Foolproof

 The aftermath of the 2008 global financial crisis has been fodder for several authors to come up with books. This book is fresh, entertaining and a provocative story about financial crises and other catastrophes. Greg Ip presents a macro theory of human nature and disaster that explains how we can keep ourselves safe in our increasingly dangerous world.

It contends that our quest for stability is constantly undermined by increased risktaking, and he believes, “we are going to have to re-examine” the premises as well as their results. The book starts by wrapping examples of the perils of foolproofing into a lengthy overview of how pressure built up just before the financial crisis.

There is an elaborate anecdote when Ip confronted Paul Volcker, former Federal Reserve chairman, with the accusation that he and his successors fuelled risk appetite by implying through their actions that they would rescue the economy. “He tilted his head, narrowed his eyes, and glared at me," recounts Ip. "I’m not going to accept full responsibility," he said.

Those who missed out experiencing the 2008 crisis will get a sound knowledge about the Peltzman Effect, ecological systems, the insurance business, the European lending crisis, the AIG debacle, and the role of capital in banking mixed with interviews that Ip could access.

Likewise, the book explains rather well why hedging risk with zero-sum derivatives cannot protect the system—if you stand up in the stadium you can see the game better, but if everybody stands up then we’re back to where we started. However, do not expect any serious analysis. Yes, there are analogies, but they get to you after a while because it does not get deeper with analysis.

olmdesk@outlookindia.com