phases. Inflation-adjusted worker wages had been stagnant. Dampened swings in the real economy were accompanied by more frequent and severe financial crises. The supposed better timing of central bank intervention merely led financial market participants to believe they could count on the authorities to watch their backs, encouraging more risk-taking. But perhaps the biggest danger was that blind faith in the virtues of markets converted regulators from watchdogs to enablers."
It is quite clear what she is saying. From the 1980s through the 2000s, moderate growth in the economy was accompanied by stable real wages. Financial crises had returned, but the full business cycle (in terms of a very tight job market at the peak, and high unemployment in the trough) had not. Financial market participants expected the government to help them through the crises and that made the whole situation more and more dangerous.
Both the way she said it, and the way I say it, make use of metaphors, some of which are shared: cycles of expansion and contraction in both, for example, and the word crisis is an embedded metaphor for a time when important decisions must be made. But she's _also_ got people using hormones inappropriately, a couple cars, standing water (that's the stagnant part), a pendulum, a possible fight requiring assistance in defense, some religious ideas and a 12 step program. That's a lot of imagery which suffers from being a little too vivid (crisis does not suggest a disease process for most people and stagnant probably does not call to mind still, oozing water to most people; the cars and dogs and so forth bring up images quite readily) and a little shopworn. Worse, the images are not closely related to each other and do not function cooperatively.
Smith gets big points for having an authorial voice that is understandable, recognizable and engaging. But wow. A little work on the mixing of the metaphor and the cliche action. I am _so_ happy that's the worst thing I can say about _Econned_. Run right out and buy it now, or get it from the library, or whatever. I'd loan you my copy...but I can't.