Global Economic System, The

Anyone interested in exactly how a financial crisis affects the real economy should read this book. Its great strength lies in carefully tracing the effects of falling asset values on bank balance sheets and how this tightens the supply of credit to the private sector, reducing output and employment in a downturn.
--Alexander J. Field, Professor of Economics, Santa Clara University, and author of A Great Leap Forward: 1930s Depression and U.S. Economic Growth

This is a lucid and provocative analysis of liquidity shocks--a powerful and much misunderstood force in financial markets. The authors demonstrate that liquidity--or perhaps more interestingly illiquidity--has a quantifiable value. How well--or badly--a liquidity shock is managed by practitioners, bank managements, and regulators has major implications for financial markets, banks, and the economy as a whole. This book raises important public policy questions regarding the appropriate response to financial crises, and how to prevent them. I learned a great deal from reading it.

--Roberto Mendoza, Senior Managing Director, Atlas Advisors, and formerly Vice Chairman, J.P. Morgan

The global economic crisis of 2008-2009 stunned many of the worlds most astute investors. Although only 49 hedge funds failed during all of 2007, 1,112 failed during just the second half of 2008. Three U.S. banks failed in 2007; 140 failed in 2009. Harvards, Stanfords, and Yales acclaimed investment managers each lost at least a quarter of their portfolios in 2008.

How did this happen? What hidden factor did all these brilliant investors miss? The answer is liquidity risk.

Writing for financial professionals and other sophisticated readers, the authors thoroughly illuminate liquidity risk in todays global financial system, show how the key institutions interconnect, and explain how liquidity risk powerfully impacts them all. The authors carefully analyze three massive liquidity events: the Great Depression, Japans Lost Decade of the 1990s, and the global economic crisis of 2008-2009, revealing what really happened--and the lessons they teach us.

• Reveals the core cause of market and economic crashes: liquidity failures
• Explains the modern global credit system, the roles of key institutions, and the instruments they rely on
• Offers crucial new insights for financial professionals, sophisticated investors, policymakers, and students of finance and economics

This is an authoritative guide to todays global financial system: how it works, how its elements fit together, and the crucial vulnerabilities that can cause it to fail.

Writing for financial professionals and other sophisticated readers, the authors fully explain liquidity risk and how it affects the ...