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Only a few years ago, the U.S. financial system and economy were near collapse. Global financial institutions teetered and fell, while at once-mighty U.S. companies, panicked CEOs slashed jobs. The financial chaos inflicted catastrophic damage: double-digit unemployment; crashing house and stock prices; federal budget deficits in the trillions, and a wider gap between the country’s haves and have-nots. Today many Americans still feel shell-shocked. But while there remains much to be nervous and frustrated about, it is impressive how much progress has been made in righting the wrongs that got us into this mess. The economy is growing and steadily creating jobs; house prices are stable and stock prices are up; debt burdens have eased for most households and the financial system has shored up its foundations to an impressive degree. American companies are as competitive globally as they have been in a half century. This dramatic turn in the economy’s fortunes occurred because of what government did to stem the financial panic and combat the effects of Great Recession. Policymakers’ unprecedented actions – from Congress’ auto and bank bailouts and fiscal stimulus, to the Federal Reserve’s zero interest rates and quantitative easing – remain intensely controversial, but ultimately they will be judged a success. Serious problems remain, including the government’s mounting debt load and a burgeoning number of disenfranchised workers, but we are on our way to addressing them. Our economic future has arguably never been brighter.
- Sales Rank: #382905 in Books
- Published on: 2012-09-21
- Ingredients: Example Ingredients
- Original language: English
- Number of items: 1
- Dimensions: 9.30" h x .93" w x 6.40" l, 1.05 pounds
- Binding: Hardcover
- 288 pages
Review
As seen on CNBC "Squawk Box," and "Tavis Smiley Late Night on PBS."
From the Back Cover
“This is a must-read for anyone seeking an honest assessment of the government’s role in responding to the Great Recession. Mark Zandi’s clear and easy-to-understand analysis reaffirms my belief that the totality of the government’s response avoided a disaster and paved the way for a recovery.”
--SENATOR KENT CONRAD, Chairman of the Senate Budget Committee
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“When Mark Zandi talks, people listen. This fine book evaluates the policy responses to the financial crisis and the Great Recession in his usual authoritative and objective manner--a rare combination. You should read it.”
--ALAN S. BLINDER, Economics Professor, Princeton University, and former Vice Chairman of the Federal Reserve
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“One of our most insightful economists examines the extraordinary actions the Federal Reserve, the Treasury, and other authorities took to cope with the economic catastrophe that followed the financial crash of 2008. A readable, balanced account of what they did, why they did it, and how well it worked out--so far.”
--ALICE M. RIVLIN, the Brookings Institution, former Director of OMB and Vice Chair of the Fed
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“I don’t agree with everything Mark Zandi has to say, but he gives readers a close-to-the-administration analysis of the economic problems and policies of the past five years. He writes clearly with the expertise of an economist who was close to the policy process but with the detachment of an informed outsider.”
--MARTIN FELDSTEIN, Professor of Economics, Harvard University, and President Emeritus, National Bureau of Economic Research
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Pessimists say the U.S. economy is collapsing. The truth is American businesses are as competitive as they’ve been in 50 years.
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Pessimists say that debt will strangle U.S. banks and consumers for years to come. The truth is we’ve already made more progress than you think.
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Zandi has advised top policymakers, both Republicans and Democrats: In this book, he focuses on policy and evidence, not ideology. Look past the political squabbling, and the news is refreshing and positive--and Zandi’s evidence is compelling.
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These days, good news is the most shocking news of all. But if you can handle the truth about the U.S. economy, read this book.
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Four years ago, the U.S. financial system suffered catastrophic damage, and the global economy was near collapse. Today, although many Americans are still shell-shocked and much remains to be fixed, progress has been substantial. The economy is growing and creating jobs. House prices are stable. Stock prices are up. Debt burdens are down. The financial system is stronger. Best of all, American companies are in top shape and ready to compete with the world.
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How did all this happen? According to widely quoted economist Mark Zandi, who has advised Republicans, Democrats, and top companies worldwide, government policy deserves much of the credit. The unprecedented official response to the crisis--from bailouts and fiscal stimulus to the Fed’s zero interest rates--remains intensely controversial. But it succeeded, Zandi argues, preventing a far worse economic catastrophe. Moreover, while the economy still faces serious challenges--including mounting government debt and dangerously high unemployment--there are good reasons to be optimistic. Indeed, the U.S. economic future has arguably never been brighter.
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- Don’t bet against the United States-- especially now
Why U.S. competitiveness is skyrocketing - The bailouts worked (and here’s the proof)
Why stimulus isn’t a dirty word - Fixing the financial infrastructure
Beyond Dodd-Frank: how to make the banks work for us - What we need to do now
T he serious--but fixable--problems that remain
About the Author
Mark Zandi is the Chief Economist of Moody’s Analytics. He is the cofounder of an economic consulting firm that was purchased by the Moody’s Corporation in late 2005. His recent research has focused on assessing the economic impacts of tax and government spending policies, the appropriate monetary policy response to asset market bubbles, the determinants of foreclosure and personal bankruptcy, and housing and mortgage market policies. He is on the board of directors of MGIC, the nation’s largest mortgage insurer, and The Reinvestment Fund, a non-profit that combines public and private capital to make investments in grocery stores, charter schools, health centers, and other facilities in inner cities in the Northeast. A trusted adviser to policymakers and an influential source of economic analysis for businesses, journalists, and the public, he often testifies before Congress and appears on CNBC, NPR, CNN, and Meet the Press. He is the author of Financial Shock.
Most helpful customer reviews
21 of 24 people found the following review helpful.
Bland -
By Loyd Eskildson
Zandi contends that the financial carnage following the housing bubble displaced over 10 million households, that those who reached working age then struggled to find jobs and were often paid less than their predecessors, some 100 million credit cards were cut-up during the Great Recession, government efforts to save the economy cost $1.8 trillion, and that government efforts were successful at preventing calamity. The bulk of 'Paying the Price' is taken up with an objective recounting of those efforts.
However, he also admits that nearly 5 million fewer Americans have jobs than prior to the recession, and that this recovery has been the weakest of any since WWII. His recommendations - more education and immigration reform, unfortunately don't square with reality - a surplus of college-educated vs. jobs requiring such, some 7-8 million jobs outsourced to Asia and Mexico, 12 million illegals within the U.S., and another 1-2 million mostly computer programmers and health care workers here via H1-B and similar visas.
Overall, Zandi adds nothing new to what already has been written by others.
12 of 14 people found the following review helpful.
Unique insights packed in a great short book
By Abacus
Mark Zandi is not your usual economist. He is the founder of the best macroeconomics modeling and consulting business (Moody's Analytics). He is able to simulate the behavior of the overall economy as well as anyone else. Zandi has contributed to the formulating and testing of many of the Government policies undertaken during this recent financial crisis. He has sat across the table from many key policymakers. Given his unique background Zandi gives us an insider look at the recent financial crisis and its aftermath.
In summary, Zandi indicates that the US went through a historically wrenching economic shock. And, if not for a very successful combination of expansive fiscal and monetary policies the Great Recession would have turned into the Great Depression II. Also, he indicates that currently the US is rebuilding a very strong economic foundation. The severe deleveraging has nearly run its course. American companies are as financially strong and competitive as ever. Commercial banks are now very well capitalized.
The Great Recession was a historical event given its magnitude and worldwide impact. As Zandi outlines on page 151, financial losses related to the housing and financial crisis totaled $2.6 trillion in the US alone. Half that amount was suffered by banks. And, half of those overall losses were caused by drop in homes values related to defaults on residential mortgages. But, the financial system also incurred huge losses in consumer credit, commercial real estate, and corporate credits. Those accounted for the other half of the $2.6 trillion in losses.
By the Fall of 2008, the housing market was cratering and taking down the financial system and the economy.
Zandi mentions that at first Government policy responses were poor. In September 2008 the Government took over Freddie Mac and Fannie Mae which immediately wiped out shareholders. By now, investors are fleeing for the exit which in turn caused Lehman Brothers to suffer a liquidity squeeze as no one wanted to roll over its short term debt. The Federal Reserve refused to extend credit to Lehman. And, the latter had no choice but to file for bankruptcy. In doing so, both stockholders and bondholders were wiped out. By now, the credit markets were frozen. The spread between LIBOR and US Treasuries jumped by 400 basis points as banks did not even trust lending to each other overnight let alone lend to anyone else. That's a death knell for the economy at large. Zandi states that the Government takeover of Fannie and Freddie (F & F) was the trigger for this chain of event. The Government instead should have temporarily guaranteed F & F debt and injected a minority equity position so they remained solvent. The Fed should have extended credit to Lehman to maintain liquidity throughout the capital markets.
To their credit, policymakers self-corrected and responded well to the ensuing crisis. They learned from the Lehman debacle. Within just a few weeks in late 2008 the FDIC merged Merrill Lynch into Bank of America, Washington Mutual into JP Morgan, and Wachovia into Wells Fargo at no cost to the taxpayer. On the second try Congress passed the Troubled Asset Relief Program (TARP), as the stock market tanked when they failed to pass it the first time. And, TARP will turn out to be the most successful fiscal bail out of all time. As Zandi itemizes it on pg. 38, the $700 billion TARP ultimately cost taxpayers only $57 billion, only 8% of its original commitment. This is in good part due to earning a $27 billion profit on the $250 billion stake the Government temporarily invested in the banks. The banks repaid the $250 billion within months. And, the Government made the $27 billion profit on the resale of warrants they acquired as part of their investment in the banks. Also, the combination of TARP and the new Stress Testing regulation for banks successfully shored up the banking system. Europe in 2010 tried to follow similar policies but failed. The European bank stress tests were not credible as banks readily failed right after being certified by the stress tests. Also, those tests were opaque and not disclosed contrary to the far greater transparency of the US ones. At the same time, the Federal Reserve and the FDIC temporarily pretty much guaranteed the debt from all banks, financial institutions, money market funds, and commercial paper. The Federal Reserve also brought the Fed Funds rate down to close to 0% and purchased large quantities of Treasuries to bring down long term interest rates and mortgage backed securities (MBS) to replace the securitization market for MBS that had shut down and shore up housing finance to put a floor on the housing market.
In just a few months in late 2008 to early 2009, US policymakers achieved more than their European counterparts over the past four years. This is due to two reasons:
The first one is competence. Ben Bernanke, the Chairman of the Federal Reserve, is the number one contemporary expert on the Great Depression and all the related policy failures that pretty much caused it, including tight fiscal and monetary policies to shore up the US trade balance to maintain the Gold Standard in place at the time. Thus, Zandi states the US could not have had a better leader to guide us through the crisis. Meanwhile, Europe is lead by German's Chancellor, Angela Merkel, who is imposing fiscal austerity on the countries within the Euro Zone that are already experiencing Great Depressions of their own with unemployment rates above 20% (Greece, Spain).
The second one is sovereignty. The US has full control of its own fiscal and monetary policies. Meanwhile, the member countries of the Euro Zone do not. And, their economic fate is more often in the hands of Mrs. Merkel.
The large $1.4 trillion fiscal stimuli implemented over several years were successful. About 57% of it came from Government spending and 43% from tax cuts. Zandi (pg. 103 & 104) assessed that the economic multipliers associated with the spending initiatives (ranging from 1.3 to 1.7) were far higher than for the permanent tax cuts (0.3 to 0.5) and also higher than for temporary tax cuts (0.8 to 1.4). Thus, it was a good thing the fiscal package was more tilted towards Government spending. Zandi leaning on estimates from the Congressional Budget Office states that the unemployment rate would be several percentage points higher and GDP growth very likely chronically negative if not for those fiscal interventions (pg. 110).
The Federal Reserve expansion of its balance sheet is routinely criticized. People fear it will ignite inflation. They are concerned about its "monetizing the debt" by purchasing Treasuries from the US Government. However, Zandi explains that monetizing the debt is no concern when the economy is experiencing high unemployment and excess industrial capacity. Also, the Federal Reserve balance sheet is only replacing the securitization market that has nearly evaporated since the onset of the crisis in 2008. Eventually, when the securitization market recovers the Fed will shrink back its balance sheet with no impact on overall liquidity throughout the financial system. Also, the Fed's balance sheet relative to GDP is actually far smaller than its counterparts in Japan and Europe (pg 61).
In the last chapter, Zandi shares why the US is in far better shape than we think. First, households have markedly reduced their debt service burden since 2008 (figure 9.4 pg. 204). Meanwhile, commercial banks capital cushion is stronger than ever at nearly 10% of assets (fig. 9.5 pg. 205). Additionally, US corporations are in very strong financial shape as they have markedly reduced their leverage, improved their cash flow, and reduced their exposure to short term debt (fig. 9.6 pg. 207). Also, US productivity has accelerated since 2008. US unit labor costs have decreased since 2000 (fig 10.4 pg 237). As a result, US companies are increasingly competitive in the international arena. Over the same period, European unit labor costs have skyrocketed upward. The US trend in this regard is even far superior than Germany, the European export powerhouse (fig 8.8 pg. 191). Zandi even indicates that if the US sticks with current laws, it could well regain control of its fiscal house as he anticipates the US Debt/GDP ratio would decline from 75% currently to under 60% by 2025 (fig. 10.2 pg 226).
3 of 3 people found the following review helpful.
Zandi's analysis has statistical and factual support, but does not prescribe scenarios of how to pay the Price?
By Didaskalex
****
"This is a must-read for anyone seeking an honest assessment of the government's role in responding to the Great Recession. Mark Zandi's clear analysis... the government's response avoided a disaster and paved the way for a recovery." --Sen. Kent Conrad
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Almost five years elapsed since the financial melt down which inflicted catastrophic damage; crashing house and stock prices; with double-digit unemployment, and inflating federal budget deficits in the trillions. Congress swift reaction in bank bailouts, fiscal stimulus, and auto restructure remain controversial, but ultimately they will be judged a success.
In his quantitative analysis of the status of Economic recovery, Zandi is supported by recent D-J financial indicator, and unemployment rate slowly rebounding. His analysis has statistical and factual support, but does not prescribe scenarios of how to pay the Price? What about the serious problems of mounting deficit, and towering cost of national entitlements?
But while there remains much to be frustrated about, it is impressive how much progress has been made in correcting the causes that got America into this mess. The economy is growing and steadily creating jobs, @ 7.7% today; house prices are stable and stock prices are up; debt burdens have eased for most households and the financial system has recovered.
Serious problems need right solutions, including the government's mounting debt load and millions of unemployed workers, while Dow Jones is skyhigh. Mark Zandi is a trusted American economist born in Atlanta, Georgia. He was a regional economist at Chase Econometrics. He co-founded Moody's Economy.com, of Moody's Analytics, a well trusted source of economic analysis.
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