harga sebelum ongkos kirim Rp. 158,000
http://en.wikipedia.org/wiki/index.html?curid=1378709
Collapse: How Societies Choose to Fail or Succeed (also titled Collapse: How Societies Choose to Fail or Survive) is a 2005 book by Jared M. Diamond, professor of geography and physiology at University of California, Los Angeles. Diamond's book deals with "societal collapses involving an environmental component, and in some cases also contributions of climate change, hostile neighbors, and trade partners, plus questions of societal responses" (p. 15). In writing the book Diamond intended that its readers should learn from history (p. 23).
Contents
[hide]
* 1 Synopsis
* 2 Book structure
* 3 Reviews
* 4 Similar theories
* 5 See also
* 6 References
* 7 External links
[edit] Synopsis
In the prologue, Diamond summarizes Collapse in one paragraph, as follows.
“ This book employs the comparative method to understand societal collapses to which environmental problems contribute. My previous book (Guns, Germs, and Steel: The Fates of Human Societies), had applied the comparative method to the opposite problem: the differing rates of buildup of human societies on different continents over the last 13,000 years. In the present book focusing on collapses rather than buildups, I compare many past and present societies that differed with respect to environmental fragility, relations with neighbors, political institutions, and other "input" variables postulated to influence a society's stability. The "output" variables that I examine are collapse or survival, and form of the collapse if collapse does occur. By relating output variables to input variables, I aim to tease out the influence of possible input variables on collapses. ”
—page 18
Diamond lists eight factors which have historically contributed to the collapse of past societies:
1. Deforestation and habitat destruction
2. Soil problems (erosion, salinization, and soil fertility losses)
3. Water management problems
4. Overhunting
5. Overfishing
6. Effects of introduced species on native species
7. Overpopulation
8. Increased per-capita impact of people
Further, he says four new factors may contribute to the weakening and collapse of present and future societies:
1. Human-caused climate change
2. Buildup of toxins in the environment
3. Energy shortages
4. Full human utilization of the Earth’s photosynthetic capacity
Diamond also writes about cultural factors, such as the apparent reluctance of the Greenland Norse to eat fish.
The root problem in all but one of Diamond's factors leading to collapse is overpopulation relative to the practicable (as opposed to the ideal theoretical) carrying capacity of the environment. The one factor not related to overpopulation is the harmful effect of accidentally or intentionally introducing nonnative species to a region.
Diamond also states that "it would be absurd to claim that environmental damage must be a major factor in all collapses: the collapse of the Soviet Union is a modern counter-example, and the destruction of Carthage by Rome in 146 BC is an ancient one. It's obviously true that military or economic factors alone may suffice" (p. 15).
Sunday, September 20, 2009
Ecologic : Truth and Lies of Green Economics -by Barton Clegg
harga sebelum ongkos kirim: Rp. 159,800
http://www.brianclegg.net/ecologic.html
Looking after the environment should be a no brainer.
No one wants to destroy the world, yet at every turn mankind fails to take essential steps to prevent the destruction of our planet – or we’re deceived, often by ourselves. So why can’t experts agree on the remedies? Why is so much green rhetoric a response to scares rather than the real issues?
Taking the scalpel of ecologic, that is sound reasoning, economics and human psychology, to everything from carbon trading to organic food to charity fundraisers, author Brian Clegg opens up the reality beneath the layers of confusion and manipulation to expose what is truly green and what is simply greenwash.
So why can’t the experts agree? Why do polls tell lies? Why is fairtrade unfair? Why is so much green rhetoric a response to scares rather than green issues? And why do we fail to balance reward and risk?
v Reviews v
This book crackles. Every paragraph pits your heart against your head. Those with green sensibilities and a nervous disposition may have a cardiac arrest. But the rest of us will have our synapses set alight.
http://www.brianclegg.net/ecologic.html
Looking after the environment should be a no brainer.
No one wants to destroy the world, yet at every turn mankind fails to take essential steps to prevent the destruction of our planet – or we’re deceived, often by ourselves. So why can’t experts agree on the remedies? Why is so much green rhetoric a response to scares rather than the real issues?
Taking the scalpel of ecologic, that is sound reasoning, economics and human psychology, to everything from carbon trading to organic food to charity fundraisers, author Brian Clegg opens up the reality beneath the layers of confusion and manipulation to expose what is truly green and what is simply greenwash.
So why can’t the experts agree? Why do polls tell lies? Why is fairtrade unfair? Why is so much green rhetoric a response to scares rather than green issues? And why do we fail to balance reward and risk?
v Reviews v
This book crackles. Every paragraph pits your heart against your head. Those with green sensibilities and a nervous disposition may have a cardiac arrest. But the rest of us will have our synapses set alight.
Futurecast 2020 -by Robert Shapiro
harga sebelum ongkos kirim: Rp. 103,200
Futurecast: How Superpowers, Populations, and Globalization Will Change the Way You Live and Work by Robert J. Shapiro. St. Martin’s Press. 2008. 358 pages. $26.95.
Three powerful global forces are currently reshaping humanity’s near-term future, writes former U.S. Undersecretary of Commerce Robert J. Shapiro in his new book Futurecast. These forces are globalization, an aging world population, and America’s unchallenged position as the world’s sole military superpower. Analyzing them, Shapiro creates a “global blueprint” that charts the likely course of the planet over the next decade and a half.
Most of the discussion revolves around the impact of globalization, which Shapiro believes will produce the greatest amount of change, as it breaks down barriers and opens up economies. He argues that the United States (along with the rest of the world) has no choice but to embrace globalization, despite its drawbacks and limitations. In fact, globalization will ultimately favor the United States and China, while creating much greater economic challenges for Europe and Japan (whose economies are significantly less productive overall). Indeed, the economic futures of America and China are intrinsically linked, for better or for worse, now that China has emerged as an economic superpower. One reason for this connection is the seemingly endless shift of production jobs to China, which provides a seemingly endless supply of low-skilled, low-wage workers.
“A decade from now, America will still be the world’s largest and most technologically advanced economy, and the one with the greatest impact on everyone else,” Shapiro writes. “But nothing will stop globalization from destroying job security for millions of Americans, along with their European and Japanese counterparts.” By the year 2020, the vast majority of manufacturing jobs will have permanently relocated to the developing world.
Shapiro reminds the reader that China’s economy is more than three times what it was 15 years ago, and he believes that its rapid economic ascension will continue unabated, as China has now become a key trading partner attractive to foreign investors. However, China’s economic growth may be happening too quickly. The rest of the country is struggling to keep up with the changes, including implementing key environmental and product safety regulations. Also, the vast majority of the workers who contribute to the growing economy remain greatly impoverished. Due to these struggles, China’s economic success is not guaranteed. Shapiro argues that China needs a more liberal political system to manage its liberalized economic system—conditions that are already in place in the United States. Shapiro also disagrees with the view that India will soon emerge as an economic force, and labels India “still a backward economy decades away from global economic influence.”
Longer Lives, Smaller Families
In addition to globalization, Shapiro also notes that an unprecedented shift from large families with short life-spans to small families with significantly longer life-spans is currently taking place across the globe. In Japan, “the median age will hit fifty by 2020.” Population change is something that can’t be legislated or regulated, Shapiro argues, and the economic ramifications of the shift will be felt everywhere. Labor forces will contract and economic growth will be stymied, the vast number of retirees will create a financial crisis for government pension programs in virtually every country that has them, the standard of living will drop, and taxes will increase sharply. The global health-care crisis will inevitably extend to China, where approximately 80% lack medical care: “For the nearly 80% of Chinese without insurance or the private means to pay, doctors won’t see them and hospitals won’t admit them, regardless of how sick or injured they are.” New technologies will only drive up the cost of medical care, which “inevitably will create enormous social and economic stresses in every major country over the next ten to fifteen years,” Shapiro writes.
While the U.S. will likely remain the dominant superpower with no direct challengers, Shapiro finds that the threat of terrorism is one of two wild cards that have the potential to unpredictably alter the projected future outcome. He analyzes what effects different terrorism scenarios might have on the new global economy before briefly identifying different means of technological advancement (the other wild card), including nanotechnology, biotechnology, and information technologies, and their effect on the market as well.
The passages discussing climate change expose the one major weakness of the book, however, for Shapiro doesn’t devote much of his powerful analytic skills to an in-depth discussion of the impact of global warming. Instead, he optimistically foresees nanotechnological breakthroughs leading to clean energy, making climate change a “manageable problem,” without elaborating much on what that implies. The topic requires more thoughtful analysis.
Shapiro’s writing style lacks the colloquial, hand-on-your-shoulder approach of award-winning journalists who have tackled similar subject matter, but when he delves into the specifics of the new global economy, his prose is engaging, and infused with real energy. At times repetitive, Futurecast would be more effective if it were more concise, but it succeeds in giving the reader a sophisticated awareness of many of the major challenges and unexpected developments in store for us within the next 15 years.
Futurecast: How Superpowers, Populations, and Globalization Will Change the Way You Live and Work by Robert J. Shapiro. St. Martin’s Press. 2008. 358 pages. $26.95.
Three powerful global forces are currently reshaping humanity’s near-term future, writes former U.S. Undersecretary of Commerce Robert J. Shapiro in his new book Futurecast. These forces are globalization, an aging world population, and America’s unchallenged position as the world’s sole military superpower. Analyzing them, Shapiro creates a “global blueprint” that charts the likely course of the planet over the next decade and a half.
Most of the discussion revolves around the impact of globalization, which Shapiro believes will produce the greatest amount of change, as it breaks down barriers and opens up economies. He argues that the United States (along with the rest of the world) has no choice but to embrace globalization, despite its drawbacks and limitations. In fact, globalization will ultimately favor the United States and China, while creating much greater economic challenges for Europe and Japan (whose economies are significantly less productive overall). Indeed, the economic futures of America and China are intrinsically linked, for better or for worse, now that China has emerged as an economic superpower. One reason for this connection is the seemingly endless shift of production jobs to China, which provides a seemingly endless supply of low-skilled, low-wage workers.
“A decade from now, America will still be the world’s largest and most technologically advanced economy, and the one with the greatest impact on everyone else,” Shapiro writes. “But nothing will stop globalization from destroying job security for millions of Americans, along with their European and Japanese counterparts.” By the year 2020, the vast majority of manufacturing jobs will have permanently relocated to the developing world.
Shapiro reminds the reader that China’s economy is more than three times what it was 15 years ago, and he believes that its rapid economic ascension will continue unabated, as China has now become a key trading partner attractive to foreign investors. However, China’s economic growth may be happening too quickly. The rest of the country is struggling to keep up with the changes, including implementing key environmental and product safety regulations. Also, the vast majority of the workers who contribute to the growing economy remain greatly impoverished. Due to these struggles, China’s economic success is not guaranteed. Shapiro argues that China needs a more liberal political system to manage its liberalized economic system—conditions that are already in place in the United States. Shapiro also disagrees with the view that India will soon emerge as an economic force, and labels India “still a backward economy decades away from global economic influence.”
Longer Lives, Smaller Families
In addition to globalization, Shapiro also notes that an unprecedented shift from large families with short life-spans to small families with significantly longer life-spans is currently taking place across the globe. In Japan, “the median age will hit fifty by 2020.” Population change is something that can’t be legislated or regulated, Shapiro argues, and the economic ramifications of the shift will be felt everywhere. Labor forces will contract and economic growth will be stymied, the vast number of retirees will create a financial crisis for government pension programs in virtually every country that has them, the standard of living will drop, and taxes will increase sharply. The global health-care crisis will inevitably extend to China, where approximately 80% lack medical care: “For the nearly 80% of Chinese without insurance or the private means to pay, doctors won’t see them and hospitals won’t admit them, regardless of how sick or injured they are.” New technologies will only drive up the cost of medical care, which “inevitably will create enormous social and economic stresses in every major country over the next ten to fifteen years,” Shapiro writes.
While the U.S. will likely remain the dominant superpower with no direct challengers, Shapiro finds that the threat of terrorism is one of two wild cards that have the potential to unpredictably alter the projected future outcome. He analyzes what effects different terrorism scenarios might have on the new global economy before briefly identifying different means of technological advancement (the other wild card), including nanotechnology, biotechnology, and information technologies, and their effect on the market as well.
The passages discussing climate change expose the one major weakness of the book, however, for Shapiro doesn’t devote much of his powerful analytic skills to an in-depth discussion of the impact of global warming. Instead, he optimistically foresees nanotechnological breakthroughs leading to clean energy, making climate change a “manageable problem,” without elaborating much on what that implies. The topic requires more thoughtful analysis.
Shapiro’s writing style lacks the colloquial, hand-on-your-shoulder approach of award-winning journalists who have tackled similar subject matter, but when he delves into the specifics of the new global economy, his prose is engaging, and infused with real energy. At times repetitive, Futurecast would be more effective if it were more concise, but it succeeds in giving the reader a sophisticated awareness of many of the major challenges and unexpected developments in store for us within the next 15 years.
Billion Dollar Lessons by Paul B Carroll and Chunka Mui
harga sebelum ongkos kirim: Rp. 165,200
Billion-Dollar Lessons
What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years
By: Paul B. Carroll, Chunka Mui
Published: Sept 11, 2008
ISBN: 9781591842194
Format: Hardcover, 320pp
Publisher: Portfolio
Business books routinely look at successes and suggest how to emulate them. But no one looks at failures and lays out methods for how not to emulate them, write Paul B. Carroll and Chunka Mui in their ground breaking book Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years. The authors turn the theory of good to great upside down. By focusing on how to avoid going from good to disaster, the book is the definitive textbook, for avoiding misguided strategies that lead to business failure.
Paul B. Carroll and Chunka Mui (photo left) recognize that business failure is caused as much by human behavior as by overall economic conditions. In fact, the authors highlight how flawed human nature, including hubris, failing to listen to advice, or herd instinct, lead to serious strategic errors. The book demonstrates, through detailed case studies, how otherwise strong companies embarked on disastrous courses of action. The mistakes are many, and the authors have examples of the most common strategic failures. At the same time, the authors offer a series of alternative approaches to developing business strategy, designed to prevent the fatal decision in the first place.
Paul B. Carroll (photo left) and Chunka Mui provide a nine point list of potential strategic mistakes, and document them in their company studies section. Each of the case studies is an object lesson in what mistakes led to the corporate failures. The flawed decision making process, that resulted in each failed action, is well analyzed as a teaching tool for executives of all levels. Not only are failures described, but the authors offer many powerful tools for improving decision making in other organizations. The techniques are devised to prevent human nature from leading to the same failed actions in the future.
For me, the power of the book is two fold. The authors provide well written, and incisive analysis, of seven categories of failed strategic actions. The mistakes made by the companies are powerful examples of how bad decisions can take on a life of their own, and effectively derail a corporation. The second power of the book is its practical solutions to the human nature and corporate culture problems that led to the failures in the first place. Through various methods shared by the authors, flawed systemic thinking can be replaced by stronger decision making at all levels. This book is destined to become a classic in the field of corporate strategy and decision making.
I highly recommend Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years by Paul B. Carroll and Chunka Mui to any business executives who are serious about avoiding the mistakes that have led other companies to ruin. Along with the case studies in failure, the astute business person will learn powerful techniques for making the right strategic choices in the future.
Read Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years by Paul B. Carroll and Chunka Mui, and learn from the disastrous experiences of others, about how bad strategies and flawed decision making can lead a company to downfall. Avoiding mistakes will help any company take advantage of the right opportunities when they arise.
Billion-Dollar Lessons
What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years
By: Paul B. Carroll, Chunka Mui
Published: Sept 11, 2008
ISBN: 9781591842194
Format: Hardcover, 320pp
Publisher: Portfolio
Business books routinely look at successes and suggest how to emulate them. But no one looks at failures and lays out methods for how not to emulate them, write Paul B. Carroll and Chunka Mui in their ground breaking book Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years. The authors turn the theory of good to great upside down. By focusing on how to avoid going from good to disaster, the book is the definitive textbook, for avoiding misguided strategies that lead to business failure.
Paul B. Carroll and Chunka Mui (photo left) recognize that business failure is caused as much by human behavior as by overall economic conditions. In fact, the authors highlight how flawed human nature, including hubris, failing to listen to advice, or herd instinct, lead to serious strategic errors. The book demonstrates, through detailed case studies, how otherwise strong companies embarked on disastrous courses of action. The mistakes are many, and the authors have examples of the most common strategic failures. At the same time, the authors offer a series of alternative approaches to developing business strategy, designed to prevent the fatal decision in the first place.
Paul B. Carroll (photo left) and Chunka Mui provide a nine point list of potential strategic mistakes, and document them in their company studies section. Each of the case studies is an object lesson in what mistakes led to the corporate failures. The flawed decision making process, that resulted in each failed action, is well analyzed as a teaching tool for executives of all levels. Not only are failures described, but the authors offer many powerful tools for improving decision making in other organizations. The techniques are devised to prevent human nature from leading to the same failed actions in the future.
For me, the power of the book is two fold. The authors provide well written, and incisive analysis, of seven categories of failed strategic actions. The mistakes made by the companies are powerful examples of how bad decisions can take on a life of their own, and effectively derail a corporation. The second power of the book is its practical solutions to the human nature and corporate culture problems that led to the failures in the first place. Through various methods shared by the authors, flawed systemic thinking can be replaced by stronger decision making at all levels. This book is destined to become a classic in the field of corporate strategy and decision making.
I highly recommend Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years by Paul B. Carroll and Chunka Mui to any business executives who are serious about avoiding the mistakes that have led other companies to ruin. Along with the case studies in failure, the astute business person will learn powerful techniques for making the right strategic choices in the future.
Read Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years by Paul B. Carroll and Chunka Mui, and learn from the disastrous experiences of others, about how bad strategies and flawed decision making can lead a company to downfall. Avoiding mistakes will help any company take advantage of the right opportunities when they arise.
A New Earth - Create a better Life by Eckhart Tolle
harga sebelum ongkos kirim: rp. 206,400
Are You Ready to be Awakened?
Eckhart Tolle and Oprah
Millions have experienced Oprah and Eckhart's A New Earth classes. They're transforming their lives and so can you. Dive in right now and start watching the online classes. Or, become a member of Oprah.com and join Oprah's Book Club—you'll gain access to your personal workbook, an exclusive newsletter, talk with other readers, and more!
n A New Earth, spiritual teacher and author Eckhart Tolle (The Power of Now) advocates present moment awareness and the dismantling of the ego as the path towards awakened living. A New Earth gets its title from a Bible verse referring to the rising of "a new heaven and a new earth." According to Tolle, "heaven" is the awakened state that will bring about "a new earth" in the outer world, the world of form.
Tolle begins with an extensive description of our principal barrier to the awakened state: ego. He indicts the word "I" as being a terrible feat of reductionism, as it infinitely minimizes who we truly are by allowing us to identify ourselves with our mind, our gender, our accumulated possessions, our social roles, and so on. He then informs us that the only way to diminish ego is by seeking the fullness of life in the present moment, that by making friends with the Now, we can destroy our time-bound state of consciousness and therefore destroy ego. Focus on the Now is focus on Being q rather than Doing, on presence rather than form:
"People believe themselves to be dependent on what happens for their happiness, that is to say, dependent on form. They don't realize that what happens is the most unstable thing in the universe. It changes constantly. They look upon the present moment as either marred by something that has happened and shouldn't have or as deficient becuse of something that has not happened but should have. And so they miss the deeper perfection that is inherent in life itself, a perfection that is always already here, that lies beyond what is happening or not happening, beyond form."
Tolle goes on to assert that awakening to the abundance that is already in one's life is the foundation for all abundance available, that abundance and scarcity are actually inner states. He cites examples from varying traditions - Christian, Zen, and Hindu - to assert the perfection of the Now, a concept that is as thematically central to this book as it was in The Power of Now.
Tolle presents A New Earth as a vehicle to bring about a shift in consciousness, though he repeatedly admits that he can only awaken those who are ready for such a transformation. He tells his readers that if they indeed find something within his book that resonates with them, then the shift has already begun, and they are on the path. With millions of Oprah's Book Club members picking up copies of A New Earth, that path will doubtlessly become a road most traveled.
Are You Ready to be Awakened?
Eckhart Tolle and Oprah
Millions have experienced Oprah and Eckhart's A New Earth classes. They're transforming their lives and so can you. Dive in right now and start watching the online classes. Or, become a member of Oprah.com and join Oprah's Book Club—you'll gain access to your personal workbook, an exclusive newsletter, talk with other readers, and more!
n A New Earth, spiritual teacher and author Eckhart Tolle (The Power of Now) advocates present moment awareness and the dismantling of the ego as the path towards awakened living. A New Earth gets its title from a Bible verse referring to the rising of "a new heaven and a new earth." According to Tolle, "heaven" is the awakened state that will bring about "a new earth" in the outer world, the world of form.
Tolle begins with an extensive description of our principal barrier to the awakened state: ego. He indicts the word "I" as being a terrible feat of reductionism, as it infinitely minimizes who we truly are by allowing us to identify ourselves with our mind, our gender, our accumulated possessions, our social roles, and so on. He then informs us that the only way to diminish ego is by seeking the fullness of life in the present moment, that by making friends with the Now, we can destroy our time-bound state of consciousness and therefore destroy ego. Focus on the Now is focus on Being q rather than Doing, on presence rather than form:
"People believe themselves to be dependent on what happens for their happiness, that is to say, dependent on form. They don't realize that what happens is the most unstable thing in the universe. It changes constantly. They look upon the present moment as either marred by something that has happened and shouldn't have or as deficient becuse of something that has not happened but should have. And so they miss the deeper perfection that is inherent in life itself, a perfection that is always already here, that lies beyond what is happening or not happening, beyond form."
Tolle goes on to assert that awakening to the abundance that is already in one's life is the foundation for all abundance available, that abundance and scarcity are actually inner states. He cites examples from varying traditions - Christian, Zen, and Hindu - to assert the perfection of the Now, a concept that is as thematically central to this book as it was in The Power of Now.
Tolle presents A New Earth as a vehicle to bring about a shift in consciousness, though he repeatedly admits that he can only awaken those who are ready for such a transformation. He tells his readers that if they indeed find something within his book that resonates with them, then the shift has already begun, and they are on the path. With millions of Oprah's Book Club members picking up copies of A New Earth, that path will doubtlessly become a road most traveled.
Blink -by Malcolm Gladwell
harga sebelum ongkos kirim rp. 154,800
Blink: The Power of Thinking Without Thinking is a 2005 book by Malcolm Gladwell. It popularizes research from psychology and behavioral economics on the adaptive unconscious; mental processes that work rapidly and automatically from relatively little information. It considers both the strengths of the adaptive unconscious, for example in expert judgment, and its pitfalls such as stereotypes.
Contents
[hide]
The author describes the main subject of his book as "thin-slicing": our ability to gauge what is really important from a very narrow period of experience. In other words, spontaneous decisions are often as good as—or even better than—carefully planned and considered ones. Gladwell draws on examples from science, advertising, sales, medicine, and popular music to reinforce his ideas. Gladwell also uses many examples of regular people's experiences with "thin-slicing."
Gladwell explains how an expert's ability to "thin slice" can be corrupted by their likes and dislikes, prejudices and stereotypes (even unconscious ones), and how they can be overloaded by too much information. Two particular forms of unconscious bias Gladwell discusses are Implicit Association Tests and psychological priming. Gladwell also tells us about our instinctive ability to mind read, which is how we can get to know what emotions a person is feeling just by looking at his or her face.
We do that by "thin-slicing," using limited information to come to our conclusion. In what Gladwell contends is an age of information overload, he finds that experts often make better decisions with snap judgments than they do with volumes of analysis.
Gladwell gives a wide range of examples of thin-slicing in contexts such as gambling, speed dating, tennis, military war games, the movies, malpractice suits, popular music, and predicting divorce.
Gladwell also mentions that sometimes having too much information can interfere with the accuracy of a judgment, or a doctor's diagnosis. This is commonly called "Analysis paralysis." The challenge is to sift through and focus on only the most critical information to make a decision. The other information may be irrelevant and confusing to the decision maker. Collecting more and more information, in most cases, just reinforces our judgment but does not help to make it more accurate. The collection of information is commonly interpreted as confirming a person's initial belief or bias. Gladwell explains that better judgments can be executed from simplicity and frugality of information, rather than the more common belief that greater information about a patient is proportional to an improved diagnosis. If the big picture is clear enough to decide, then decide from the big picture without using a magnifying glass.
The book argues that intuitive judgment is developed by experience, training, and knowledge. For example, Gladwell claims that prejudice can operate at an intuitive unconscious level, even in individuals whose conscious attitudes are not prejudiced. An example is in the halo effect, where a person having a salient positive quality is thought to be superior in other, unrelated respects. Gladwell uses the 1999 killing of Amadou Diallo, where four New York policemen shot an innocent man on his doorstep 41 times, as another example of how rapid, intuitive judgment can have disastrous effects.[1]
Blink: The Power of Thinking Without Thinking is a 2005 book by Malcolm Gladwell. It popularizes research from psychology and behavioral economics on the adaptive unconscious; mental processes that work rapidly and automatically from relatively little information. It considers both the strengths of the adaptive unconscious, for example in expert judgment, and its pitfalls such as stereotypes.
Contents
[hide]
The author describes the main subject of his book as "thin-slicing": our ability to gauge what is really important from a very narrow period of experience. In other words, spontaneous decisions are often as good as—or even better than—carefully planned and considered ones. Gladwell draws on examples from science, advertising, sales, medicine, and popular music to reinforce his ideas. Gladwell also uses many examples of regular people's experiences with "thin-slicing."
Gladwell explains how an expert's ability to "thin slice" can be corrupted by their likes and dislikes, prejudices and stereotypes (even unconscious ones), and how they can be overloaded by too much information. Two particular forms of unconscious bias Gladwell discusses are Implicit Association Tests and psychological priming. Gladwell also tells us about our instinctive ability to mind read, which is how we can get to know what emotions a person is feeling just by looking at his or her face.
We do that by "thin-slicing," using limited information to come to our conclusion. In what Gladwell contends is an age of information overload, he finds that experts often make better decisions with snap judgments than they do with volumes of analysis.
Gladwell gives a wide range of examples of thin-slicing in contexts such as gambling, speed dating, tennis, military war games, the movies, malpractice suits, popular music, and predicting divorce.
Gladwell also mentions that sometimes having too much information can interfere with the accuracy of a judgment, or a doctor's diagnosis. This is commonly called "Analysis paralysis." The challenge is to sift through and focus on only the most critical information to make a decision. The other information may be irrelevant and confusing to the decision maker. Collecting more and more information, in most cases, just reinforces our judgment but does not help to make it more accurate. The collection of information is commonly interpreted as confirming a person's initial belief or bias. Gladwell explains that better judgments can be executed from simplicity and frugality of information, rather than the more common belief that greater information about a patient is proportional to an improved diagnosis. If the big picture is clear enough to decide, then decide from the big picture without using a magnifying glass.
The book argues that intuitive judgment is developed by experience, training, and knowledge. For example, Gladwell claims that prejudice can operate at an intuitive unconscious level, even in individuals whose conscious attitudes are not prejudiced. An example is in the halo effect, where a person having a salient positive quality is thought to be superior in other, unrelated respects. Gladwell uses the 1999 killing of Amadou Diallo, where four New York policemen shot an innocent man on his doorstep 41 times, as another example of how rapid, intuitive judgment can have disastrous effects.[1]
Financial Shock, a 360% look at Subprime Implosion -by Mark Zandi
Harga sebelum ongkos kirim: Rp. 204,000
Reviews:
"If you wonder how it could be possible for a subprime mortgage loan to bring the global financial system and the U.S. economy to its knees you should read this book. No one is better qualified to provide this insight and advice than Mark Zandi."
--Larry Kudlow, Host of CNBC's "Kudlow & Company"
"Throughout the financial crisis Mark Zandi has played two important roles. He has insightfully analyzed its causes and thoughtfully recommended steps to alleviate it. This book continues those tasks and adds a third – providing a comprehensive and comprehensible explanation of the issues that is accessible to the general public and extremely useful to those who specialize in the area."
--Barney Frank, Chairman of the House Financial Services Committee
"Every once in a while a book comes along that's so important, it commands recognition. This is one of them. Zandi provides a brilliant blow-by-blow account of how greed, stupidity and recklessness brought the first major economic crises of the 21st century --- and the most serious since the Great Depression. What makes this book so compelling are Zandi's two remarkable talents. He not only ranks among the smartest and most influential economists in the U.S., but he is also a hugely gifted writer who has crafted a fascinating and well-researched anatomy of the latest housing and financial debacle. This book should be required reading for students, business leaders and policymakers. Indeed, the more people who read it, the less likely it is we will repeat such a calamity in the future."
--Bernard Baumohl,
Managing Director of THE ECONOMIC OUTLOOK GROUP
and author of the best seller, The Secrets of Economic Indicators
“A must read for all who wish to understand the sources of today’s subprime crisis. Not only is this book a compelling read, but it also provides the basics to understand how subprime mortgages, a formerly obscure lending vehicle, could bring America’s financial system, long the envy of the world to its knees. Zandi demystifies the complexities of mortgage and securities markets and points in plain English to the forces that caused bad lending to crowd out good, putting homeowners and the nation’s economy at risk.”
--Susan M. Wachter, Co-Director -
Institute for Urban Research,
The Wharton School, University of Pennsylvania
"Mark Zandi is the Dean of macroeconomic analysis and forecasting. No one has followed the development of the current financial situation more closely than Mark. He understands the housing market as well anyone today and offers great insights into what is likely to come and how to prevent a repetition."
--Karl E. "Chip" Case, Professor of Economics,
Wellesley College
Excerpt from Chapter 1: Subprime Précis
Until recent events, few outside the real estate industry had even heard of a subprime mortgage. But this formerly obscure financial vehicle has grabbed its share of attention because of its ravaging effect on the U.S. economy and global financial markets.
Simply defined, a subprime mortgage is just a loan made to someone with a weak or troubled credit history. Historically, it has been a peripheral financial phenomenon, a marginal market involving few lenders and few borrowers. However, subprime home buyers unable to make good on their mortgage payments set off a financial avalanche in 2007 that pushed the United States into a recession and hit major economies around the globe. Financial markets and the economy will ultimately recover, but the subprime financial shock will go down as an inflection point in economic history.
Genesis
The fuse for the subprime financial shock was set early in this decade, following the tech-stock bust, 9/11, and the invasions of Afghanistan and Iraq. With stock markets plunging and the nation in shock after the attack on the World Trade Center, the Federal Reserve Board (the Fed) slashed interest rates. By summer 2003, the federal funds rate—the one rate the Fed controls directly—was at a record low. Fearing that their own economies would slump under the weight of the faltering U.S. economy, other major central banks around the world soon followed the Fed’s lead.
In normal times, central bankers worry that lowering interest rates too much might spark inflation. If they worried less this time, a major factor was China. Joining the World Trade Organization in November 2001 not only ratified China’s arrival in the global market, but it lowered trade barriers and accelerated a massive shift of global manufacturing to the formerly closed communist mainland. As low-cost Chinese-made goods flooded markets, prices fell nearly everywhere, and inflation seemed a remote concern. Policymakers even worried publicly about deflation, encouraging central banks to push rates to unprecedented lows.
China’s explosive growth, driven by manufacturing and exports, boosted global demand for oil and other commodities. Prices surged higher. This pushed up the U.S. trade deficit, as hundreds of billions of dollars flowed overseas to China, the Middle East, Russia, and other commodity-producing nations. Many of these dollars returned to the United States as investments, as Asian and Middle Eastern producers parked their cash in the world’s safest, biggest economy. At first
they mainly bought U.S. Treasury bonds, which produced a low but safe return. Later, in the quest for higher returns, they expanded to riskier financial instruments, including bonds backed by subprime mortgages.
Frenzied Innovation
The two factors of extraordinarily low interest rates and surging global investor demand combined with the growth of Internet technology to produce a period of intense financial innovation. Designing new ways to invest had long been a Wall Street specialty: Since the 1970s, bankers and traders had regularly unveiled new futures, options, and derivatives on government and corporate debt—even bonds backed by residential mortgage payments. But now the financial innovation machine went into high gear. Wall Street produced a blizzard of increasingly complex new securities. These included bonds based on pools of mortgages, auto loans, credit card debt, and commercial bank loans, sliced and sorted according to their presumed levels of risk. Sometimes these securities were resliced and rebundled yet again or packaged into risk-swapping agreements whose terms remained arcane to all but their authors.
Yet the underlying structure had a basic theme. Financial engineers start with a simple credit agreement, such as a home mortgage or a credit card. Not so long ago, such arrangements were indeed simple, involving an individual borrower and a single lender. The bank loaned you money to buy a house or a car, and you paid back the bank over time. This changed when Wall Street bankers realized that many individual mortgages or other loans could be tied together and “securitized”—transformed from a simple debt agreement into a security that could be traded, just as with other bonds and stocks, among investors worldwide.
Now a monthly mortgage payment no longer made a simple trip from a homeowner’s checking account to the bank. Instead, it was pooled with hundreds of other individual mortgage payments, forming a cash stream that flowed to the investors who owned the new mortgage-backed bonds. The originator of the loan—a bank, a mortgage broker, or whoever—might still collect the cash and handle the paperwork, but it was otherwise out of the picture.
With mortgages or consumer loans now bundled as tradable securities, Wall Street’s second idea was to slice them up so they carried different levels of risk. Instead of pooling all the returns from a given bundle of mortgages, for example, securities were tailored so that investors could receive payments based on how much risk they were willing to take. Those seeking a safe investment were paid first, but at a lower rate of return. Those willing to gamble most were paid last but earned a substantially higher return. At least, that was how it worked in theory.
By mid-decade, such financial innovation was in full frenzy. Any asset with a cash flow seemed to qualify for such slice-and-dice treatment. Residential mortgage loans, merger-and-acquisition financing, and even tolls generated by public bridges and highways were securitized in this way. As designing, packaging, and reselling such newfangled investments became a major source of profit for Wall Street, bankers and salesmen successfully marketed them to investors from
Perth to Peoria.
The benefits of securitization were substantial. In the old days, credit could be limited by local lenders’ size or willingness to take risks. A homeowner or business might have trouble getting a loan simply because the local bank’s balance sheet was fully subscribed. But with securitization, lenders could originate loans, resell them to investors, and use the proceeds to make more loans. As long as there were willing investors anywhere in the world, the credit tap could never run dry.
On the other side, securitization gave global investors a much broader array of potential assets and let them precisely calibrate the amount of risk in their portfolios. Government regulators and policymakers also liked securitization because it appeared to spread risk broadly, which made a financial crisis less likely. Or so they thought.
Awash in funds from growing world trade, global investors gobbled up the new securities. Reassured by Wall Street, many believed they could successfully manage their risks while collecting healthy returns. Yet as investors flocked to this market, their returns grew smaller relative to the risks they took. Just as at any bazaar or auction, the more buyers crowd in, the less likely they are to find a bargain. The more investors there were seeking high yields, the more those yields fell. Eventually, a high-risk security—say, a bond issued by the government of Venezuela, or a subprime mortgage loan—brought barely more than a U.S. Treasury bond or a mortgage insured by Fannie Mae.
Starved for greater returns, investors began using an old financial trick for turning small profits into large ones: leverage—that is, investing with borrowed money. With interest rates low all around the world, they could borrow cheaply and thus magnify returns many times over. Investors could also sell insurance to each other, collecting premiums in exchange for a promise to cover the losses on any securities that went bad. Because that seemed a remote possibility, such insurance seemed like an easy way to make extra money.
As time went on, the market for these new securities became increasingly esoteric. Derivatives such as collateralized debt obligations, or CDOs, were particularly attractive. A CDO is a bondlike security whose cash flow is derived from other bonds, which, in turn, might be backed by mortgages or other loans. Evaluating the risk of such instruments was difficult, if not impossible; yet investors took comfort in the high ratings given by analysts at the ratings agencies, who presumably were in the know. To further allay any worries, investors could even buy insurance on the securities.
Housing Boom
Global investors were particularly enamored of securities backed by U.S. residential mortgage loans. American homeowners were historically reliable, paying on their mortgages even in tough economic times. Certainly, some cities or regions had seen falling house prices and rising mortgage defaults, but these were rare. Indeed, since the Great Depression, house prices nationwide had not declined in a single year. And U.S. housing produced trillions of dollars in mortgage loans, a huge source of assets to securitize.
With funds pouring into mortgage-related securities, mortgage lenders avidly courted home buyers. Borrowing costs plunged and mortgage credit was increasingly ample. Housing was as affordable as it had been since just after World War II, particularly in areas such as California and the Northeast, where home ownership had long been a stretch for most renters. First-time home buyers also benefited as the Internet transformed the mortgage industry, cutting transaction costs and boosting competition. New loan products were invented for households that had historically had little access to standard forms of credit, such as mortgages. Borrowers with less than perfect credit history— or no credit history—could now get a loan. Of course, a subprime borrower needed a sizable down payment and a sturdy income—but even that changed quickly.
Home buying took on an added sheen after 9/11, as Americans grew wary of travel, with the hassles of air passenger screening and code-orange alerts. Tourist destinations struggled. Americans were staying home more, and they wanted those homes to be bigger and nicer. Many traded up.
As home sales took off, prices began to rise more quickly, particularly in highly regulated areas of the country. Builders couldn’t put up houses quickly enough in California, Florida, and other coastal areas, which had tough zoning restrictions, environmental requirements, and a long and costly permitting process.
The house price gains were modest at first, but they appeared very attractive compared with a still-lagging stock market and the rock-bottom interest rates banks were offering on savings accounts. Home buyers saw a chance to make outsized returns on homes by taking on big mortgages. Besides, interest payments on mortgage loans were tax deductible, and since the mid-1990s, even capital gains on most home sales aren’t taxed.
It didn’t take long for speculation to infect housing markets. Flippers—housing speculators looking to buy and sell quickly at a large profit—grew active. Churning was especially rampant in condominium, second-home, and vacation-home markets, where a flipper could always rent a unit if it didn’t sell quickly. Some of these investors were disingenuous or even fraudulent when applying for loans, telling lenders they planned to live in the units so they could obtain better mortgage terms. Flippers were often facilitated by home builders who turned a blind eye in the rush to meet ever-rising home sales projections.
Speculation extended beyond flippers, however. Nearly all homeowners were caught up in the idea that housing was a great investment, possibly the best they could make. The logic was simple: House prices had risen strongly in the recent past, so they would continue to rise strongly in the future.
Remodeling and renovations surged. By mid-decade, housing markets across much of the country were in a frenzied boom. House sales, construction, and prices were all shattering records. Prices more than doubled in such far-flung places as Providence, Rhode Island; Naples, Florida; Minneapolis, Minnesota; Tucson, Arizona; Salt Lake City, Utah; and Sacramento, California. The housing boom did bring an important benefit: It jump-started the broader economy out of its early-decade malaise. Not only were millions of jobs created—to build, sell, and finance homes—but homeowners were also measurably wealthier. Indeed, the seeming financial windfall for lower- and middle- American homeowners was arguably unprecedented. The home was by far the largest asset on most households’ balance sheet.
Moreover, all this newfound wealth could be readily and cheaply converted into cash. Homeowners became adept at borrowing against the increased equity in their homes, refinancing into larger mortgages, and taking on big home equity lines. This gave the housing boom even more economic importance as the extra cash financed a spending splurge.
Extra spending was precisely what the central bankers at the Federal Reserve had in mind when they were slashing interest rates. After all, the point of adjusting monetary policy is to raise or lower the economy’s speed by regulating the flow of credit through the financial system and economy. Nevertheless, by mid-2004, the booming housing market and strong economy convinced policymakers it was time to throttle back by raising rates.
Housing Bust
Signs that the boom was ending appeared in spring 2005, in places such as Boston and San Diego. After several years of surging house prices and nearly a year of rising interest rates, many home buyers simply could no longer afford the outsized mortgages needed to buy. Homes that had been so affordable just a few years earlier were again out of reach.
The frenzy began to cool. Not only did bidding wars among home buyers vanish, but many sellers couldn’t get their list prices as the number of properties for sale began to mount. Moreover, many sellers found it extraordinarily painful to cut prices. Flippers feared the loss of their capital, and other homeowners with big mortgages couldn’t take less than they needed to pay off their existing mortgage loans. Realtors were loath to advise clients to lower prices, lest they destroy
belief in the boom that had powered enormous realty fees and bonuses.
Underwriting Collapses
As they anxiously watched loan-origination volumes top out, mortgage lenders searched for ways to keep the boom going. Adjustablerate mortgage loans (ARMs) were a particularly attractive way to expand the number of potential home buyers. ARMs allowed for low monthly payments, at least for awhile.
Although borrowers have had access to such loans since the early 1980s, new versions of the ARM came with extraordinarily low initial rates, known as teasers. In most cases, the teaser rate was fixed for two years, after which it quickly adjusted higher, usually every six months, until it matched higher prevailing interest rates. Homeowners who took on these exploding ARM loans are the ones who are now losing their homes the most quickly.
Lenders also began to require smaller down payments. To allow home buyers to avoid paying mortgage insurance (generally required for large loans with low down payments), lenders counseled borrowers to take out second mortgages. For many such borrowers, the amount of the first and second mortgage together equaled the market value of the home, meaning there was no cushion in case that value declined. Moreover, although payments on the second mortgage may have been initially lower than the cost of the insurance, most loans also had adjustable rates, which moved higher as interest rates rose.
Such creative lending worked to support home sales for awhile, but it also further raised house prices. Rising prices together with higher interest rates (thanks to continued Fed tightening) undermined house affordability even more. Growing still more creative—or more desperate—lenders offered loans without requiring borrowers to prove they had sufficient income or savings to meet the payments. Such “stated income” loans had been available in the past, but only to a very few self-employed professionals. Now they went mainstream, picking up a new nickname among mortgage-industry insiders: liars’ loans.
By 2006, most subprime borrowers were taking out adjustablerate loans carrying teaser rates that would reset in two years, potentially setting up the borrowers for a major payment shock. Most of those borrowers had put down little or no money of their own on their homes, meaning they had little to lose. Many had overstated their incomes on the loan documents, often with their lenders’ tacit approval. By any traditional standard, such lending would have been viewed asa prescription for financial disaster. But lenders argued that as long as house prices rose, homeowners could build enough home equity to refinance before disaster struck.
For their part, home appraisers were working to ensure that this came true. Typically, their appraisals were based on cursory drive-by inspections and comparisons with nearby homes that had recently been sold or refinanced—in some cases, homes they themselves hadappraised. Lenders, meanwhile, were happy to see their subprime borrowers refinance; most subprime loans carried hefty penalties for paying off the mortgage early, and that meant more fee income for
lenders.
Reviews:
"If you wonder how it could be possible for a subprime mortgage loan to bring the global financial system and the U.S. economy to its knees you should read this book. No one is better qualified to provide this insight and advice than Mark Zandi."
--Larry Kudlow, Host of CNBC's "Kudlow & Company"
"Throughout the financial crisis Mark Zandi has played two important roles. He has insightfully analyzed its causes and thoughtfully recommended steps to alleviate it. This book continues those tasks and adds a third – providing a comprehensive and comprehensible explanation of the issues that is accessible to the general public and extremely useful to those who specialize in the area."
--Barney Frank, Chairman of the House Financial Services Committee
"Every once in a while a book comes along that's so important, it commands recognition. This is one of them. Zandi provides a brilliant blow-by-blow account of how greed, stupidity and recklessness brought the first major economic crises of the 21st century --- and the most serious since the Great Depression. What makes this book so compelling are Zandi's two remarkable talents. He not only ranks among the smartest and most influential economists in the U.S., but he is also a hugely gifted writer who has crafted a fascinating and well-researched anatomy of the latest housing and financial debacle. This book should be required reading for students, business leaders and policymakers. Indeed, the more people who read it, the less likely it is we will repeat such a calamity in the future."
--Bernard Baumohl,
Managing Director of THE ECONOMIC OUTLOOK GROUP
and author of the best seller, The Secrets of Economic Indicators
“A must read for all who wish to understand the sources of today’s subprime crisis. Not only is this book a compelling read, but it also provides the basics to understand how subprime mortgages, a formerly obscure lending vehicle, could bring America’s financial system, long the envy of the world to its knees. Zandi demystifies the complexities of mortgage and securities markets and points in plain English to the forces that caused bad lending to crowd out good, putting homeowners and the nation’s economy at risk.”
--Susan M. Wachter, Co-Director -
Institute for Urban Research,
The Wharton School, University of Pennsylvania
"Mark Zandi is the Dean of macroeconomic analysis and forecasting. No one has followed the development of the current financial situation more closely than Mark. He understands the housing market as well anyone today and offers great insights into what is likely to come and how to prevent a repetition."
--Karl E. "Chip" Case, Professor of Economics,
Wellesley College
Excerpt from Chapter 1: Subprime Précis
Until recent events, few outside the real estate industry had even heard of a subprime mortgage. But this formerly obscure financial vehicle has grabbed its share of attention because of its ravaging effect on the U.S. economy and global financial markets.
Simply defined, a subprime mortgage is just a loan made to someone with a weak or troubled credit history. Historically, it has been a peripheral financial phenomenon, a marginal market involving few lenders and few borrowers. However, subprime home buyers unable to make good on their mortgage payments set off a financial avalanche in 2007 that pushed the United States into a recession and hit major economies around the globe. Financial markets and the economy will ultimately recover, but the subprime financial shock will go down as an inflection point in economic history.
Genesis
The fuse for the subprime financial shock was set early in this decade, following the tech-stock bust, 9/11, and the invasions of Afghanistan and Iraq. With stock markets plunging and the nation in shock after the attack on the World Trade Center, the Federal Reserve Board (the Fed) slashed interest rates. By summer 2003, the federal funds rate—the one rate the Fed controls directly—was at a record low. Fearing that their own economies would slump under the weight of the faltering U.S. economy, other major central banks around the world soon followed the Fed’s lead.
In normal times, central bankers worry that lowering interest rates too much might spark inflation. If they worried less this time, a major factor was China. Joining the World Trade Organization in November 2001 not only ratified China’s arrival in the global market, but it lowered trade barriers and accelerated a massive shift of global manufacturing to the formerly closed communist mainland. As low-cost Chinese-made goods flooded markets, prices fell nearly everywhere, and inflation seemed a remote concern. Policymakers even worried publicly about deflation, encouraging central banks to push rates to unprecedented lows.
China’s explosive growth, driven by manufacturing and exports, boosted global demand for oil and other commodities. Prices surged higher. This pushed up the U.S. trade deficit, as hundreds of billions of dollars flowed overseas to China, the Middle East, Russia, and other commodity-producing nations. Many of these dollars returned to the United States as investments, as Asian and Middle Eastern producers parked their cash in the world’s safest, biggest economy. At first
they mainly bought U.S. Treasury bonds, which produced a low but safe return. Later, in the quest for higher returns, they expanded to riskier financial instruments, including bonds backed by subprime mortgages.
Frenzied Innovation
The two factors of extraordinarily low interest rates and surging global investor demand combined with the growth of Internet technology to produce a period of intense financial innovation. Designing new ways to invest had long been a Wall Street specialty: Since the 1970s, bankers and traders had regularly unveiled new futures, options, and derivatives on government and corporate debt—even bonds backed by residential mortgage payments. But now the financial innovation machine went into high gear. Wall Street produced a blizzard of increasingly complex new securities. These included bonds based on pools of mortgages, auto loans, credit card debt, and commercial bank loans, sliced and sorted according to their presumed levels of risk. Sometimes these securities were resliced and rebundled yet again or packaged into risk-swapping agreements whose terms remained arcane to all but their authors.
Yet the underlying structure had a basic theme. Financial engineers start with a simple credit agreement, such as a home mortgage or a credit card. Not so long ago, such arrangements were indeed simple, involving an individual borrower and a single lender. The bank loaned you money to buy a house or a car, and you paid back the bank over time. This changed when Wall Street bankers realized that many individual mortgages or other loans could be tied together and “securitized”—transformed from a simple debt agreement into a security that could be traded, just as with other bonds and stocks, among investors worldwide.
Now a monthly mortgage payment no longer made a simple trip from a homeowner’s checking account to the bank. Instead, it was pooled with hundreds of other individual mortgage payments, forming a cash stream that flowed to the investors who owned the new mortgage-backed bonds. The originator of the loan—a bank, a mortgage broker, or whoever—might still collect the cash and handle the paperwork, but it was otherwise out of the picture.
With mortgages or consumer loans now bundled as tradable securities, Wall Street’s second idea was to slice them up so they carried different levels of risk. Instead of pooling all the returns from a given bundle of mortgages, for example, securities were tailored so that investors could receive payments based on how much risk they were willing to take. Those seeking a safe investment were paid first, but at a lower rate of return. Those willing to gamble most were paid last but earned a substantially higher return. At least, that was how it worked in theory.
By mid-decade, such financial innovation was in full frenzy. Any asset with a cash flow seemed to qualify for such slice-and-dice treatment. Residential mortgage loans, merger-and-acquisition financing, and even tolls generated by public bridges and highways were securitized in this way. As designing, packaging, and reselling such newfangled investments became a major source of profit for Wall Street, bankers and salesmen successfully marketed them to investors from
Perth to Peoria.
The benefits of securitization were substantial. In the old days, credit could be limited by local lenders’ size or willingness to take risks. A homeowner or business might have trouble getting a loan simply because the local bank’s balance sheet was fully subscribed. But with securitization, lenders could originate loans, resell them to investors, and use the proceeds to make more loans. As long as there were willing investors anywhere in the world, the credit tap could never run dry.
On the other side, securitization gave global investors a much broader array of potential assets and let them precisely calibrate the amount of risk in their portfolios. Government regulators and policymakers also liked securitization because it appeared to spread risk broadly, which made a financial crisis less likely. Or so they thought.
Awash in funds from growing world trade, global investors gobbled up the new securities. Reassured by Wall Street, many believed they could successfully manage their risks while collecting healthy returns. Yet as investors flocked to this market, their returns grew smaller relative to the risks they took. Just as at any bazaar or auction, the more buyers crowd in, the less likely they are to find a bargain. The more investors there were seeking high yields, the more those yields fell. Eventually, a high-risk security—say, a bond issued by the government of Venezuela, or a subprime mortgage loan—brought barely more than a U.S. Treasury bond or a mortgage insured by Fannie Mae.
Starved for greater returns, investors began using an old financial trick for turning small profits into large ones: leverage—that is, investing with borrowed money. With interest rates low all around the world, they could borrow cheaply and thus magnify returns many times over. Investors could also sell insurance to each other, collecting premiums in exchange for a promise to cover the losses on any securities that went bad. Because that seemed a remote possibility, such insurance seemed like an easy way to make extra money.
As time went on, the market for these new securities became increasingly esoteric. Derivatives such as collateralized debt obligations, or CDOs, were particularly attractive. A CDO is a bondlike security whose cash flow is derived from other bonds, which, in turn, might be backed by mortgages or other loans. Evaluating the risk of such instruments was difficult, if not impossible; yet investors took comfort in the high ratings given by analysts at the ratings agencies, who presumably were in the know. To further allay any worries, investors could even buy insurance on the securities.
Housing Boom
Global investors were particularly enamored of securities backed by U.S. residential mortgage loans. American homeowners were historically reliable, paying on their mortgages even in tough economic times. Certainly, some cities or regions had seen falling house prices and rising mortgage defaults, but these were rare. Indeed, since the Great Depression, house prices nationwide had not declined in a single year. And U.S. housing produced trillions of dollars in mortgage loans, a huge source of assets to securitize.
With funds pouring into mortgage-related securities, mortgage lenders avidly courted home buyers. Borrowing costs plunged and mortgage credit was increasingly ample. Housing was as affordable as it had been since just after World War II, particularly in areas such as California and the Northeast, where home ownership had long been a stretch for most renters. First-time home buyers also benefited as the Internet transformed the mortgage industry, cutting transaction costs and boosting competition. New loan products were invented for households that had historically had little access to standard forms of credit, such as mortgages. Borrowers with less than perfect credit history— or no credit history—could now get a loan. Of course, a subprime borrower needed a sizable down payment and a sturdy income—but even that changed quickly.
Home buying took on an added sheen after 9/11, as Americans grew wary of travel, with the hassles of air passenger screening and code-orange alerts. Tourist destinations struggled. Americans were staying home more, and they wanted those homes to be bigger and nicer. Many traded up.
As home sales took off, prices began to rise more quickly, particularly in highly regulated areas of the country. Builders couldn’t put up houses quickly enough in California, Florida, and other coastal areas, which had tough zoning restrictions, environmental requirements, and a long and costly permitting process.
The house price gains were modest at first, but they appeared very attractive compared with a still-lagging stock market and the rock-bottom interest rates banks were offering on savings accounts. Home buyers saw a chance to make outsized returns on homes by taking on big mortgages. Besides, interest payments on mortgage loans were tax deductible, and since the mid-1990s, even capital gains on most home sales aren’t taxed.
It didn’t take long for speculation to infect housing markets. Flippers—housing speculators looking to buy and sell quickly at a large profit—grew active. Churning was especially rampant in condominium, second-home, and vacation-home markets, where a flipper could always rent a unit if it didn’t sell quickly. Some of these investors were disingenuous or even fraudulent when applying for loans, telling lenders they planned to live in the units so they could obtain better mortgage terms. Flippers were often facilitated by home builders who turned a blind eye in the rush to meet ever-rising home sales projections.
Speculation extended beyond flippers, however. Nearly all homeowners were caught up in the idea that housing was a great investment, possibly the best they could make. The logic was simple: House prices had risen strongly in the recent past, so they would continue to rise strongly in the future.
Remodeling and renovations surged. By mid-decade, housing markets across much of the country were in a frenzied boom. House sales, construction, and prices were all shattering records. Prices more than doubled in such far-flung places as Providence, Rhode Island; Naples, Florida; Minneapolis, Minnesota; Tucson, Arizona; Salt Lake City, Utah; and Sacramento, California. The housing boom did bring an important benefit: It jump-started the broader economy out of its early-decade malaise. Not only were millions of jobs created—to build, sell, and finance homes—but homeowners were also measurably wealthier. Indeed, the seeming financial windfall for lower- and middle- American homeowners was arguably unprecedented. The home was by far the largest asset on most households’ balance sheet.
Moreover, all this newfound wealth could be readily and cheaply converted into cash. Homeowners became adept at borrowing against the increased equity in their homes, refinancing into larger mortgages, and taking on big home equity lines. This gave the housing boom even more economic importance as the extra cash financed a spending splurge.
Extra spending was precisely what the central bankers at the Federal Reserve had in mind when they were slashing interest rates. After all, the point of adjusting monetary policy is to raise or lower the economy’s speed by regulating the flow of credit through the financial system and economy. Nevertheless, by mid-2004, the booming housing market and strong economy convinced policymakers it was time to throttle back by raising rates.
Housing Bust
Signs that the boom was ending appeared in spring 2005, in places such as Boston and San Diego. After several years of surging house prices and nearly a year of rising interest rates, many home buyers simply could no longer afford the outsized mortgages needed to buy. Homes that had been so affordable just a few years earlier were again out of reach.
The frenzy began to cool. Not only did bidding wars among home buyers vanish, but many sellers couldn’t get their list prices as the number of properties for sale began to mount. Moreover, many sellers found it extraordinarily painful to cut prices. Flippers feared the loss of their capital, and other homeowners with big mortgages couldn’t take less than they needed to pay off their existing mortgage loans. Realtors were loath to advise clients to lower prices, lest they destroy
belief in the boom that had powered enormous realty fees and bonuses.
Underwriting Collapses
As they anxiously watched loan-origination volumes top out, mortgage lenders searched for ways to keep the boom going. Adjustablerate mortgage loans (ARMs) were a particularly attractive way to expand the number of potential home buyers. ARMs allowed for low monthly payments, at least for awhile.
Although borrowers have had access to such loans since the early 1980s, new versions of the ARM came with extraordinarily low initial rates, known as teasers. In most cases, the teaser rate was fixed for two years, after which it quickly adjusted higher, usually every six months, until it matched higher prevailing interest rates. Homeowners who took on these exploding ARM loans are the ones who are now losing their homes the most quickly.
Lenders also began to require smaller down payments. To allow home buyers to avoid paying mortgage insurance (generally required for large loans with low down payments), lenders counseled borrowers to take out second mortgages. For many such borrowers, the amount of the first and second mortgage together equaled the market value of the home, meaning there was no cushion in case that value declined. Moreover, although payments on the second mortgage may have been initially lower than the cost of the insurance, most loans also had adjustable rates, which moved higher as interest rates rose.
Such creative lending worked to support home sales for awhile, but it also further raised house prices. Rising prices together with higher interest rates (thanks to continued Fed tightening) undermined house affordability even more. Growing still more creative—or more desperate—lenders offered loans without requiring borrowers to prove they had sufficient income or savings to meet the payments. Such “stated income” loans had been available in the past, but only to a very few self-employed professionals. Now they went mainstream, picking up a new nickname among mortgage-industry insiders: liars’ loans.
By 2006, most subprime borrowers were taking out adjustablerate loans carrying teaser rates that would reset in two years, potentially setting up the borrowers for a major payment shock. Most of those borrowers had put down little or no money of their own on their homes, meaning they had little to lose. Many had overstated their incomes on the loan documents, often with their lenders’ tacit approval. By any traditional standard, such lending would have been viewed asa prescription for financial disaster. But lenders argued that as long as house prices rose, homeowners could build enough home equity to refinance before disaster struck.
For their part, home appraisers were working to ensure that this came true. Typically, their appraisals were based on cursory drive-by inspections and comparisons with nearby homes that had recently been sold or refinanced—in some cases, homes they themselves hadappraised. Lenders, meanwhile, were happy to see their subprime borrowers refinance; most subprime loans carried hefty penalties for paying off the mortgage early, and that meant more fee income for
lenders.
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