Boom & Bust
Financial Cycles and Human Prosperity

  • Title:

    Boom & Bust
  • Format:

    Paperback
  • Paperback Price:

    9.95
  • Paperback ISBN:

    978-0-8447-4383-7
  • 100 Paperback pages
  • Buy the Book

In "Boom and Bust: Financial Cycles and Human Prosperity," Alex J. Pollock argues that while economic downturns can be frightening and difficult, people living in free market economies enjoy greater health, better access to basic necessities, better education, work less arduous jobs, and have more choices and wider horizons than people at any other point in history. This wonderful reality would not exist in the absence of financial cycles. This book explains why. "Boom and Bust" is a primer in the Values & Capitalism series intended for college students.

 

 

 

 

Chapters in "Boom and Bust"

1. Human Nature and Capitalism
2. The Economic Achievements of Capitalism
3. Capitalism, Ethics, and Religious Faith
4. Is Capitalism Unjust?

 

Introduction to "Boom and Bust"

"...economic downturns can be frightening and difficult, but people living in free market economies enjoy greater health, better access to basic necessities, better education, work less arduous jobs, and have more choices and wider horizons than people at any other point in history. This wonderful reality would not exist in the absence of financial cycles. This book explains why."

Most people know virtually no financial history, so when we have a financial crisis, it seems like it has never happened before. But it has.

The financial panic of 2007–09, with its massive losses revealed, displays the classic patterns of recurring credit cycles. In the bubble that preceded the panic, housing prices and mortgage borrowing rose to unsustainable heights and then crashed back to earth. Millions of mortgage borrowers ended up owing more on their homes than the properties were worth. The housing wealth that people thought they had fell by about $7 trillion. Defaults on mortgages soared. As the crisis deepened and spread beyond the housing sector, a serious recession ensued. The stock market lost more than half its value. Famous banks failed or had to be acquired by competitors able to absorb their losses. Governments in the U.S. and many other countries scrambled to design huge bailouts. Some journalists deluded themselves into thinking they were witnessing the “death of capitalism.”

It was so dramatic that people might be forgiven for believing it was unique. But in historical perspective, we should not be surprised by these travails. We don’t even have to look very far back for another bubble. Only ten years before, as the potential of the Internet became widely realized, the stock market prices of “dotcom” companies rose giddily over several years to spectacular heights, only to go bust in equally spectacular fashion, and a recession followed. In the bursting of the “Dotcom Bubble,” the technology stock index lost nearly two-thirds of its value and almost a decade later still trades at only half its bubble peak.

So, the U.S., in succeeding decades, had first the equity bubble and bust of the 1990s and then the housing bubble and bust of the 2000s. Japan, in the 1980s, had a simultaneous equity and housing bubble and bust.

Bubbles are the unsustainable increase in the price of some asset (houses, most recently) that people end up buying because they believe the price will continue to rise. So, indeed, it does for some time, perhaps several years, strengthening the belief. But when accompanied by large increases in borrowing, bubbles are unfailingly followed by crises, in which borrowers default, lending firms collapse, and the asset prices rapidly fall.

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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