Bests & Worsts Reviews from Amazon

I read this book from the perspective of an investor who specializes in real estate investment trusts (REITS). I was a REIT investor in 2008 when the economy failed, as I am today. I was near the financial center of the financial collapse of 2008 and able to observe it closely as it unfolded. Earlier in my career I worked as an IT company owner who studied the progress of business in the USA and globally by observing my client companies' businesses through the computer systems I developed. Thus, I have a close up view of the financial collapse and a broad-based view of the real world economy that underpins it. This perspective has made me a successful investor. But I do confess to having been blindsided by the 2008 collapse, as Mr. Greenspan and most professional economists were. This book explains Mr. Greenspan's opinion as to why so many professional economists were caught napping during the Great Recession that began in 2008 and casts its long shadow over the economy today and for years to come. Mr. Greenspan gets right to the heart of the question: ===== On the face of it, the financial crisis also represented an existential crisis for economic forecasting. I began my postcrisis investigations, culminating in this book, in an effort to understand how we all got it so wrong, and what we can learn from the fact that we did..... What went wrong? Why was virtually every economist and policy maker of note so off about so large an issue? ===== Mr. Greenspan begins to answer the question with with an essay on investor psychology, popularly known as "animal spirits" that delves into the psychological reasons why investors may commit or withhold their capital from the economy. That is followed by a chapter on banking regulation. Then there is a discussion on statistical analysis followed by a rambling chapter on THE ROOTS OF THE ECONOMIC CRISIS: ===== The toxic securitized U.S. subprime mortgages were the immediate trigger of the financial crisis, but the origins of the crisis reach back to the aftermath of the Cold War. The fall of the Berlin Wall in 1989 exposed the economic ruin produced by the Soviet bloc's economic system. ===== Mr. Greenspan then proceeds to explain his theory of why the recovery remains so tepid five years later: ===== That business had become markedly averse to investment in fixed long-term assets appears indisputable. The critical question is why? Although most in the business community attribute the massive rise in their fear and uncertainty to the collapse of economic activity, many judge its continuance since the recovery took hold in early 2009 largely to be the result of widespread government activism in its all-embracing attempt to accelerate the path of economic recovery and regulate finance. The evidence tends to largely support the latter judgments. ===== And yet it's curious why the stock market crashed and the economy failed in 2008 during an era of business-friendly governments (i.e. the Clinton Administration and the Conservative Republican Congress followed by President Bush whom I voted for twice). During the 11.5 years between August 5, 1997 (the date of the first tax cut) to January 1, 2009 --- while taxes were cut to 80-year lows and numerous free trade agreements were enacted --- the S&P500 fell from 952 to 825, losing 13% of its value in non-inflation adjusted terms and 34% when adjusted for inflation. I would postulate that the economy failed in 1998 through 2008 for reasons unknown to theoretical economists like Mr. Greenspan who perhaps don't have direct experience with the real world economy of factories, offices, stores, and property: 1. Beginning in the late 1980s the consumption side of the economy was stunted by massive dis-employment of the American workforce. The job losses were due to combinations of factors including globalization that allowed jobs to be relocated overseas; by consolidations of employment in mergers and acquisitions; by improvements in machine technology and automation; and by work force reductions that replaced many senior career people with hourly contract workers. 2. These millions of Americans were removed from the labor force for reasons that might be considered to be good or bad, necessary or unnecessary, depending on one's point of view. An entire vocabulary of euphemistic terms like "rightsizing, downsizing, offshoring, outsourcing, early retirement, work force reductions, reengineering" was invented to explain the dis-employment phenomenon. Labor force participation peaked in 1999. 3. In order to fight rising unemployment Alan Greenspan lowered interest rates, believing that lower rates would boost corporate cash flows by allowing corporations to refinance their debt. The increased cash flows were supposed to encourage American companies to invest in expanding their businesses and hiring more American workers. President Bush also asked Congress to cut income taxes on capital gains and dividends to further boost business cash flow under the theory that it would be reinvested in growing the business. 4. Lowering interest rates and cutting taxes failed to grow the economy (in contrast to the success of these policies in reviving the economy during Reagan's years) because by 2000 many American companies were moving production overseas and hiring foreign labor to replace American workers. 5. Consumer demand slackened due to the falling incomes of those put out of work or afflicted with falling wages. 6. With consumer demand falling, investors could not profit by investing in expanding production of goods and services. So, instead of creating real wealth by building factories that hire employees to produce goods and services, capital became disproportionately invested into real estate and leveraged real estate derivatives like collateralized debt obligations (CDOs) and credit default swaps (CDS). 7. By the summer of 2007 the accumulation of job losses from layoffs and involuntary retirements made it impossible for large numbers of people to pay the mortgages on their homes. 8. When homeowners defaulted on their mortgages due to job losses, the leveraged CDO and CDS derivatives became defunct. The CDO's and CDS's had puffed up the asset ledgers of the banks. When they became worthless the banks discovered that they had more liabilities on their books than assets. 9. The banks became insolvent and the stock market crashed. Business stopped dead in its tracks. The injection of several trillion dollars of printed/borrowed paper money by the government resuscitated the economy. Without that infusion many more banks and businesses might have failed, further escalating unemployment. 10. Five years later the jobs-creating side of the economy remains sluggish even though corporate profits are soaring as are the stocks of publicly traded companies. Is employment sluggish because: ----- A) Business won't invest in creating jobs because it is afraid of the allegedly "anti-business" policies of President Obama. ----- B) Business isn't creating enough new jobs due to offshoring of jobs formerly done in the USA, redundancies created by mergers and acquisitions, improvements in technology, and early retirements. Mr. Greenspan view is through a political lens requiring him to accept theory A). But perhaps theory B) is also entitled to due consideration.