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BOOK REVIEWS
THE CREDIT CRUNCH A YEAR ON
Our alumni review two considered studies on the financial crisis
The New Paradigm for The Crunch: The Scandal
Financial Markets: The of Northern Rock and the
Credit Crisis of 2008 Escalating Credit Crisis
and What it Means By Alex Brummer
By George Soros
Published by Random House
Business Books
Published by PublicAffairs, US
ISBN-13: 978-1847940087
ISBN-13: 978-1586486839
I work in the services industry, so I have a good sense of what It’s always a bit strange when one journalist reviews the work of
is happening in this economy in the consumer and business another, especially when the author quotes directly from the
sectors. I don’t have as good an understanding of the financial reviewer’s own work early in the book, as happened here. And
markets, and I should, as the financial markets affect us all on you don’t want to be too critical in case the shoe is transferred
so many levels. to the other foot and you eventually get your own magnum
To my fellow alumni out there, please make it your business opus published.
to read this book. However, bear in mind that Soros is by his If you have no interest in business, banking, journalism, the
own account a failed philosopher and wannabe economist, and credit crunch, nor why Ireland, Britain and America are in
he does take time to sell his own theory of ‘reflexivity’ as the new recession, then this is not the book for you. But if you are inter-
paradigm. So skim through chapter three. ested in how we got ourselves into this fine mess, then this tome
At the time of reading, the financial markets were in freefall, by the Daily Mail’s city editor is.
and governments had been stepping in to save failing institu- The Crunch is a clear and definitive description of the main
tions, and ensure the safety of the public’s money. But is our ingredients that went into the humble pie we are all currently
money really safe? It is well documented that the current cri- devouring. Brummer tucks into the behaviour of the banks and
sis is a result of a 25-year super boom, fuelled by housing, outlines the key actors in this modern tragedy. He refers to their
increased credit and a financial system pegged to the dollar. rapacious greed in selling home loans to poor Americans
During this time, tonnes of cash was made by packaging loans through teaser introductory offers — only to sell on the prob-
using products like ARMs, CDOs and CDSs, many of which lem to other global financial institutions by repackaging these
the regulators didn’t understand and some of which had triple mortgages as bonds.
A security stamped all over them! He also puts revered central bankers such as Alan Greenspan,
The estimated nominal value of these contracts outstanding Ben Bernanke and Mervyn King under the microscope. But he
— yes, outstanding — is US$42.6trn. The capitalisation of the reserves the most venom for Adam App-legarth, the erstwhile
US stock market is US$18.5trn and, wait for it, the US treas- CEO of Northern Rock who turned a sleepy little building soci-
uries market is US$4.5trn. This is the source of the bail-out for ety into Britain’s fifth largest mortgage bank. How?
the likes of Fannie Mae and Freddie Mac, who have a com- Securitisation. Applegarth and his team repackaged the mort-
bined liability of US$12.5trn. On reading these figures I did gages they had already sold as a new type of bond, then sold it
contemplate running to my bank to take all my money out and to the money markets, which in turn gave them more money to
stuff it under the mattress. sell more mortgages.
Soros believes the sword has yet to fall for the banks, and It all came to a disastrous head on 9 August 2007, when the
that this unhinged financial industry is wreaking havoc with market realised these expensive bonds weren’t worth the LCD
the global economies, with regulators failing to exercise prop- screen they were viewed on, ultimately leading to the pride of
er control. His theories have some merit. But what economic Newcastle’s ignominious nationalisation, costing UK taxpayers
theory has great difficulty in managing is reality. People occu- around £100bn sterling (€125bn).
py reality, and as long as we are free to think and act, we will Readers of this magazine will have no problems following the
come up with new ideas not covered by economic predictive book as it details securitisation, collateralised debt obligations,
theories. It makes me think the silent player is confidence. structured investment vehicles etc, but much of the unavoid-
Maybe Soros’ next book might explore ‘the paradigm of confi- able jargon will scare readers of a more delicate disposition —
dence in economic theory’. notwithstanding the glossary at the back.
Ann Corcoran (MBS 98) is managing director of Joe Lynam (BComm International 92) is business
Limetree advertising and marketing in Dublin correspondent with the BBC in London
UCD BUSINESS CONNECTIONS 39
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