Alchemists of Loss: How modern finance and government intervention crashed the financial system

They won seven Nobel prizes. They inspired the greed of a generation of Wall Street bankers and their theories contributed to the greatest financial crash in world history, followed by the worst global downturn in 75 years. They were the Alchemists of Loss. Their theories were taught in every business school in the world and changed the way every public company finances itself. They created a Wall Street that made gigantic fortunes, yet contributed less and less to global economic well–being. They created a risk management culture that encouraged risk rather than managed it, and led to the collapse of much of the financial system. Disasters are generally caused by bad ideas. The Alchemists were not the only bad idea merchants out there. There was the strange theory that the government should guarantee housing loans and the tottering towers of mismanaged risk that resulted. There were the regulators, who thought risk could be eliminated by 1000–page rulebooks, and then there were the business school academics, who thought capitalism with institutional ownership, massive borrowing and scientific management control was just as good as the real thing. Finally, there were the politicians and central bankers, and their Keynesian policy advisers, whose incessant meddling undermined the capitalist system and left many of the world s major governments effectively insolvent whilst saddling taxpayers with an unprecedented bill. Alchemists of Loss shows with incisive detail and wit how this witches cauldron of error produced disaster, and how it will continue producing disaster and leeching wealth if left unchecked. It shows how to do better, by replacing financial alchemy with financial chemistry, by reversing the errors that have brought destruction, and by creating a truly free market system or at least the closest we can get in an imperfect world.