Financial innovation: Too much or too little? / ed. by Michael Haliassos
Cambridge, US.: MIT Press, 2013. 252 p.

In assigning blame for the recent economic crisis, many have pointed to the proliferation of new, complex financial products--mortgage securitization in particular--as being at the heart of the meltdown. The prominent economists from academia, policy institutions, and financial practice who contribute to this book, however, take a more nuanced view of financial innovation. They argue that it was not too much innovation but too little innovation--and the lack of balance between debt-related products and asset-related products--that lies behind the crisis. Prevention of future financial crises, then, will be aided by a regulatory and legal framework that fosters the informed use of financial innovation and its positive effects on the economy rather than quashing it entirely. The book, which includes two contributions from Robert Shiller as well as a discussion of Shiller's "MacroMarkets" tool, considers the key ingredients of financial innovation from both academia and industry; the positive potential but also the risks of financial innovation and the influence of producers on consumers; rationality- and behavioral-based viewpoints on the causes of the recent crisis; the link between the cycle of financial innovation and financial crisis; and how future innovation-linked crises might be avoided.

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Antifragile / Nassim Nicholas Taleb
New York: Random House, 2012. 519 p.

Nassim Nicholas Taleb, the bestselling author of The Black Swan and one of the foremost thinkers of our time, reveals how to thrive in an uncertain world.
Just as human bones get stronger when subjected to stress and tension, and rumors or riots intensify when someone tries to repress them, many things in life benefit from stress, disorder, volatility, and turmoil. What Taleb has identified and calls “antifragile” is that category of things that not only gain from chaos but need it in order to survive and flourish.
 
In The Black Swan, Taleb showed us that highly improbable and unpredictable events underlie almost everything about our world. In Antifragile, Taleb stands uncertainty on its head, making it desirable, even necessary, and proposes that things be built in an antifragile manner. The antifragile is beyond the resilient or robust. The resilient resists shocks and stays the same; the antifragile gets better and better.
Furthermore, the antifragile is immune to prediction errors and protected from adverse events. Why is the city-state better than the nation-state, why is debt bad for you, and why is what we call “efficient” not efficient at all? Why do government responses and social policies protect the strong and hurt the weak? Why should you write your resignation letter before even starting on the job? How did the sinking of the Titanic save lives? The book spans innovation by trial and error, life decisions, politics, urban planning, war, personal finance, economic systems, and medicine. And throughout, in addition to the street wisdom of Fat Tony of Brooklyn, the voices and recipes of ancient wisdom, from Roman, Greek, Semitic, and medieval sources, are loud and clear.

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Capital in the twenty-first century / Thomas Piketty
Cambridge, US: Belknap Press of Harvard Univ. Press, 2014. 685 p.

What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.
Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality--the tendency of returns on capital to exceed the rate of economic growth--today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.

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Misunderstanding financial crisis: Why we don't see them coming / Gary B. Gorton
New York: Oxford Univ. Press, 2012. 278 p.

Prior to the financial crisis of 2007-2008, economists thought that no such crisis could or would ever happen again in the United States, that financial events of such magnitude were a thing of the distant past. In fact, observers of that distant past—the period from the half century prior to the Civil War up to the passage of deposit insurance during the Great Depression, which was marked by repeated financial crises—note that while legislation immediately after crises reacted to their effects, economists and policymakers continually failed to grasp the true lessons to be learned.

Gary Gorton, considered by many to be the authority on the financial crisis of our time, holds that economists fundamentally misunderstand financial crises—what they are, why they occur, and why there were none in the U.S. between 1934 and 2007. In Misunderstanding Financial Crises, he illustrates that financial crises are inherent to the production of bank debt, which is used to conduct transactions, and that unless the government designs intelligent regulation, crises will continue. Economists, he writes, looked from a certain point of view and missed everything that was important: the evolution of capital markets and the banking system, the existence of new financial instruments, and the size of certain money markets like the sale and repurchase market. Delving into how such a massive intellectual failure could have happened, Gorton offers a back-to-basics elucidation of financial crises, and shows how they are not rare, idiosyncratic, unfortunate events caused by a coincidence of unconnected factors. By looking back to the "Quiet Period" from 1934 to 2007 when there were no systemic crises, and to the "Panic of 2007-2008," he brings together such issues as bank debt and liquidity, credit booms and manias, and moral hazard and too-big-too-fail, to illustrate the costs of bank failure and the true causes of financial crises. He argues that the successful regulation that prevented crises did not adequately keep pace with innovation in the financial sector, due in large part to economists' misunderstandings. He then looks forward to offer both a better way for economists to conceive of markets, as well as a description of the regulation necessary to address the historical threat of financial crises.

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