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The Actuary The magazine of the Institute & Faculty of Actuaries

Books: The Trouble with Markets

In the early months of 2010, The Actuary printed a review of Roger Bootle’s 
work of crisis literature, The Trouble with Markets. The book was described as 
“lucid and fascinating” by its reviewer, Andrew Tjaardstra of Professional Broking. This October it was re-released in paperback with a substantial amount of new material added, all pertaining to the current financial crisis or, more accurately, the one that is now becoming apparent.

In the first iteration of The Trouble with Markets, Bootle began his book by describing the background to, and deep causes of, the first of the current crop of financial crises back in 2008, a combination of “greedy bankers and naïve borrowers, mistaken central banks and inept regulators, insatiable western consumers and over-thrifty Chinese savers”. Offering a balanced critique of the free-market system that first engendered the meltdown, Bootle outlined both the positives (the relatively even distribution of benefits across the country) and the glaring negatives (monopoly and insecurity; self-serving, unwieldy financial institutions and an increased propensity for immoral decision-making in the boardroom). A rare thing for a Square Mile 
insider. This was then followed by a considered appraisal of the crisis as it stood at the time of writing, of quantitative easing in times of great need (his verdict: not a bad thing), analysis of the new economic status quo — looking at the rise of China and their investment in the west alongside other super-saving Asian countries — and a reckoning of the financial sector as a whole, one in which he suggested dramatic reform as a possible way out of deadlock.

Now, two years later, Bootle expands on his original thesis with a wealth of new material, examining, among other things, the apparent fragility of the Euro, the Vickers report and other major events encountered along the road from the last financial crisis. It is to sovereign debt, though, that he devotes a major part of his work, almost 30 pages of new content wherein he looks at the geography of the phenomenon from its naissance in government support of an ailing banking system through the crisis of public finance we’re in today, to the impending Greek default. When looking at instances of past default and the immediate aftermaths thereof, he cites not just Argentina and Russia, but calls on a whole host of examples spread across two centuries to make his case — each nation having something different to show for having once been unable to pay their debts.

Though he is quick to point out that we arrived here “less by luck than by judgment” and blames governments for having been “blithely insouciant” in the face of mammoth public-sector debt, Bootle’s inquiry is marked in its cool temper and control. There is also a lesson to be learned in his assertion that “default is not only about what is possible, but also what is desirable”. In some cases, it is greatly so. One is reminded of Mario Blejer, who 
managed Argentina’s central bank in the aftermath of the world’s largest default, and his statement that “Greece should default, and default big. A small default is worse than a big default and also worse than no default.”

Overview provided by publisher 
Nicholas Brealey.

The Trouble with Markets: Saving Capitalism From Itself (2nd edition) is published by Nicholas Brealey Publishing. RRP £12.99