Book Bits | 1.26.13

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
By Alan Blinder
Interview with author via The New York Times
Q: You write, “Our best hope is to minimize the consequences when bubbles go splat — and they inevitably will.” How much confidence do you have that when the next bubble goes splat, we will be ready, willing and able to contain the damage?
A: Less than I wish I had. But I’m at least hopeful that some of the lessons we’ve learned, and some of the actions we’ve taken, will make the next bubble less damaging than the last ones. For example, we now understand better the dangers that lurk in high leverage, overly complex financial instruments, and lax (or nonexistent) regulation.

The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy
By Michael Pettis
Summary via publisher, Princeton University Press
China’s economic growth is sputtering, the Euro is under threat, and the United States is combating serious trade disadvantages. Another Great Depression? Not quite. Noted economist and China expert Michael Pettis argues instead that we are undergoing a critical rebalancing of the world economies. Debunking popular misconceptions, Pettis shows that severe trade imbalances spurred on the recent financial crisis and were the result of unfortunate policies that distorted the savings and consumption patterns of certain nations. Pettis examines the reasons behind these destabilizing policies, and he predicts severe economic dislocations–a lost decade for China, the breaking of the Euro, and a receding of the U.S. dollar–that will have long-lasting effects.
Modern Portfolio Theory: Foundations, Analysis, and New Developments
By Jack Clark Francis and Dongcheol Kim
Summary via publisher, Wiley
Modern portfolio theory (MPT), which originated with Harry Markowitz’s seminal paper “Portfolio Selection” in 1952, has stood the test of time and continues to be the intellectual foundation for real-world portfolio management. This book presents a comprehensive picture of MPT in a manner that can be effectively used by financial practitioners and understood by students. Modern Portfolio Theory provides a summary of the important findings from all of the financial research done since MPT was created and presents all the MPT formulas and models using one consistent set of mathematical symbols. Opening with an informative introduction to the concepts of probability and utility theory, it quickly moves on to discuss Markowitz’s seminal work on the topic with a thorough explanation of the underlying mathematics.
Market Monetarism: Roadmap to Economic Prosperity
By Marcus Nunes and Benjamin Mark Cole
Reference via The Money Illusion (Scott Sumner)
Marcus Nunes and Benjamin Cole are familiar names to those who follow market monetarist ideas. Marcus has an excellent blog, and has supplied me with some of my best ideas. Benjamin Cole is a frequent commenter and a very persuasive writer. Now they have produced the first book applying market monetarist ideas to monetary policy during recent decades. I wrote the foreword:

… Nunes and Cole are part of a new movement called “market monetarism” which first arose on the internet and has recently revolutionized the way economists think about monetary policy in a deep slump. Prior to the recession, the standard formula called for adjusting interest rates up and down in order to target inflation. The hope was that a low and stable inflation rate would insure economic prosperity. We now know that this policy is not enough.
…If readers take an open-minded look at the evidence in this book, I believe they will be very surprised by what they see. The financial crisis and Great Recession that followed were not at all what they seemed to be at the time. The profession is beginning to come around to the market monetarist view of the importance of a stable growth path for nominal GDP, and this perspective casts a whole new light on the events of the past 5 years.

Skating Where the Puck Was: The Correlation Game in a Flat World
By William Bernstein
Review via The Chicago Tribune
This time of year, many investors begin to reflect on the past 12 months in the market. Did stocks sail higher than bonds? Was it better to own Apple or Google? Did some mutual funds outperform others?
It’s certainly OK to do this type of review, but if it tempts you to make drastic changes in your portfolio, experts say to watch out. You may be doing more harm than good.
That was one of the conclusions that William Bernstein, a financial adviser and author, made in his new e-book, “Skating Where the Puck Was: The Correlation Game in a Flat World.”Bernstein found that even among institutional investors — the pros who manage university endowments and public pension funds — there is a tendency to chase after the next “big idea.”
The Public Debt Problem: A Comprehensive Guide
By Pierre Lemieux
Summary via publisher, Palgrave Macmillan
The European public debt problem was in the making long before the 2007-2009 recession, as budget deficits had become endemic. A similar crisis is now developing in America, where the same fundamental causes have been at work. The Public Debt Problem analyzes the situation of public debts in America and reviews official forecasts for the federal government. The author carefully explains the main concepts (budget deficit, public debt, etc.) and analytical tools (discounting, government accounting, Treasury securities, bonds, yields, etc.) necessary to understand the issues.
Big Data, Big Analytics: Emerging Business Intelligence and Analytic Trends for Today’s Businesses
By Michael Minelli, Michele Chambers, and Ambiga Dhiraj
Summary via publisher, Wiley
The availability of Big Data, low-cost commodity hardware and new information management and analytics software has produced a unique moment in the history of business. The convergence of these trends means that we have the capabilities required to analyze astonishing data sets quickly and cost-effectively for the first time in history. These capabilities are neither theoretical nor trivial. They represent a genuine leap forward and a clear opportunity to realize enormous gains in terms of efficiency, productivity, revenue and profitability.