Analysis of Bailout Nation by Barry Ritholtz - Book Report/Review Example

 Bailout Nation Bailout Nation is a book by Barry Ritholtz. He is also the author of the famous economic blog The Big Picture and is also the CEO and Manager of Equity Research at Fusion IQ, which is an online quantitative form. This book is a break-down of the causes of the financial crisis from many angles. The author looks at the history of bailouts, graphs and charts to back up his analysis beyond reproach. Bailout Nation exposes how the years of attempting to take control of the economy using easy money has been caught up by the federal government and why the word bailout has turned out to be a by word in the American financial language. According the Ritholtz, there are three major issues with bailouts: there is something that is inherently unjust on some individuals acquiring a free ride as everyone else has to pay his own way (Ritholtz & Task, 2009). The practice of how some teams get saved by the government, while there are others that are left to struggle, is in and itself suspect. If people knew anything on bailouts previously, it is that every rescue endeavor is more expensive than the one that was before it. Barry Ritholtz’s rascals gallery of executors and facilitators consists of Allan Green, former Sen. Phil Gramm, both Presidents Bush and Clinton, Secretaries of the Treasury Larry Summers and Robert Rubin, the greatest Wall Street companies, the rating agencies and the Washington regulators (Ritholtz & Task, 2009). Together, the mentioned persons and institutions built a system that permitted banks, as well as financial institutions to run with no or little effective oversight, and thereby getting the profits of their success and ensuring that their disappointments would be endorsed by taxpayers. The author also exposes the manner in which each bailout throughout the modern history has impacted what occurs in the future. For instance, the reason Chrysler ought to have been allowed to fend for itself in 1980 and the effect it has on bailouts have come to be understood (Ritholtz & Task, 2009). The author looks at the issue as if there two type of individuals on Wall Street. There are people such as himself, who hold the belief that the industry ought to be a “brutal meritocracy” where one eats what he has worked for. The other group that he writes about is that of those at the top of dome institutions which were responsible for the disappearance of billions of dollars in the past 12 months through misuse of and freezing complicated derivative products. When the government seemed to run short, they rushed to feed on the government bailout parcel in Washington. The author states that the move left taxpayers with $14 trillion as a burden, factoring out the rescuing of Freddie Mac, General Motors (GM) and Fannie Mae (Ritholtz & Task, 2009). It is argued by the author that this is approximately the gross domestic product of the US in 2007. Also, as 2008 came to an end, even more industries got the smell of easy money. These were players such as home builders, automakers, insurers and the state and local governments who were also crying for a piece of the bailout pie (Ritholtz & Task, 2009). Most people argue that the government prevented disaster by pushing funds into the banking system- an idea which Ritholtz is not sure about. Instead, he is for the idea that the rescue of Bear Sterns encouraged the ailing Lehman brothers to put off possible saviors such as Warren E Buffett who were already willing to venture in it. Lehman became bankrupt in September and things went bad. Unexpectedly, the government was not able to dole out money quick enough (Ritholtz & Task, 2009). Ritholtz notes that the government was not always willing to offer a safety net to the banks. Efforts by George Bush are incomparable to those by Franklin Roosevelt during the Great Depression (Ritholtz & Task, 2009). The author states that Roosevelt came to rescue the ordinary individuals by funding public works projects that offered employment to people and making loans available to homeowners who were facing foreclosure. Ritholtz states that this all began in 1979, following the government’s act of dishing out 250 million dollars in loan guarantees to Lockhead. Lockhead was not doing well due to its submission of low bids so as to win government military contracts. That bailout made the way for 1.5 billion dollars which let go of Chrysler in 1980 (Ritholtz & Task, 2009). The author states that the let go left the carmaker with the same management and nothing was done to alter burdensome union contracts. If the government would have let Chrysler to fail, Ritholtz argues that the United Automobile may have been more willing to make health care and pension allowance turn the industry into a competitive one (Ritholtz & Task, 2009). In the book, it is argued that there may be someone who scooped up the remains of Chrysler and built improved vehicles and spring rivals to perform the same. To date, instead, the American market is dominated by foreign car manufacturers. The author cites that the UAW membership has decreased with over two thirds from the time of its peak in 1979. Chrysler lately was declared bankrupt along with GM. Ritholtz asks a question if that is the idea of an effective bailout which he refers to as the attempt to rescue Chrysler (Ritholtz & Task, 2009). However, the bailout that he finds to be particularly repugnant is the one of the Federal Reserve rescue of the Long Term Capital Management and the hedge fund that almost fell under heavily leveraged bets on exotic securities during 1998. The author concedes that long-term capital’s loaners which includes everyone from Bear Sterns Mirrill Lynch, would have experienced pain incase the fund had turned sour. Nevertheless, he states that, this would have been a “ripping good lesson” in risk management (Ritholtz & Task, 2009). Rather, Ritholtz, writes that the federal government sent the implicit sign to these banks that they also could expect to be rescued incase they took too much risk. In other words, he tries to say that, “Long-term Capital Management was the dress rehearsal for the great credit crisis of 2008 and a missed opportunity to prevent the continuing tragedy” (Ritholtz & Task, 2009). Sometimes, the book sounds like a long blog post and occasionally drives out its point with jokes that appear to be rude. As the author almost concludes the book, he states that “Adam Smith would not know whether to weep or retches were alive to see this today.” This appears to be a joke. The author has a great way of brushing up an economic history in the United States and to better understand the long-term impact of the government intervention. One of the good things about the book is that it is not politically biased. It also shows that the blame for the financial crisis of 2008 is much more widespread than most citizens would believe. Bailout Nation takes an impartial and unbiased approach to analyzing the real causes of the financial crisis. Scornful and strong minded, the book Bailout Nation is also a history of how the US evolved from a rugged, independent country to a soft bailout nation. However, instead of a downbeat note, the author provides a research of thoughts from some of the brightest and best people in the financial field. He also offers pieces of advice that are constructive in some categories, such as: determining housing and credit confusion; enhancing monetary policy; fixing the economy; enhancing energy innovation; as well as redefining presidential leadership. References Ritholtz, B., & Task, A. (2009). Bailout Nation: How Greed And Easy Money Corrupted Wall Street And Shook The World Economy. Hoboken, N.J: John Wiley & Sons. Read More