Accelerating out of the Great Recession
Title: Accelerating Out of the Great Recession: How to Win in a Slow-Growth Economy
Authors: David Rhodes and Daniel Stelter
Publisher: McGraw-Hill, 2010
ISBN-13: 978-0071718141, 224 pages
Review: Accelerating Out of the Great Recession
By Patrick Brigger, getAbstract
Boring history and economic lessons can drop some students into zonked-out slumber.
Fortunately, this book will rouse them. International consultants David Rhodes and Daniel Stelter deliver a mix of entertainment and education that is enhanced by engaging examples and an appealing style. They solidly package business and historical lessons from the Depression era and apply them to the "Great Recession." Their text is concise, albeit with occasional bouts of redundancy. Although the authors have attempted to create a politically neutral analysis, an astute reader might detect an apparent but not intrusive preference for conservative fiscal politics.
That's because the writers highlight the shortfalls and downsides of Democratic-administration interventions at some length and offer only minimal criticism of Republican deregulatory policies, without deeply analyzing their role in opening the door to securities crises, Ponzi schemes and the mortgage market meltdown. However, the text's benefits outweigh any political oversights especially since modern literary even-handedness often amounts to little more than a "plague on both your houses" anyway. The authors go beyond just diagnosing economic problems. They supply concrete, evidence-based solutions for executives who are trying to generate profits in a rigorous fiscal environment. getAbstract recommends this book to corporate leaders, strategists and managers who want to spur sales and excitement in a period of slow business growth.
The "Great Recession" did not develop into the Great Depression, part II, and signs have emerged that an economic rebound is under way. But here's the other side of the coin: Governments and central banks from around the globe had to provide an "unprecedented" level of intervention to prevent a worldwide economic meltdown. Experts estimate that governments from different countries spent some $18 trillion to create stability in the financial industry and spent an additional $2.5 trillion to jump-start economic production and consumption.
Despite that massive level of intervention, underlying economic problems remain in place. It could be years before damaged companies and weakened financial institutions rebound. Meanwhile, the world faces the sharpest economic decline in decades.
The drop in production is real and severe. The International Monetary Fund (IMF) reports that the global economy fell 1.1%, with "advanced" countries posting the greatest retreat, a decline of 3.4% in 2009. For the two-year period ending in 2009, international trade and production slipped faster than they did during the Depression.
Anatomy of Decline
Dramatic spikes in home prices set the stage for the economic crisis. The sharp rise began in 1997, and by 2006 home prices had doubled on an inflation-adjusted basis. Easy credit, falling interest rates and aggressive lending standards drove growth in real estate prices and home ownership rates. This scenario was built on three assumptions, which proved to be inaccurate:
1. Most borrowers seemed to be good credit risks - That assumption was false. Lower interest rates and softer lending standards made weak borrowers appear stronger than they really were. The situation became even more precarious when homeowners used their houses for more borrowing through risky home equity loans. With that access to easily borrowed money, the family house turned into a cash machine.
2. Capital markets investors were shrewd players - Despite access to volumes of data and analysis, this time the putative experts were wrong.
3. Lending risk was globally diverse and not dangerously concentrated -This supposition was off-target. Banks retained a large portion of the lending risk.
The precipitous drop in U.S. real estate prices led to a crisis in subprime securities, and that sparked a global liquidity crunch in the financial sector, especially in the banking industry. Ailing banks extended fewer loans, which meant diminished business activity and increased layoffs. The cycle continued to spin into economic disaster, as business and consumer loan defaults escalated...
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