A Failure of Capitalism

The primary argument of the book is that we have gone from a recession into a depression (the "D" word, as one reviewer calls it) the Federal Deposit Insurance Corporation (FDIC) and central banks taking risks, securitization of mortgages, illiquidity and insolvency of the banking system, the housing bubble, blindness to warning signs of a crisis, and the preconceptions of ideology. Posner wraps up the book with a chapter containing several suggestions, including eventual re-regulation of the banking industry, but warns that "this is not the time" to do so—a long-term solution after the economy recovers—that can "wait calmer days." He also suggests putting off a reorganization of the Treasury and the Federal Reserve until a later time. In the meanwhile, he writes, "piecemeal reforms may be feasible and helpful." These include a halt on government marketing of home ownership, backloading of compensation, increasing marginal income tax rates on the highest incomes, and usury laws to discourage risky loans. ==Criticism of George W. Bush==

The book is significant in Posner's criticism of President George W. Bush and his administration's policies and the response to the fiscal crisis. Part of the shock is due to Posner's longtime "conservative" views. a $10 trillion national debt and "the huge budget deficits run by the Bush administration", "prop[ping] up stock prices by keeping interest rates low," By the ownership society, Posner referred to the American Dream Down Payment Act of 2003 and other laws that made ownership easier. Posner points out that Bush's proposed privatization of Social Security would have made the depression even more harmful. Posner states that one of the "lessons learned" is that the "blurred" line between "the government and the private sector ... in the Bush Administration" contributed to a lack of insight into the underlying problems. Even more so, "the emphatically pro-business philosophy of the Bush administration made the SEC too trusting of the securities industry." The bottom line is that "there might not have been a depression had it not been for the Bush administration's mismanagement of the economy." ==Criticism of capitalism and mainstream economists==

Posner, famous for his advocacy of free markets, turns on free-market capitalism in this book: "the financial crisis is indeed a crisis of capitalism rather than a failure of government." Posner explicitly states that he has changed his mind, that in the words of economist Robert Lucas, "that macroeconomics in this original sense has succeeded." Posner states that: Posner points out that one of the causes of the depression was "blindness to warning signs" of a crisis. and Nouriel Roubini, and Brooksley Born, but they were ignored. He asserts that the "depression is a failure of capitalism". This is the second and most powerful shock. The New York Times points out that: ==Spreading the blame: critiques of Bill Clinton, Barack Obama, et al.==

Posner also assigns part of the blame for the recession to the administration of Bill Clinton. He says they were to blame for pushing policies that created the housing bubble. Likewise, Alan Greenspan, Clinton's appointee as chairman of the Federal Reserve, gets special blame for pushing low interest rates, which increased stock prices and led, in turn, to the bubbles in banking, stocks, and housing. He faults the concept of limited liability for increasing risk. He points out the harmful focus on short-term profits at the expenses of long-term stability. Bad credit was, in Posner's words, given a "so what?" attitude. Clinton and the Democratic leadership in Congress encouraged home ownership by people who had bad credit and should have, in Posner's view, remained tenants. Competition in the banking industry led to deregulation in Clinton's administration, and enactment of the Gramm–Leach–Bliley Act, which increased risk to the system. Encouraging the practice of "sweeps" by large investors (removing money from demand deposits into money market funds overnight) exacerbated the problem. Preconceptions and ideology held by both sides of the spectrum, argues the book, prevented novel challenges to changing fiscal realities. and thus says Posner, the signal-to-noise ratio prevented a clear analysis and even created "blindness" and "misinformation" for policy analysts. Posner went on the record against how Barack Obama's administration's Keynesian stimulus in the ARRA "could have been better designed," and specifically demurs against some of Obama's statements: Nonetheless, Posner points out that what is rational for an individual corporation may not be rational for the industry as a whole. ==Reception==

Reviewing for The New York Times, Jonathan Rauch wrote that: The Huffington Post gave a long review, noting with a bit of schadenfreude that Posner had changed his views. Michael Casey, in a review published in the Irish Times, writes "Blaming the system is a cop-out.... Posner’s approach is far too deterministic", and further calls the book "[a]n incomplete analysis of a floundering social system." In The Washington Post, Paul M. Barrett, an assistant managing editor of Business Week, writes that Posner seems to spread the blame too much, denigrates mere stupidity and "greed" as causes, and lacks "constructive proposals for reform...." In the Review, Nobel Prize–winning economist Robert Solow praises the author quite faintly: Solow's review itself was notable to some degree, according to Brad DeLong, who critiqued Posner's logic along the way: In an interview with The Economist, Posner was forced to defend his use of the term "depression" and his move "to the centre..." In January 2010, The New Yorker revisited A Failure of Capitalism, noting that by September 2009, Posner had become a confirmed Keynesian: "As acts of betrayal go, this was roughly akin to Johnny Damon's shaving off his beard, forsaking the Red Sox Nation, and joining the Yankees." ==See also==