| | |  | General | Home » » » » This Time Is Different: Eight Centuries of Financial Folly | | | | | | | Description: | | Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. This book proves that premise wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps. | | | Features: | |
• ISBN13: 9780691142166
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| | | Product Details: | | | Author:
| Carmen M. Reinhart | | Hardcover:
| 496 pages | | Publisher:
| Princeton University Press | | Publication Date:
| September 11, 2009 | | Language:
| English | | ISBN:
| 0691142165 | | Package Length:
| 9.3 inches | | Package Width:
| 6.5 inches | | Package Height:
| 1.7 inches | | Package Weight:
| 1.72 pounds | | Average Customer Rating:
|  based on 75 reviews |
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 No Honey, this time is not different.Sep 04, 2010
This book is one of the most complete reviews of financial crises over the last 800 years that I have seen.
After the Crash of 2008, some of the Lessons Learned from past crises would seem to apply today. For example, how do countries stay out of country related financial crises?
The secret to keeping your country out of trouble is to first live below your means, meaning running a surplus each year. Second is to borrow as little as possible and to fund the debt with maturities over 10 years. Third is to have no hidden off-the-balance sheet guaranties.
How to get your country into trouble is to run a deficit every year, borrow short term to fund the debt, and have a lot of hidden off-the-balance sheet guaranties.
The authors divide past financial crises into many categories including inflation, currency crashes, debasement, serial default, this time is different, banking crises, and external/domestic defaults.
Some of the summary statistics from past financial crises include:
Average house price decline of 36% with 2008 sub-prime being 30% and 1929 of 12%.
Average time for home prices to recover of 6 years.
Average stock market decline of 56% with 3.4 years to recover.
Unemployment usually rises by an average of 7%. In the U.S., before 2008 was 4% and it is now at 10%. The 1929 Great Depression increase was 20% over the base rate.
Average GDP declines of 9.3% and peak to trough of 1.9 years.
The authors point out that bubbles are much more dangerous when they are fueled by debt (2008 Sub-prime crises) than not funded by debt (2000 Tech Wreck).
There has been 5 big bank crises since 1945 plus the 2008 Sub-Prime fiasco. This means a major banking crisis every 11 years (6 crises in 65 years). The once every 11 year banking crisis is the same order of magnitude as stock market crashes in the U.S. with 8 Bear markets since 1945 or once every 8 years (8 Bears in 65 years).
The authors found that a banking crisis is the worst kind of crash. They found that real housing price bubbles were the best predictors of banking crises. Annual deficits and stock markets were not good predictors of banking crises because they give too many false alarms.
One astounding finding to me was that government debt usually almost doubles (86% increase) after a banking crisis. It seems like the U.S. is on track to exceed the historical average in this category.
Why have banks managed to create their own crisis about once every 11 years? The authors theorize it is because of the inherently unstable design of banks.
Fractional reserve banking is based upon taking in deposits (that can be redeemed in a minutes notice) and then lending the money long term (where it is illiquid and can not be redeemed quickly). As soon as the depositors lose confidence in the bank, they create a run on the bank. Since the banks keep very little cash on hand, and they can't liquidate the loans quickly.........they become insolvent and close their doors.
Listening to Bernanke testify at the Financial Crisis Commission, his biggest worry back in September 2008 was a national run on all banks by the depositors. This came very close to occurring when a money market mutual fund "broke the buck" on its money market accounts. If all investors had withdrawn their money from money market mutual fund accounts, the system would have shut down.
In summary, this book opens up your eyes to how common banking failures are with an average crisis period of once every 11 years. As an investor who purchased some bank stocks in 2006 and watched them start to decline in 2008, I would recommend never buying bank stocks.
With an average U.S. stock market Bear market occurring on average every 8 years and a banking crisis every 11 years, I would suggest a low-cost broadly diversified portfolio in global investments.
I guess the recent bank reform law included a provision for the biggest banks to provide a "living will" telling how they could be broken apart and easily sold when they fail. It will be interesting to see if this helps the "too big to fail problem" the next time the banks screw up.
For students of financial markets, this book belongs on your bookshelf.
2 of 2 found the following review helpful:
 Sloppy ResearchSep 01, 2010
This Time is Different features sloppy research which is most visible in Table 2.3 where the the refundings of Consols the British nation at par are listed (incorrectly) as defaults. The right of the British government to refund Consols at par was always reflected in their prices. Five percent Consols were priced in the 1700s to have higher yields then Thre Percent Consols which reflected the greater vulnerability of Five Percent Consols to refunding.
Another howler - he largest domestic default in US History-the voiding of the Gold Clause in US government bonds by the Roosevelt Administration in 1933 is represented in this account only by default in 1933 by the US on its treaty obligations to Panama-which is listed as a "domestic default" Panama was then (at least de jure) an independant country.
A Sad Tale Of Debt And InflationAug 18, 2010
I don't always agree with Rogoff's world view but this is just great financial history and will stay on my library shelf. The boom, bust, repeat process is undeniable now. As much as I am a believer in the "global growth story" because I simply assess that we are in a fundamentally growing world and I think emerging markets are building unprecedented demand, inspite of the stumbling blocks. However,this tale tells another vision. Basically, the authors think that future national debt crises and rising inflation are going to derail the global economy. As an economist, I take their view seriously. We all have to vigilantly observe the flow of economic data these next years. It is no time for idealogues. The proof will be in the pudding and let's just hope Rogoff and company are wrong. It is a great reference book regardless of where you see the global economy going.
 Dark Matter!Aug 09, 2010
This was an interesting read and I have read a fair share of Economics books to put it mildly. The most interesting
theory this book turned me onto was the work that was done by Ricardo Hausmann and Federico Sturzenegger of the Kennedy School of Government at Harvard University..ever since then I have been trying to understand a new economic theory that attempts to answer an intriguing puzzle in our international trade and finance statistics: why is it that the US has a positive income of around $30 billion when our net international investment position shows a debt of about $3 trillion. How can be earning income on debt?
This new theory claims that, in part, our current measures of investment miss a large chunk of intangible assets -- what they label "dark matter", akin to the concept in astrophysics where the known mass of the universe is not large enough to explain why gravity can hold the universe together, that there is more mass (some "dark matter") in the universe that we can see and measure. Just as astrophysicists can impute the amount of that dark matter from the laws of physics (how much is needed to explain how gravity is working), these economist have imputed the amount of economic "dark matter" missing from our international asset position. The conclusion is that we really aren't in debt at all. The policy implication is that the trade deficit and international debt don't matter and that the dreaded currency correction (where the dollar falls enough to bring our trade balance back in line) won't happen.
Aside from that this book uses sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallout's occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur.
I suggest checking it out - Kindle version just because available!
Cheers -
Jeffery
2 of 2 found the following review helpful:
A dense but important bookAug 06, 2010
This Time is Different is itself a different sort of volume: it is economics with time depth. It is also one of the densest books ever written. If you wish to understand the nature, mechanics and ramification of debt, this book provides a solid understanding, but it is no fast read. The authors have mercifully cut the subject into small pieces, so that the reader can read, re-read and re-re-read each section before continuing on to the next. Tackle it slowly, knowing that it may take a year to read it bit by bit. At the end, the results are worth the effort. It provides a firm understanding of debt, and is a baseline for sorting out what has happened in the last few years--and chillingly, what may be in store. You may need to buy the book rather than checking it out again and again.
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