The author has put in a lot of work to get this project right. It is based on wholesome research of many events, which makes it a good academic collection.
he title says Easy Money, but the set of three volumes looks daunting. However, the author’s name encourages you to read the books, even raising expectations of them being as exciting as his other articles and views on business matters.
When you start reading the first volume on the evolution of money, you are enthused to read how Vivek Kaul has written three exhaustive books on money in an easy style that cover almost every aspect of the issue, from theory to complex financial structures. One can decide whether the word ‘easy’ refers to Kaul’s style of writing or an ‘easy guide’ to a complex subject, or how money has degenerated over the years to become ‘easy’ so as to engender all the scams and crises. That call can be taken by the reader, though the reviewer will vouch for all the three.
The first volume talks of the evolution of money, which is a good guide for students, as it combines textbook knowledge with several anecdotes. It talks of various things that served as money, the evolution of currency and so on. You also get to read about how the Bank of England came into existence and it is quite a revelation to know that it was to have a fixed tenure when it was established. The creation of the Federal Reserve System is interesting and one gets to know about the ‘how’ and ‘why’ of the existence of multiple central banks in this system. The gold standard and the implications, especially in the context of the Great Depression, are significant parts of the book as well. Almost every segment in the book is independent, which means that you do not have to read through the evolution of paper currency to know about the Bank of England.
The second book is on the evolution of the global financial system as we see it today. This is vintage stuff, as Kaul explains in very simple terms all the big crises in the global financial system. Black Monday of 1987 is explained in rudimentary terms, as well as the S and L crisis, which has become some kind of a benchmark for understanding the flaws in lending operations that were replicated in different forms in all subsequent crises. The action of the Federal Reserve was proactive and the idea of allowing cheap money to bring the system back on track started at this time, becoming a habit now. The LTCM crisis is explained in simple terms with examples, making it easy to understand what went on in the background before the explosion took place. The same holds for the Asian crisis of 1997, where the role of Japan is brought in, as it tended to invest all its trade surpluses it earned with the USA heavily in Asian economies, thus creating a bubble. The way players played the market on each of these occasions, which set off the contagion, reads like a novel, but is real.
Here, one can actually read through the history of financial systems, which starts from the Depression when the Fed did nothing to the so-called proactive policies pursued today. So you get to read about ‘Say’s law’ and Keynes, and how their prescriptions differed in the era of stagflation in the Seventies and the reaction of the central bank when Friedman became more important. We also get to understand the Volcker rule of 1979 and the relentless pursuit of Greenspan to keep money easy.
Here, Kaul points towards a major anomaly in the system where the USA got the divine right to spend more than it should have to enable dollars to be available for others. This he terms as one of the major Ponzi schemes, where the same dollars accumulated by countries like China come back to be invested in US bonds, as the government runs huge deficits.
The third volume is the most contemporary discourse on the greatest Ponzi scheme ever and how it threatens the global financial system. This is the financial crisis of 2007-08. He takes us through how it plays out in some detail, which is very engaging. In the course of this debate, he explains the concept of securitisation and how NINJA loans became a household name after this crisis. The way in which some institutions were allowed to fail, like Lehman, while others were merged, like Bear Stearns, and a third set were bailed out by public money, like AIG, is argued very well. This, along with the quantitative easing strategies pursued where central banks actually bought commercial bonds (through the MBS and ABS routes) to infuse liquidity, was quite unique, but has set a precedent. Rolling this back has caused pain, but the important thing is that one is not sure what type of new problems or bubbles have been created by cheap money. The emerging markets first benefitted a lot from these flows, but now face a serious backlash when the money has been withdrawn.
In fact, the concept of carry trade became popular, as investors started borrowing at low rates and investing in currencies or sticks of other outcries for better returns. This created problems of handling capital inflows for central banks, as they had to sterilise them, which created different sets of problems on monetary policy and interest rates. The reversal of such policies invariably has even more severe repercussions, which countries are witnessing today.
Kaul has put in a lot of work to get this project right. It is based on wholesome research of many events, which makes it a good academic collection. The jargon has been explained in layman language and when he tells us how hedge funds work with simple examples, things make a lot of sense. The same holds for CDOs or even the origin and spread of the Asian crisis. This is, hence, a unique combination of academic rigour and journalistic panache to deliver excellent treatises on a complex subject like money and finance. Putting it in three volumes is pragmatic, as there is no economy in explanation and narration. This set of books will be enjoyed by all readers irrespective of their knowledge of the subject
No comments:
Post a Comment