Smart Money: How High-Stakes Financial Innovation is Reshaping Our WorldFor the Better starts from the 2007-2008 financial crisis, but in a very different direction than other books: that of optimism that financial innovations are, in fact, good for us. The author starts with two interesting points: that money is a way to time-travel (think about it: save today to spend tomorrow — or vice-versa), and that secured lending (to buy a house, for instance) is dangerous since it does not consider the creditworthiness of the borrower.
He then proceeds to tell a long and interesting history of financial systems since antiquity, pointing out key inventions — and problems, too, so the book is not a Pollyanesque sham. It’s clear that, as in other fields, innovation will not come from the large-established players.
The author of Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe makes a great point, that by trying to remove small risks we can increase the likelihood of large disasters — and further that because we remove small risks we get lulled into thinking that there are no risks at all.
The author is a long-time financial journalist, and his arguments unfold well against the financial crisis. The extension of the argument to other spheres is less successful, not that it does not apply, but somehow the discussions feel tacked on to the original subject.
I was expecting How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy to explore how the poor manage their finances, but in fact it is structured in two parts, one a detailed history of the banking system in the United States and the other a harangue in favor of a postal banking system. The history I found a little tedious, although it was interesting to see how the idea of a national bank was tried, more than once, by our supposedly infallible founding fathers — and slightly horrifying to be reminded of how just four banks hold half of all bank assets. Talk about too big to fail!
The author then quickly (and inexplicably) dismisses any other solution to the problem of the unbanked in favor of establishing a postal banking system. Certainly there are many countries that use such a system, but after the author’s rants against faceless, non-local bureaucracies, it’s a little difficult for the reader to see how the postal service could be anything but faceless and bureaucratic. It’s also unclear why she condemns private initiatives such as Walmart’s efforts to provide low-cost banking services while she deplores the fact that the unbaked spend thousands of dollars each year on financial services. And finally, in an age of online services, wouldn’t it make more sense to propose faceless but inexpensive online banking? I remain perplexed.
Other People’s Money: Inside the Housing Crisis and the Demise of the Greatest Real Estate Deal Ever Made tells the story of Stuyvesant Town, a Manhattan housing complex built after WWII for moderate-income workers, and whose $5.4 billion sale in 2006 made it the largest real estate deal ever. The book tells the details of how the deal came about, in excruciating detail. (Who cares that one of the investors’ flight on a private job had an aborted landing?) But before the tedious story of the deal comes the story of the birth of Stuyvesant Town, which is much more interesting: how the city made large tax concessions to an insurance company, MetLife, to build affordable housing, even though it discriminated against African-Americans, and how the city’s rent-control ordinance allowed the original tenants to stay put, for decades and for smaller and smaller rents compared to the market, sometimes passing their apartments from parents to children, creating another set of unseemely social discrimination.