Book review

After the music stopped
Alan S Blinder

As a Princeton Professor of economics, former Vice Chairman of the United States Federal Reserve and a member of President Clinton’s Council of Economic Advisers Alan blinder is well placed to write a definitive book on the world financial crisis which broke in 2007. This, along with his ability to communicate in straightforward clear prose, has resulted in a very readable book.

The book reveals that the media’s explanation of the crisis as it evolved was a very simplified version based on what was obvious – such as the sub prime mortgages. However these were actually minor problems. The major factors were the unseen interwoven highly questionable deals and financial arrangements between investment banks, mortgage brokers and insurance companies both through out America and eventually encompassing the international financial institutions. It all came down to one word: Greed.

After the music stopped is in three sections, the first describes how it all happened. This will be fascinating reading for anybody with more than a passing interest in economics.

Section two is of the efforts of the Obama Administration to get on top of he problem. The section reads like a thriller as the Federal Reserve and Treasury officials dash from one problem to another, often disagreeing on the necessary action. It reads like a script for a West Wing series.

The amount of money required for the bail out is very hard to envisage, $700 billion all up. All the investment banks required huge amounts Citibank, JP Morgan Chase and Wells Fargo, for instance each required $25 billion.
The third section maps Professor Blinder’s map for the way ahead. Reassuringly he is fairly satisfied the Treasury and the Federal Reserve are on the right track.
The book also resolves many of my to date unanswered questions such as why the various credit rating agencies had AAA rating for the likes of Goldman Sachs, Morgan Stanley, Bear Sterns, Merrill Lynch, Citigroup, and the Bank of America which were all actually insolvent.

Problems were compounded by the US political system. The crisis broke in the last days of the Bush administration with the spooked voters giving Obama a clear majority in both houses. However the new administration does not take over until 77 days after the election. Two and a half months in which the outgoing government is still nominally in power. In this case Bush was nowhere to be seen, spending most of the time on his ranch while the problems escalated and the incoming government were powerless to do anything.

Once in the White house Obama approached the Republicans with a plan to work co-operatively on this huge problem. But they refused, and such is the system that even minorities can derail plans as they came up for ratification further drawing out the crisis. We can be grateful that our predecessors opted for a Westminster political system rather than a convoluted ones such as the USA”s
I will leave the last opinion on this book to President Clinton: ‘A masterpiece – simple, straightforward and wise’.

‘After the music stopped’ is available at Martinborough library