Overview

The financial and economic crisis that began in 2008 is the most alarming of our lifetime, if only because of the warp-speed at which it is occurring. How could it have happened, especially after all that we've learned from the Great Depression? Why wasn't it anticipated so remedial steps could be taken to avoid or mitigate it? What can be done to interrupt a slide into full-blown depression? Richard Posner presents a concise and non-technical examination of this mother of all financial disasters. Among the facts and causes he identifies are: excess savings flowing in from Asia and the consequent lowering of interest rates by the Federal Reserve Board; the relation between executive compensation, short-term profit goals, and risky lending; the housing bubble fuelled by low interest rates, aggressive mortgage marketing, and loose regulations; the low savings rate of American people; and, the highly leveraged balance sheets of large financial institutions. Although Posner's examples are drawn from recent American experience, the factors precipitating and contributing to the current crisis have international resonance. Posner analyses the two basic remedial approaches to the crisis, which correspond to the two theories of causes of the Great Depression: the monetarist - that the Federal Reserve Board allowed the money supply to shrink, thus causing deflation - and the Keynesian - that the depression was the product of a credit binge in the 1920's, a stock-market crash, and the ensuing downward spiral in economic activity. A heretofore believer in unfettered markets, Posner concludes that the pendulum swung too far and that our financial markets need to be more.

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[A] compelling read...Notable for [its] high seriousness and sophistication.--Robert Teitelman Huffington Post (12/23/2010) [Posner's] bracing and intellectually admirable A Failure of Capitalism demands attention.--Jonathan Kirshner Boston Review (01/01/2011) [Posner] has the rare kind of mind that is a pure pleasure to watch in action, regardless of the subject and the argument being made.--John Lanchester New Yorker (06/01/2009) [Posner] is the quintessential U.S. economic-conservative intellectual...So an excoriating attack by Posner on modern financial market practices is news. A Failure of Capitalism is precisely that. There are still U.S. conservatives who think the crisis was overdone, that the policy response has been too great, that this was merely a crisis of confidence and liquidity, and that the banking system was not insolvent, merely illiquid. That is not Posner's view. His judgment is that the banking system is insolvent and the crisis that took place in 2008 transformed a recession in the US into a depression...In his preface, Posner emphasizes that he has written the book in medias res , a lawyer's way of saying in the thick of it, with the implication that he has yet fully to make up his mind. He has, however, offered a thought-provoking interim analysis of what went wrong.--Warwick Lightfoot Financial World (07/01/2009) A surprising volume that explains what happened to the banking system and economy in terms the lay reader can easily understand...[Posner's] critique is bracing, all the more so because it comes from a right-leaning thinker normally hostile to the ministrations of government bureaucrats.--Paul M. Barrett Washington Post Book World (05/03/2009) Before seeking political asylum in free-market Hong Kong, consider reading a new book that critiques what went wrong with capitalism, written in order to save it. Judge Richard Posner's A Failure of Capitalism: The Crisis of '08 and the Descent into Depression is noteworthy. As a longtime University of Chicago professor and father of the free-market-based law-and-economics movement, Judge Posner makes an unlikely critic of capitalism. But as author of some 40 books and as the most frequently cited federal appeals court jurist, he is also one of our most original and clearheaded thinkers.--L. Gordon Crovitz Wall Street Journal (05/05/2009) It comes as something of a surprise that Posner, a doyen of the market-oriented law-and-economics movement, should deliver a roundhouse punch to the proposition that markets are self-correcting. It might also seem odd that a federal appellate judge (and University of Chicago law lecturer) would be among the first out of the gate with a comprehensive book on the financial crisis--if, that is, the judge were any other judge. But Posner is the late Daniel Patrick Moynihan's successor as the country's most omnivorous and independent-minded public intellectual. By now, his dozens of books just about fill their own wing in the Library of Congress...Compact and bracingly lucid...By the last page, not a single lazy generalization has survived Posner's merciless scrutiny, not one populist cliche remains standing. A Failure of Capitalism clears away whole forests of cant but leaves readers at a loss as to where to go from here. In other words, it is only a starting point--but an indispensable Lively, readable, and plainspoken...Posner has an extraordinarily sharp mind.--Robert M. Solow New York Review of Books (05/14/2009) Posner has managed to write a compelling book on the crash...The book has numerous worthwhile insights, including a surprisingly Keynesian analysis of the dynamics of depressions.--Robert Kuttner American Prospect (05/01/2009) Richard Posner is a phenomenon...He provides a very competent account of the events which led to the current crisis, with an emphasis on the political and ideological context.--John Kay Financial Times (07/31/2009) Richard Posner is one of America's most prominent and prolific public intellectuals...With his concise, jargon-free analysis of the current economic crisis, Posner has cast his lot with those who believe that the depression (given the steep reduction in consumption, credit and production, the term, he insists, is appropriate) was the result not of intrusive, heavy-handed regulation of housing and finance, but of deregulation, hostility to taxation and to government in general. --Glenn C. Altschuler Jerusalem Post (06/19/2009) The best book describing this malaise is Richard Posner's A Failure of Capitalism . The distinctiveness of his case is that he is a prominent conservative thinker with the intellectual acuity to argue that the crisis is not to do with the traditional enemy of conservatism, big government, but is a consequence of decisions taken by private firms. The ill-effects of those decisions were worsened by deregulation of banking.--Oliver Kamm The Times (12/05/2009)

[Posner] is the quintessential U.S. economic-conservative intellectual...So an excoriating attack by Posner on modern financial market practices is news. A Failure of Capitalism is precisely that. There are still U.S. conservatives who think the crisis was overdone, that the policy response has been too great, that this was merely a crisis of confidence and liquidity, and that the banking system was not insolvent, merely illiquid. That is not Posner's view. His judgment is that the banking system is insolvent and the crisis that took place in 2008 transformed a recession in the US into a depression...In his preface, Posner emphasizes that he has written the book in medias res , a lawyer's way of saying in the thick of it, with the implication that he has yet fully to make up his mind. He has, however, offered a thought-provoking interim analysis of what went wrong. -- Warwick Lightfoot Financial World (07/01/2009)

[Posner's] bracing and intellectually admirable A Failure of Capitalism demands attention.--Jonathan Kirshner Boston Review (01/01/2011)

Author Information

Richard A. Posner is Circuit Judge, the United States Court of Appeals for the Seventh Circuit, and a senior lecturer at the University of Chicago Law School. Among his many books are Law and Literature, Third Edition and How Judge Think (both from Harvard).

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