18634_DustJacket-R2.qxd:18634_DustJacket-R2 7/28/09 9:56 AM Page 1 “ U.S. $21.95 Johan Norberg exposes the abiding hypocrisies of policy that generated this crisis “ far better than an American insider could. A masterwork in miniature. —AMITY SHLAES he story of this storm in the global markets SENIOR FELLOW IN ECONOMIC HISTORY, COUNCIL ON FOREIGN RELATIONS, AUTHOR, THE FORGOTTEN MAN: A NEW HISTORY OF THE GREAT DEPRESSION is the story of how government intervention to solve previous crises laid the foundation You don’t have to be an economist to gain a clear understanding of the diverse forces “T for a new one,” writes Johan Norberg in this “that produced the financial fiasco that Johan Norberg describes: lax monetary policy by important new book. Tracing the causes of our current the Federal Reserve System, overpromotion of homeownership by the government and financial crisis with liveliness and clarity, Financial Fiasco government agencies, and transformation of the mortgage loan industry into an issuer shows the mistakes made in Washington, on Wall Street, of securities backed by a pool of mortgages of varying quality. The result is the “ and in communities across America that led to the eco- collapse of the asset price boom in house prices, loss of wealth, and a nomic meltdown. While many analyses of the crisis have dysfunctional financial credit market. placed the blame solely on Wall Street, Norberg exposes —ANNA J. SCHWARTZ the crucial role government regulation played in creating COAUTHOR, A MONETARY HISTORY OF THE UNITED STATES the opportunities and incentives that led to the econom- ic meltdown. This highly readable book, by a historian, gives an unbiased explanation of the JOHAN NORBERG is a senior fellow at the Cato Institute. “various factors leading to the financial meltdown, and says that if we’re looking for In six concise chapters, Financial Fiasco tells the com- His book In Defense of Global Capitalism has been scapegoats, we need only to take a look in the mirror. Norberg has done a yeoman’s plex story of the crisis, showing how monetary policy, published in more than 20 countries. He wrote and job in economic diagnostics. Whether the American people want“ to take housing policy, and financial innovations combined to the necessary treatment is another question. hosted “Globalisation Is Good,” a documentary for create financial catastrophe. The final two chapters Channel Four in Britain. He lives in Stockholm. —WALTER E. WILLIAMS describe the government’s mismanagement of the crisis JOHN M. OLIN DISTINGUISHED PROFESSOR OF ECONOMICS, GEORGE MASON UNIVERSITY and how we are now dangerously repeating many of the very same mistakes that caused it. An understanding Financial Fiasco is a penetrating and frightening analysis of the causes of the roots of the financial crisis is crucial for every OTHER BOOKS AVAILABLE FROM THE CATO INSTITUTE “and consequences of the 2008 financial panic. Norberg lays out with precision American who has felt its effects—and would like and detail how a perfect storm of misguided government policies and private-sector In Defense of Global Capitalism to prevent the same disaster from happening again. exuberance combined to create the worst economic downturn since World War II. This BY JOHAN NORBERG is essential reading for everyone who cares about our economic future, but especially for Financial Fiasco provides that understanding, with those who are still not sure what caused the crisis. As Norberg makes clear, private great insight, clarity, and wit. Global Tax Revolution: The Rise of Tax “ forces jumped willingly on a runaway train, but it was government that built Competition and the Battle to Defend It Just as important, Financial Fiasco serves as a pro- the train and drove it off a cliff. BY CHRIS EDWARDS AND DANIEL J. MITCHELL found warning against pursuing the wrong solutions. —JEFFREY MIRON “After government authorities had helped create the Cowboy Capitalism: European Myths, SENIOR LECTURER IN ECONOMICS, HARVARD UNIVERSITY worst financial crisis in generations, the climate of ideas American Reality has now shifted dramatically in the direction of bigger BY OLAF GERSEMANN DISTRIBUTED TO THE TRADE BY NATIONAL BOOK NETWORK and more active government,” Norberg writes. Finan- WWW.NBNBOOKS.COM cial Fiasco is the perfect antidote to those ideas, a cau- CATO INSTITUTE tionary tale on how to stop confusing the disease with CATO INSTITUTE 1000 MASSACHUSETTS AVE., N.W. 1000 MASSACHUSETTS AVE., N.W. WASHINGTON, D.C. 20001 the cure. WASHINGTON, D.C. 20001 WWW.CATO.ORG WWW.CATO.ORG 18634_DustJacket-R2.qxd:18634_DustJacket-R2 7/28/09 9:56 AM Page 1 “ U.S. $21.95 Johan Norberg exposes the abiding hypocrisies of policy that generated this crisis “ far better than an American insider could. A masterwork in miniature. —AMITY SHLAES he story of this storm in the global markets SENIOR FELLOW IN ECONOMIC HISTORY, COUNCIL ON FOREIGN RELATIONS, AUTHOR, THE FORGOTTEN MAN: A NEW HISTORY OF THE GREAT DEPRESSION is the story of how government intervention to solve previous crises laid the foundation You don’t have to be an economist to gain a clear understanding of the diverse forces “T for a new one,” writes Johan Norberg in this “that produced the financial fiasco that Johan Norberg describes: lax monetary policy by important new book. Tracing the causes of our current the Federal Reserve System, overpromotion of homeownership by the government and financial crisis with liveliness and clarity, Financial Fiasco government agencies, and transformation of the mortgage loan industry into an issuer shows the mistakes made in Washington, on Wall Street, of securities backed by a pool of mortgages of varying quality. The result is the “ and in communities across America that led to the eco- collapse of the asset price boom in house prices, loss of wealth, and a nomic meltdown. While many analyses of the crisis have dysfunctional financial credit market. placed the blame solely on Wall Street, Norberg exposes —ANNA J. SCHWARTZ the crucial role government regulation played in creating COAUTHOR, A MONETARY HISTORY OF THE UNITED STATES the opportunities and incentives that led to the econom- ic meltdown. This highly readable book, by a historian, gives an unbiased explanation of the JOHAN NORBERG is a senior fellow at the Cato Institute. “various factors leading to the financial meltdown, and says that if we’re looking for In six concise chapters, Financial Fiasco tells the com- His book In Defense of Global Capitalism has been scapegoats, we need only to take a look in the mirror. Norberg has done a yeoman’s plex story of the crisis, showing how monetary policy, published in more than 20 countries. He wrote and job in economic diagnostics. Whether the American people want“ to take housing policy, and financial innovations combined to the necessary treatment is another question. hosted “Globalisation Is Good,” a documentary for create financial catastrophe. The final two chapters Channel Four in Britain. He lives in Stockholm. —WALTER E. WILLIAMS describe the government’s mismanagement of the crisis JOHN M. OLIN DISTINGUISHED PROFESSOR OF ECONOMICS, GEORGE MASON UNIVERSITY and how we are now dangerously repeating many of the very same mistakes that caused it. An understanding Financial Fiasco is a penetrating and frightening analysis of the causes of the roots of the financial crisis is crucial for every OTHER BOOKS AVAILABLE FROM THE CATO INSTITUTE “and consequences of the 2008 financial panic. Norberg lays out with precision American who has felt its effects—and would like and detail how a perfect storm of misguided government policies and private-sector In Defense of Global Capitalism to prevent the same disaster from happening again. exuberance combined to create the worst economic downturn since World War II. This BY JOHAN NORBERG is essential reading for everyone who cares about our economic future, but especially for Financial Fiasco provides that understanding, with those who are still not sure what caused the crisis. As Norberg makes clear, private great insight, clarity, and wit. Global Tax Revolution: The Rise of Tax “ forces jumped willingly on a runaway train, but it was government that built Competition and the Battle to Defend It Just as important, Financial Fiasco serves as a pro- the train and drove it off a cliff. BY CHRIS EDWARDS AND DANIEL J. MITCHELL found warning against pursuing the wrong solutions. —JEFFREY MIRON “After government authorities had helped create the Cowboy Capitalism: European Myths, SENIOR LECTURER IN ECONOMICS, HARVARD UNIVERSITY worst financial crisis in generations, the climate of ideas American Reality has now shifted dramatically in the direction of bigger BY OLAF GERSEMANN DISTRIBUTED TO THE TRADE BY NATIONAL BOOK NETWORK and more active government,” Norberg writes. Finan- WWW.NBNBOOKS.COM cial Fiasco is the perfect antidote to those ideas, a cau- CATO INSTITUTE tionary tale on how to stop confusing the disease with CATO INSTITUTE 1000 MASSACHUSETTS AVE., N.W. 1000 MASSACHUSETTS AVE., N.W. WASHINGTON, D.C. 20001 the cure. WASHINGTON, D.C. 20001 WWW.CATO.ORG WWW.CATO.ORG FinancialFiasco_BG_IntroPages 6/4/09 4:00 PM Page 1 FinancialFiasco_BG_IntroPages 6/4/09 4:00 PM Page 1 FinancialFiasco_BG_IntroPages 6/4/09 4:00 PM Page 2 WASHINGTON, D.C. Copyright © 2009 by Cato Institute. All rights reserved. Library of Congress Cataloging-in-Publication Data Norberg, Johan, 1973– Financial fiasco : how America’s infatuation with homeownership and easy money created the economic crisis / Johan Norberg. p. cm. Includes bibliographical references and index. ISBN 978-1-935308-13-3 (alk. paper) 1. Home ownership—Government policy—United States. 2. Financial crisis— United States—History—21st century. 3. Keynesian economics. I. Title. HD7287.82.U6UN67 2009 330.973—dc22 2009026629 Cover design by Jon Meyers. Printed in the United States of America.