The basic tenet of the books is that the USA and UK have been practising free market capitalism ( neo-liberal policies) for the first 30 years, and whilst he supports economies based on ideolog, he feels that the free market version has done much to lower people 's quality of life, both in Western countries that practice it, and in developing countries, who have it foisted upon them by the IMF and World Bank, ( and the wealthy countries behind these institutions.) The biggest surprise in the novel for me?
No wonder Chang argues for government regulations to simplify financial dealings.
Credit default swaps ( CDSs) were created to protect you from default on the CDOs. And there are other more financial derivatives that make up the alphabet soup that is modern finance.By now even I am getting confused ( and, as it turns out, so were the people dealing with them), but the point is that the same underlying assets ( that is, the building that were in the original mortgages) and economic activities ( the income-earning activities of those mortgage-holders) were being used again and again to 'derive' new assets.
( hide spoiler) ] Rather than trying to provide any sort of overall synopsis of the bestselling and his rguments, I will just list some of Cho 's ideas that I found interesting.
Just because the rich get richer, it does n't mean that the poor get richer too.* The free market economy is responsible for all kind of society ills:- the 2008 financial crisis- stagnating wages for ordinary workers- longer working hours- horrendously inflated salaries for the managers of big companies- greater job insecurity- shorter term contracts- an ever-increasing pressure on suppliers to provide cheap products.- Inequality in societies.- the encouragement of borrowing at unprecedented rates- the huge ballooning of the financial investment sector, and it 's dangerously unregulated behaviours, which threaten the rest of the economy.* Wages in rich countries are determined more by immigration control than anything else.
" What is a starvation wage in the US is a handsome wage in China, and is a fortune in India " .Chang feels that immigration controls are necessary though, for a multitude of reasons.* Western countries stop developing countries from realising their potential by foisting free market regulations upon them, when they are at a stage of needing different, perhaps more protectionist policies.
Why should they have to try and develop differently from the pat that we did?* Shareholders have in many instance been given far too much power in the companies they invest in.
In some countries there are regulations ensuring that shareholders can only have a limited powers in the companies they invest in, and that other share-holding bodies ( the government, or banks, or founding families of companies), ensure that company managers put the long-term well-being of the company first. *It is much easier for entrepreneurs to become successful in wealthy countries, because we have things like good infrastructures, better technologies, better institutions and better organised firms.
In developing countries they have things like power cuts that mess up productions schedules, or Customs wo n't clear spare parts needed to fix machinery, or payments are delayed due to problems getting a permit to buy US dollars.
De-industrialization also has an effect on a country 's balance of payments- because services are inherently more difficult to export than manufactured goods.
He believes that inflation at 8-10%, or even up to 20% or 40%, can be compatible with a country have a good growth rate, with a fast-growing economy.
He believes that too much inflation control can result in reduced investment, and that our obsession with it has affected long term stability, economic growth and human kindness. *Most transnational corporation are in fact largely based in their mother countries.
Most importantly, they have used their political and economic influence to spread the free-market ideology that says whatever exists must be there because it is the most reliabl. *'Purchasing power parity' and the 'international dollar'= a way of measuring a country 's living standard.
Africa does have some serious problems, but they have problems that many Western countries also had when they were developing, and hopefully African countries can work through them too. *Microfinance in developing countries does not workOften these loans are given with high interest rates, and few businesses can make the necessary profits to repay these loans.- The people who take out the loans often have limited skills.- They only have a arrow range of technologies available to them.- They can only get hold of a limited amount of finance via microfinancing schemes.- If people have a ood idea- other people often quickly copy it, and the market becomes too full. *We need to bring regulations to the free market.The world is too complex for our limited intelligence.
They create informal rules that deliberately restrict people 's freedom of choice ( eg queueing means we do n't constantly have to calculate and re-calculate our positions at a crowded bus stop.) The financial rises of 2008 was due to the free-for-all complexity of the market- even financial experts did not fully understand the financial instruments being used and offered.
If we are to avoid similar financial crises, we need to severely restrict freedom of action in the financial market. *More education is not in itself going to make a country richer.
This suggests that it is the ack of a basic income guarantee that is preventing poor kids from making use of the equality of opportunity provided by schooling. *A good safety-net, in terms of a robust welfare state, gives people more incentive to be mobile and flexible, because it wo n't be the nd of the world if they lose their jobs.
The economies of Scandinavian countries, with high welfare support, have performed just as well as the US. *Financial markets are HUGE, and they need to become less, rather than more efficient.
This makes it possible for real-sector companies to secure the 'patient capital' that they need for long-term development.
But then everything went bang in 2008 ... .and this was all due to privatization and de-regulation of Iceland banks, which set them on a roller-coaster of borrowing and investment.The financial sector has become hugely more powerful in many countries, following financial deregulation in the 1980s.In the UK and France, the profit rate of the non-financial sector was higher than the profit rate of the financial sector ... ..
but after deregulation, the profit rate of the financial sector was higher than the non-financial sector.In the US, the financial sector became so attractive to people that even many manufacturing companies have turned themselves essentially into finance companies.eg General Electricity, General Motors and Ford- once all symbols of American manufacturing prowess, now make most of their money through their financial activities.Things that could help slow down financial markets ... Taxes on transactionsRestrictions on cross-border movement of capital ( especially movements in and out of developing countries) Greater restrictions on mergers and acquisitions.