By Richard A. Posner

Following up on his well timed and well-received publication, A Failure of Capitalism, Richard Posner steps again to take an extended view of the ongoing challenge of democratic capitalism because the American and international economies move slowly progressively again from the depths to which that they had fallen within the autumn of 2008 and the iciness of 2009.

by way of a lucid narrative of the predicament and a chain of analytical chapters pinpointing serious problems with monetary cave in and slow restoration, Posner is helping non-technical readers comprehend business-cycle and fiscal economics, and monetary and governmental associations, practices, and transactions, whereas keeping a neutrality very unlikely for people professionally devoted to 1 idea or one other. He demands clean wondering the company cycle that will construct at the unique principles of Keynes. primary to those rules is that of uncertainty in preference to chance. hazard might be quantified and measured. Uncertainty can't, and during this lies the inherent instability of a capitalist economic climate.

As we emerge from the monetary earthquake, a deficit aftershock rumbles. it's in connection with that strength aftershock, in addition to to the government’s stumbling efforts at monetary regulatory reform, that Posner increases the query of the adequacy of our democratic associations to the industrial demanding situations heightened via the best monetary problem because the nice melancholy. The trouble and the government’s vigorous reaction to it have greatly elevated the nationwide debt while that structural defects within the American political procedure could make it very unlikely to pay down the debt in any way except inflation or devaluation.

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A homeowner in that position may decide that he’s made a poor investment and may abandon the house to the mortgagee rather than continue making monthly mortgage payments. ” Abandonments combined with foreclosure sales and falling demand further depressed prices, and so an increasing supply of houses for sale confronted a diminishing demand. The bursting of the mortgage bubble devastated what had become a huge worldwide market in mortgage-backed securities. Housing prices fell more steeply than credit-rating agencies or the mortgage banking industry had thought remotely likely even 7.

Some forms of nonbank lending are old, such as the issuance of bonds and of preferred stock (which, despite the name, is a form of debt, but debt subordinated to the claims of the borrower’s other creditors), as well as the financing of projects out of retained earnings, which amounts to borrowing from shareholders. Increasingly, however, highly creditworthy businesses financed their day-to-day operations by issuing commercial paper, which consists of unsecured short-term promissory notes and is bought by (that is, the lenders are) money-market funds, broker-dealers, and other shadow banks.

19 A bubble-related example of stock market behavior goes by the name of “herding” or “going with the flow,” which again to Fama is anomalous and to Schiller irrational but to Shleifer rational. If stock prices are rising, a money manager may suspect that the price increase is driven by ignorant “day traders” or by mistaken valuations by his fellow investment professionals. But he cannot be certain, for if certainty were possible, stock prices would never rise without a solid basis in economic value.

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