Saturday, December 12, 2009

Book Review: The Origin of Financial Crises by George Cooper

I just finished the truly great book THE ORIGIN OF FINANCIAL CRISES by author George Cooper.

This is a MUST READ for all investors.

The importance of this book is obvious. If you can't recognize the causes and symptoms of financial panics how can you profit from them?

For many years before Mr. Bernanke finally noticed it, I told you a real estate crash of monumental proportions was coming. Starting as early as 2004 I was sounding the horn and riding like Paul Revere through the Internet countryside proclaiming "The Bubble is Coming."

So how did I know this when so many others in the real estate industry pretended everything was rosy and sunny and peachy-keen in Swellsville?


Mr. Cooper's work is exceptional on many levels, especially because of its brevity and common sense on a stunning number of crucial financial points.

For example, the analysis put forth by Mr. Cooper against the Efficient Market Theory is the best I have ever seen anywhere. I don't believe in it, by the way. I never have. You shouldn't either---and won't after reading what he has to say about it.

Do you know Hyman Minsky's Financial Instability Hypthesis? You should. The world is currently living through the proof that he is right and this is no mere theory. You'll read about it in this book.

The subtitle of The Origin of Financial Crises says it all:

"Central Banks, Credit Bubbles, and the Efficient Market Fallacy"

Yes, there were financial panics and monetary crises many times before the idea of a "central bank" came into being, such as in the United States via the Federal Reserve Act of 1913.

But the consequences of the Federal Reserve System since World War I, or nearly 100 years, has been an endless cycle of booms-and-busts all precipitated by the central banks of the world either flooding the market with ultra-cheap money which fuels unlimited lending and the most rank speculation imaginable (think NASDAQ 1999 or Miami 2006) or excessive tightening and "credit crunches" designed to fight inflation brought about by the last bubble market (think the United States circa 1979).

If the Fed was to eliminate financial panics, why is it causing them? This is much like using a birth control device that increases the chance of pregnancy.

Unless the Congress and the President do the right thing and abolish the corrupt and worthless Federal Reserve System (not likely) the best you can hope for as an investor is knowing the causes of financial panics and crises and being ready for the day that the Fed hands you one.

With THE ORIGIN OF FINANCIAL CRISES you can profit from the Fed's grotesque largess.

I'm not sure author George Cooper intended his book to be primer for investment profits. He seems more revolutionary theoretician than practical hedge fund advisor. Nevertheless, I found his book fascinating, a tight and concise analysis of financial markets, how they are supposed to work, and unfortunately how they really do.

The only real issue presented for me after reading this book is whether or not you profit from the mistakes of others. In a capitalist society, you not only should but do the system a service by doing so.

Robert J. Abalos, Esq.