A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression

Richard A. Posner / Feb 19, 2020

A Failure of Capitalism The Crisis of and the Descent Into Depression The financial and economic crisis that began in is the most alarming of our lifetime because of the warp speed at which it is occurring How could it have happened especially after all that we ve

  • Title: A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
  • Author: Richard A. Posner
  • ISBN: 9780674035140
  • Page: 405
  • Format: Hardcover
  • The financial and economic crisis that began in 2008 is the most alarming of our lifetime because of the warp speed at which it is occurring How could it have happened, especially after all that we ve learned from the Great Depression Why wasn t it anticipated so that remedial steps could be taken to avoid or mitigate it What can be done to reverse a slide into a full bThe financial and economic crisis that began in 2008 is the most alarming of our lifetime because of the warp speed at which it is occurring How could it have happened, especially after all that we ve learned from the Great Depression Why wasn t it anticipated so that remedial steps could be taken to avoid or mitigate it What can be done to reverse a slide into a full blown depression Why have the responses to date of the government and the economics profession been so lackluster Richard Posner presents a concise and non technical examination of this mother of all financial disasters and of the, as yet, stumbling efforts to cope with it No previous acquaintance on the part of the reader with macroeconomics or the theory of finance is presupposed This is a book for intelligent generalists that will interest specialists as well.Among the facts and causes Posner identifies are excess savingsflowing in from Asia and the reckless lowering of interest rates by theFederal Reserve Board the relation between executive compensation, short term profit goals, and risky lending the housing bubble fuelled bylow interest rates, aggressive mortgage marketing, and loose regulations the low savings rate of American people and the highly leveraged balance sheets of large financial institutions.Posner analyzes the two basic remedial approaches to the crisis, which correspond to the two theories of the cause of the Great Depression the monetarist that the Federal Reserve Board allowed the money supply to shrink, thus failing to prevent a disastrous deflation and the Keynesian that the depression was the product of a credit binge in the 1920 s, a stock market crash, and the ensuing downward spiral in economic activity Posner concludes that the pendulum swung too far and that our financial markets need to be heavily regulated.Read Richard Posner s blog, and his latest article in The Atlantic.

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    About "Richard A. Posner"

      • Richard A. Posner

        Richard Posner is Senior Lecturer in Law at the University of Chicago Law School Following his graduation from Harvard Law School, Judge Posner clerked for Justice William J Brennan Jr From 1963 to 1965, he was assistant to Commissioner Philip Elman of the Federal Trade Commission For the next two years he was assistant to the solicitor general of the United States Prior to going to Stanford Law School in 1968 as Associate Professor, Judge Posner served as general counsel of the President s Task Force on Communications Policy He first came to the Law School in 1969, and was Lee and Brena Freeman Professor of Law prior to his appointment in 1981 as a judge of the U.S Court of Appeals for the Seventh Circuit, where he presided until his retirement on September 2, 2017 He was the chief judge of the court from 1993 to 2000 Judge Posner has written a number of books, including Economic Analysis of Law 7th ed 2007 , The Economics of Justice 1981 , Law and Literature 3rd ed 2009 , The Problems of Jurisprudence 1990 , Cardozo A Study in Reputation 1990 , The Essential Holmes 1992 , Sex and Reason 1992 , Overcoming Law 1995 , The Federal Courts Challenge and Reform 1996 , Law and Legal Theory in England and America 1996 , The Problematics of Moral and Legal Theory 1999 , Antitrust Law 2d ed 2001 , Law, Pragmatism, and Democracy 2003 , Catastrophe Risk and Response 2004 , Preventing Surprise Attacks Intelligence Reform in the Wake of 9 11 2005 , How Judges Think 2008 , and A Failure of Capitalism The Crisis of 08 and the Descent into Depression 2009 , as well as books on the Clinton impeachment and Bush v Gore, and many articles in legal and economic journals and book reviews in the popular press He has taught administrative law, antitrust, economic analysis of law, history of legal thought, conflict of laws, regulated industries, law and literature, the legislative process, family law, primitive law, torts, civil procedure, evidence, health law and economics, law and science, and jurisprudence He was the founding editor of the Journal of Legal Studies and with Orley Ashenfelter the American Law and Economics Review He is an Honorary Bencher of the Inner Temple and a corresponding fellow of the British Academy, and he was the President of the American Law and Economics Association from 1995 to 1996 and the honorary President of the Bentham Club of University College, London, for 1998 He has received a number of awards, including the Thomas Jefferson Memorial Foundation Award in Law from the University of Virginia in 1994, the Marshall Wythe Medallion from the College of William and Mary in 1998, the 2003 Research Award from the Fellows of the American Bar Foundation, also in 2003 the John Sherman Award from the U.S Department of Justice, the Learned Hand Medal for Exellence in Federal Jurisprudence from the Federal bar Council in 2005, and, also in 2005, the Thomas C Schelling Award from the John F Kennedy School of Government at Harvard University.


    1. A conservative thinker himself, Posner is convinced that our present financial crisis is not a recession but rather a depression. And, unlike some conservatives who think that the dilemma is the result of government policies, Posner thinks that it is a failure of the market itself. Among many other interesting points, he notes that the motivations and rationale for individual financial decision making is counter to what is best for the overall economy, ie to save and reduce consumption in hard t [...]

    2. There is a puzzling mismatch between the content and the purpose of this book. Posner insists that it is the market, not the government, that is essentially to blame. He then goes out of his way to show that low interest rates (set by the Fed, a part of the government) induced rational actors in the market to create the bubble. Though he mentions a variety of other factors, this seem to be the principal factor. So this is a very helpful book if you actually read it, because he seems to have anal [...]

    3. This is a pretty good book, if for nothing else than the author's ability to plainly discuss and talk about the economic meltdown that occurred in 2008, as well the activities that lead up to it. I have to agree with others, though. The book was quickly written and it shows; however, it is not at all hard to follow, which is surprising when you realize Posner, as a judge, was able to break away from the legalese/court-style of writing. What really impressed me, though, is Posner's ability to tak [...]

    4. At nearly 350 pages long, Posner's new book is definitely not a short book. Notably, the chapter on 'The Government Responds' is nearly book-length long. For a more professional review of this book, do look up Dr. Solow's review on the NYRoB. Here's my more pedestrian take. I am not an economist by training. Yet, believe it or not, Posner writes engagingly for the informed reader who wants to know more about the probable causes and impacts of the Financial Crisis beyond the piecemeal reports of [...]

    5. Excellent book on the recent recession/depression.According to Posner (and I agree), the recent recession was produced by rational actors both on the banking side and the homeowner side (see at least pgs. 100-101). I thought he could have spent more time on how how the downside risk of a borrower is limited in that in most states you can walk away from a house whose value is less than the outstanding loan amount with little more than a damaged credit rating. Posner points to the government and e [...]

    6. Posner's A Failure of Capitalism is an informative read. Posner accurately sketched out the underlying problems in the financial sector that led to the crash of 2008 and the subsequent recession. While the book is informative and highly approachable for the lay reader, it is also out of date.The book is incredibly informative. Posner sketches out a brief history of finance and the deregulation of the financial sector. He then outlines how deregulation might have been an excellent idea in some se [...]

    7. Two takeaways:1. Posner makes a convincing argument that the actions of the various players in the financial crisis were not inept or irresponsible but rather quite rational. In his view, any one player (individuals or firms) could fully appreciate the fact that their actions were risky and their leveraging could even lead to bankruptcy. However, any one failure/bankruptcy might not be catastrophic, at least not for an individual person or firm. It's only the regulators, who should be expected t [...]

    8. For several months, I have had a personal side project of attempting to understand the financial crisis. That challenge has culminated with this book. Posner does an incredibly thorough job of explaining the various factors that contributed to the financial crisis, including the economic system that allowed it. I am firmly of the belief that one cannot understand the financial crisis simply by pointing fingers at financial intermediaries or regulators, because neither explanation is complete. Po [...]

    9. This book was written immediately after the credit crisis, and it won't stand the test of time or be thought of as a 'classic' document of the financial crisis. It's too political, and the attempts at prophecy and prediction have been revealed weak by the passing of time. There is great potential in the subject matter; Posner's essential thesis is that capitalism requires government intervention or it faces inevitable catastrophic market failure. He begins to write about a troubling possibility [...]

    10. It's not a terrible book, but not quite what I was hoping for. The title says it all, 'a failure of capitalism', not 'the failure', this just explains in detail the causes of the 'great recession' of 2008-present. There isn't much in the way of suggestions for change, condemnation of the current system, or even a critique of capitalism itself. It's more of a historical account. There are hints that the Honourable Judge sees things going very poorly for the USA in the near future, but it is barel [...]

    11. Posner wrote this book on the fly and it shows. At times sloppy, the book still gets as close as anything I've read to the origins of the financial crisis. He explains why there is no simple solution, but he also points out why little government action to begin with helped create the conditions where this kind of crisis could take place. As a leader in the law and economics movement and as a revered figure among the neocons, Posner has some credibility when he says we need to put more trust in K [...]

    12. To get a general impression about this book, consider this; even though this book is a very slight 300 pages long, 75-125 pages are an explanation of how regulatory agencies work within the United States. Why, if you're an author supposedly setting out to describe the failure of capitalism, do you have to spend 30% of your book describing actions taken by the government and their subsequent effects on the market? More correctly, this book should be titled "A Failure of a Mixed-Economy;" because [...]

    13. Judge Posner offers some of the greatest insight into the financial crisis that I have seen. Because the author comes from a background outside of the financial world, the book is geared for people outside of the macroeconomic or financial communities.The book was released in the first half of 2009, so the author was not able to address the headline grabbing events that have unfolded with General Motors and Chrysler. However, I would recommend the Becker-Posner Blog if readers are interested in [...]

    14. Posner's conclusions about the financial crises starting in 2008 stake out an independent position that will please neither liberals nor conservatives: financial businesses, facing game theoretic pressures, are rationally forced by the market to take riskier positions in low interest rate and low regulatory conditions, and therefore only stronger regulatory conditions can prevent asset bubbles. Agree or not, it is a closely reasoned position arguing persuasively for more stringent financial regu [...]

    15. A failure of interpretation. Posner basically argues that government prepared the tinder for the financial meltdown and started the fire, but concludes capitalism failed? He also doesn't seem to understand or note the role that rating agencies played in the meltdown and how the SEC impacted them.Many of the dots are there, but I don't believe he connects them, though many of his arguments are very good and he is a clear and lucid writer for the layman.However, Thomas E Woods book "Meltdown" is a [...]

    16. Although this is a concise and well-written summary of the causes of the current economic crisis, Posner's policy prescriptions are much too modest. He makes much of the fact that he has decided to assign more blame to the banks than the government, but this is noteworthy only if you've read his earlier work. Like his other recent book Not A Suicide Pact, A Failure of Capitalism leaves you feeling that the author has an understanding of the problems he has chosen to address but is either unable [...]

    17. Posner is a very conservative judge; but he is not an ideologue. He has thought deeply about the causes and ramifications of the recession of 2008, and is willing to follow the facts toward their logical conclusion--that the recession was a failure caused by the inherent nature of capitalism and the pursuit of self-interest above all. Posner recognizes that regulation of the financial system is necessary in order to save the capitalist economic order from devouring itself. An excellent read.

    18. A very instructive book, even considering that the author repeats often the main arguments from different points of view just to make them hit home with the reader. In a way, it is very pedagogic, because it is written avoiding the economic terms that may obscure sense and understanding. The main conclusions are very clear, and repeated in the last chapter. It is important to learn from this traumatic experience, in order to avoid, as far as possible, new occurrences in the (near) future.

    19. An interesting book about the housing bubble and economic collapse. Posner is a libertarian but the lessons he takes from the recession are not those free marketeers would like. It is amazing that such a big collapse has been studied so little. And it surprises me that people responded to the crisis by reading Ayn Rand rather than figuring out how the capitalist system failed on this one. Hint: the answer is not less regulation of banks.

    20. Reading this, almost 2 years following the crash that it dissects, I feel a bit behind the times, which contributed to my stalling out at several points throughout the read. Posner makes some good points regarding the shared responsibility of government and the free-market for the crisis. Overall, an interesting, if dry read. It is short.

    21. A very clever guy who sees the present economic turn down as a depression, not recession. Some interesting things to say about the causes of the present mess. He throws brickbats at both conservatives and liberals. Too long but if you interested in an analysis different then you get from the media it is worth the read (assuming you know which parts to speed read) !!!

    22. This was a concise, intelligent account of the financial crisis, followed by a lucid analysis of the crisis. The overall judgment, more or less, is that no one was really "at fault" for the crisis, but that the market failures that caused this crisis are inherent in markets and that perhaps better regulations are needed.

    23. Very well written towards the layman's understanding. Pretty much explains what went on and who and what was to blame for the mess. Shows what led up to the conditions that allowed this to occur and it is refreshing to hear someone actually describe what we are in for what it really is, a depression. Well worth a read, even if it is dated.

    24. This gets repetitious as Posner continues to unwind what is essentially the same argument in response to each aspect of the current economic crisis, but it is an unusually coherent, articulate argument that should be read: we are in a depression; it was caused by rational capitalist behavior; and the only way to avoid these problems is governmental regulation.

    25. This isn't so much of a DNF as it is a not right now. I just do not have enough brain power to spare for Failure right now. It's an exhaustive study written by a federal judge. Intense and dry, but probably worth it. When I am in a place where I can read smart again I'll pick it back up:)

    26. Decently balanced approach in its analysis of the current economic crisis we are in, mixed with historical perspective. Also places blame on both political ideologies in their short-sightedness in regards to human nature and economic markets.

    27. This book is especially fascinating since it is written by a Reagan-appointed conservative (7th Cir) federal judge.

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