| John Authers, FT Prentice Hall, 2010, 192 pages, £20. |
| A wholly new genre of contemporary financial and economic analysis
has emerged during the course of the past couple of years. This has
focused exclusively upon the causes, and the likely consequences, of the
worldwide credit crunch of 2008-09. As a result, booksellers’ shelves
are now groaning under the burden of many tomes devoted to establishing
what went wrong, who was to blame – and, crucially, how the world’s
financial architecture can be re-designed in order to prevent such a
disaster ever happening again. |
| Such a level of popular interest is hardly surprising. After all,
only two years ago the global economy was sent into its worst tailspin –
and asset markets into their most severe convulsions – since the early
1930s. In addition, these shocking reversals came in the wake of a
period of prolonged robust and non-inflationary growth during which
many, in time-honoured hubristic fashion, came to believe that the
boom-and-bust economic cycle had been finally been abolished. |
| John Authers is an excellent and highly-experienced financial
journalist, as readers of the FT will be fully aware. And his The
Fearful Rise of Markets constitutes a valuable and stimulating
contribution to the recent plethora of ‘credit crunch’ literature. |
| His book is divided into three parts. The first –by far the largest
part of the book – is called ‘The Rise’ and tells the story of the rise
of financial markets from the 1950s onwards, when they began slowly to
emerge from under the shadow of the Great Depression. In so doing,
Authers focuses upon what he considers to constitute the seminal events
which led to the creation of the contemporary and extraordinarily huge
and complex financial super-structure which has developed hand-in-hand
with the process of economic globalisation. Thus, he concentrates upon
the development of asset markets (primarily equities, bonds, credit and
foreign exchange), their accompanying products (notably derivatives) and
the meteoric growth and fateful intertwining of the respective fortunes
of the fund management and banking industries. All this is highly
educative to anybody interested in financial markets and offers a
perspective not available elsewhere. |
| The second part – ‘The Fall’ – deals with what will be to most a
much more familiar story: how the highly speculative and leveraged
global financial situation began to unravel from early 2007 onwards. The
final section – by far the shortest – focuses upon the ‘Fearful Rise’,
the recovery we’ve seen in asset markets and financial stability from
the dark days of only two years ago, when it really did seem that the
world might be slipping into a desperately insecure, deflationary abyss.
|
| Disappointingly – especially as I had so greatly enjoyed what went
before – I found the concluding section surprisingly timid and
unadventurous (but, after all, financial journalists, unlike
stockbrokers, aren’t paid to offer predictions). It’s possible,
moreover, to find fault with odd omissions. There is no mention, for
instance, of the 1987 stock market crash, which saw, I would argue, the
genesis of the ‘Greenspan put’, with the Fed’s stabilising pledge of
unlimited liquidity. And certain arguments seem highly questionable: for
example, the author’s contention that the sky-high oil price of mid-2008
was the result solely of “speculation”. Economists, moreover, may
occasionally find themselves grinding their teeth in frustration at
Authers’ neglect of key economic developments, whether the conquest of
inflation or the ‘Great Moderation |
| Overall, however, the book is an excellent read and is highly
recommended– particularly to those coming into financial markets for the
first time. |
Ian Harwood
Chief Economist, Evolution Securities |
|