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Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System

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This is the third book in the Easy Money trilogy which discusses how, what the world now calls the global financial crisis evolved in the aftermath of the real estate bubble bursting in the United States and other parts of the world. In this book, we will try to understand the various reasons behind the financial crisis, and also identify the different villains behind This is the third book in the Easy Money trilogy which discusses how, what the world now calls the global financial crisis evolved in the aftermath of the real estate bubble bursting in the United States and other parts of the world. In this book, we will try to understand the various reasons behind the financial crisis, and also identify the different villains behind it.


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This is the third book in the Easy Money trilogy which discusses how, what the world now calls the global financial crisis evolved in the aftermath of the real estate bubble bursting in the United States and other parts of the world. In this book, we will try to understand the various reasons behind the financial crisis, and also identify the different villains behind This is the third book in the Easy Money trilogy which discusses how, what the world now calls the global financial crisis evolved in the aftermath of the real estate bubble bursting in the United States and other parts of the world. In this book, we will try to understand the various reasons behind the financial crisis, and also identify the different villains behind it.

30 review for Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System

  1. 5 out of 5

    Praveen

    There is a situation in Michael Moore's famous documentary "Capitalism: A Love Story' which was released just one year after the 2008 financial crisis , where Michael Moore stands in front of Walls Street and asks everyone who comes out "Can you explain what is derivatives / CDO's and how it works ?" he struggles to understand and quotes that they are purposely complicated so as to avoid proper regulation. Not only Michael Moore, all the world finds it same way. In the preface of "Easy Money" Ser There is a situation in Michael Moore's famous documentary "Capitalism: A Love Story' which was released just one year after the 2008 financial crisis , where Michael Moore stands in front of Walls Street and asks everyone who comes out "Can you explain what is derivatives / CDO's and how it works ?" he struggles to understand and quotes that they are purposely complicated so as to avoid proper regulation. Not only Michael Moore, all the world finds it same way. In the preface of "Easy Money" Series Vivek Kaul mentions , he wonders whether people writing this stuffs actually understood or not ? I started off with "Fault Lines: How Hidden Fractures Still Threaten the World Economy' by Raghuram G. Rajan in 2010 and went forward with neumerous books on this subject but Vivek Kaul's "Easy Money" Series provides with highlights of all the important books on this topic along with his own analysis and examples in more layman terms , which provids more clarity than others. I recommend this series of books to all those people who jumps into any publication which discuss about money and the crisis which it created in our world, Vivek has put forward massive effort to bring all the details and different point of views in one single source. This is must to have in your booksshelf.

  2. 5 out of 5

    Vikash Anand

    The third book in the series of Easy Money by Vivek Kaul i.e. The Greatest Ponzi Scheme ever and how it threatens to destroy the global financial system is an insightful book about various causes behind the global financial crisis of 2008. The easy money policy of the United States, over-promotion of homeownership and resulting risks associated with various financial innovations resulted in the financial crisis of 2008. Easy Money can spoil the entire system The US government set-up Federal Natio The third book in the series of Easy Money by Vivek Kaul i.e. The Greatest Ponzi Scheme ever and how it threatens to destroy the global financial system is an insightful book about various causes behind the global financial crisis of 2008. The easy money policy of the United States, over-promotion of homeownership and resulting risks associated with various financial innovations resulted in the financial crisis of 2008. Easy Money can spoil the entire system The US government set-up Federal National Mortgage Association & Federal Home Loan Mortgage Corporation nicknamed as Fannie Mae & Fannie Mae respectively to incentivize homeownership by expanding the market of mortgages. Fannie Mae & Fannie Mae bought mortgages from banks and financial institutions and held them on its books. Fannie Mae & Fannie Mae incentivized the homeownership in the US. The American economy was in a minor recession for a period of seven months before September 2001. In the aftermath of the September 2001 attacks the reports and statistics streaming in painted a very worrying picture regarding the economy of America. Americans had stopped spending on everything other than the items they would need in case there were more attacks. With spending collapsing, there was a danger of the minor recession turning into a major one. To prevent this, Alan Greenspan, the then chairman of the Federal Reserve, as he had in the past, decided to cut interest rates aggressively. Central banks cut interest rates in the hope that consumers borrow money to spend and businesses borrow money to expand, and so the economy grows. People did borrow and spend, but they went overboard with it. The low-interest-rate regime created conditions for a bubble; the only difference this time around in comparison to the dot-com-bubble was that real estate replaced stocks as the medium of speculation. America’s new bubble after dot-com was real estate and it was built on the belief that ‘anyone can make money in real estate’. Boom in sub-prime lending Loans were easy to get, as the entire banking system concentrated on simply giving out loans rather than finding out the credibility of the borrower. Banks could securitize their loan. Banks pooled together similar kinds of loans, such as home loans or mortgages. Against these loans, they sold bonds to investors. These bonds paid a rate of interest, which was slightly lower than the interest that the borrower was paying on the loan. By selling bonds, the banks got back the money immediately, unlike earlier, when the money was stuck for the period of the loan. This money could be used to give out more loans. The fundamental way in which banks had operated had changed. Earlier, when a bank gave out a loan, the loan remained on its books, till the borrower completely repaid it. Hence, the risk associated with the borrower not repaying the loan was taken on by the bank. When the borrower of the loan repaid it through an equated monthly installment (EMI), the banks passed on a major portion of this to the investors who had bought the bonds. The difference between what the borrower paid as interest and what the bond investor got as interest was money the bank made. It also got a commission on selling these bonds. Since the loans no longer remained on the bank’s books, it wasn’t interested in checking out the repayment capacity of the borrower any more. In fact, the more loans the bank gave out, the more bonds it could securitize, and hence, the more money it could make. Due to historical low default rate (around 0.08-0.15%) on home mortgages the senior tranche was considered very safe, and Mezzanine and equity tranches i.e. lower tranches were considered a bit risky. The senior tranche was given a AAA rating. The Mezzanine and equity tranches got lower ratings. Pension funds, insurance companies liked to invest in these mortgage based securities as they were getting slightly higher returns as compared to treasury bonds at almost the same level of risk. The lower tranches of securities were a bit risky. Hedge funds and aggressive debt mutual funds were investing in the lower tranches chasing higher return. Financial Innovation or Miss innovation To give out more loans, banks came up with several creative products like option adjustable-rate mortgage (ARM). An option ARM was a thirty-year home mortgage in which the borrower had the option of paying a lower EMI initially. The lower EMI in the initial years made the interest-only option ARM an appealing product to borrowers. Banks came up with even more creative option ARMs to appeal to almost anyone even to those who couldn’t afford to pay EMRs. Most of the sub-prime borrowers had taken option ARMs, and these mortgages had limited documentation. By 2005, the lending terms had become so easy that loans could be made to someone with no income, no job or assets nicknamed as Ninja loans. Also the long-standing myth that real estate prices would keep going up due to economic and population growth was at work. The easy money floating around led to an increase in homeownership in the United States. By 2005, 69% of US households owned their homes. Around half of this increase could be attributed to the sub-prime lending boom. Low-interest regime supported by US dollar as global currency reserve The United States is the biggest economy in the world. Export-led countries China, Japan, South Korea, Taiwan export their goods to US, and earn dollars in the process. These dollars were then invested in treasury bonds as well as financial securities. With so much money chasing US financial securities, the issuers of these securities could in turn offer low rates of interest on them. The low-interest rate scenario despite US government running into a high budget deficit also allowed people to borrow money at low rates and buy homes. The low-interest regime also incentivized people to use the equity in their homes and spend it on consuming other goods like electronics, cars etc. Home equity loans formed a major part of consumer spending before the financial crisis broke out. The US economy The gaint Ponzi cycle worked as described in the book “The United States shopped, China earned, China invested back in the United States, the United States borrowed, the United States spent, China earned again and China lent money again. The same was true with Japan, although to a lesser extent. The entire US-China-Japan arrangement was like that. The Chinese invested money in various kinds of American financial securities, which helped keep interest rates low in the United States. This helped Americans to consume more. The more money found its way back into China (like a return on a Ponzi scheme) and was invested again in various kinds of American financial securities, helping keep interest rate low. It also kept the consumption going. Like in a Ponzi scheme, the dollars earned by China and other countries kept coming back to the United States." Bursting of the sub-prime bubble Nevertheless, as is the case with such bubbles, things started to unravel after a point of time due to over promotion of homeownership. Housing prices stopped going up and borrowers started defaulting on their mortgages. The defaults were also strategic as also people with high credit score until now were also defaulting. People who continued paying all other debts like car loans, credit cards also defaulted on EMI payment towards the house. By 2007, the default rate on sub-prime loans had already gone into double digits and was at 12.6%. With homes being repossessed and foreclosed, the house prices started to fall. This meant the investors who had bought bonds issued against mortgages were also in trouble. Losses were huge on the sub-prime bonds that had been issued against sub-prime mortgages. The investment bank Lehman Brothers, which was a big investor in sub-prime bonds, went bust in mid-2008, and the US government had to come to the rescue of various financial firms such as Fannie Mae, Freddie Mac, AIG and Citigroup. This was done to ensure that the financial system did not come to a standstill. Ironically, the solution central banks and governments the world over have found to counter the global financial crisis was what caused the problem in the first place. An era of easy money has been unleashed again in the case of global financial crisis of 2008. The Federal Reserve has been dousing small fires constantly by trying to dose all fires by keeping interest rate low, it has resulted in bug financial fire of 2008. Trying to incentivizing the housing market and not allowing the housing prices to fall as fast as they would have been a strategy that merely postpones the big fire or crisis. The Greatest Ponzi Scheme ever and how it threatens to destroy the global financial system by Vivek Kaul is an insightful book and very much recommended for anyone interested in understanding the global financial crisis of 2008, and implications of easy money policy adopted by various government. The implications of easy money policy followed by governments are also very much applicable to individuals, it merely results in dosing of small fires and postponement of big fires. It’s important to be conscious of distractions due to the availability of easy money in life, it can result in big fire later on.

  3. 4 out of 5

    Shineson Anarky

    Review of all 3 volumes (Book Review) Book : Easy Money (3 Vols) Author: Vivek Kaul Publishers: HarperCollins “We are born into a government 60 years in debt That soon will be unable to even pay the interest on that debt And the banks will burn Money will be useless” - Charles Bukowski (Dinosauria We) In monetary parlance, easy money refers to a monetary policy which aims to increase the money supply in the economy. The book “Easy Money” in three volumes chronicles the rise of money, its mutation into var Review of all 3 volumes (Book Review) Book : Easy Money (3 Vols) Author: Vivek Kaul Publishers: HarperCollins “We are born into a government 60 years in debt That soon will be unable to even pay the interest on that debt And the banks will burn Money will be useless” - Charles Bukowski (Dinosauria We) In monetary parlance, easy money refers to a monetary policy which aims to increase the money supply in the economy. The book “Easy Money” in three volumes chronicles the rise of money, its mutation into various forms, with focus on easy money policy and the resulting booms and busts. The first volume focuses on the period upto World War I, the second volume ends at dot-com bubble and the third volume focuses on the Global Financial Crisis of 2007–08 and its aftermath. The book is eminently readable, given that it is written by a financial journalist rather than an academic economist. The jargon used in the books are explained with easily graspable examples. The author explains how debasement, (i.e., addition of base metals to precious metals in the coinage) the easy money policy of ancient times mutated into easy money policy of printing more money with no gold reserve to back it up and ended up as fiat money. What is this fiat money? I am reproducing a paragraph here from my previous article on bitcoin. “Modern paper currency had severed its links with Gold. Now the paper we hold on to is only backed by guarantee of the issuing Central Bank and the sovereign authority.” In reality, the end of gold standard in 1971 has paved the way for dollar standard, with dollar being the global reserve currency. This transition from gold standard to gold exchange standard to modern dollar standard is provided in detail. This unique position is referred in the book as exorbitant privilege of dollar. So, after the advent of this modern fiat money backed by dollars, how does a government manage its easy money policy? Conventionally, a Central Bank uses the following methods to achieve the easy money objective. a) Reduction in Interest rates Reduction of benchmark interest rates by the Central Bank is a common Monetary policy tool. In India, this rate is the repo rate i.e., rate at which the commercial banks borrow money from RBI. Currently this rate is at 4.40%. The conventional economic wisdom is that the reduction in interest rates will spur up lending, thereby boosting economic activity both in supply side and demand side, resulting in economic growth. While in India, space is still left to manoeuvre in the repo rate route, most of the central banks in developed nations have shifted the central bank rates to near zero or negative levels. This easy money policy in Europe and US has lead to capital outflows to emerging market economies as oft-repeated in the book, money chases the point of highest return. Further, this negative rate has also lead to peculiar situations whereas banks such as Jyske Bank offered negative interest rates on its mortgages and few other banks offered negative interest rate on deposits. b) Reducing Capital and Reserve requirements: Banks in India are required to keep a portion of their deposits with RBI and as investment in highly liquid assets like G-Secs, approved securities etc. This is not much discussed in the book. However, capital requirements are discussed in detail. Banks must hold an amount of capital as determined by their Risk Weighted assets according to Basel norms. By shifting the assets i.e., loans from banks’ books by securitization (e.g., creation of mortgage backed securities), banks were able to free up their capital and lend more. This has also lead to a market for derivatives based on MBS culminating in GFC 2007–08 c) Open Market Operations: RBI/ Central Banks conduct purchase of G-Secs to improve liquidity in the economy Beyond this there are also other unconventional monetary policy tools to achieve the easy money objective. This usually occurs in a Zero Lower Bound situation occurs. i.e., the interest rate is at zero or near zero. One of such widely known tools is Quantitative Easing. Usually as mentioned above Central Banks Purchase G-Secs from open market to improve liquidity. QE refers to a policy by which Central Banks buy bonds/ other financial assets from open market from private institutions. In some cases, Central Banks were also involved in equity markets. In Indian context, recent Targeted Long Term Repo Operations (TLTRO) which mandates banks to invest in securities from primary/ secondary market could be termed as indirect QE. However, as banks have to hold these assets in their investment books subject to capital norms, RBI’s direct involvement is minimal. There are also other unconventional monetary policy tools like Operation Twist, Helicopter Drop, Forward guidance etc., which were not discussed / discussed only briefly in the book. The author argues that easy money policy is the major reason behind asset price bubbles such as dot-com bubble and GFC 2007–08. The author also warns that this unfettered easy money policy may lead to runaway inflations at an unexpected point in time. In short, the author mildly warns that the situation mentioned in the poem quoted at the beginning of the essay may come true if current global economic order is disturbed and unfettered easy money policy is implemented.

  4. 5 out of 5

    Vishnu Boorla

    Reading this series is must for anyone wanting to understand the genesis, evolution and intricacies of money. Vivek's writing is lucid and simple to understand, even for anyone without degree in economics or understanding of stock market and/or central banks. I for one cannot wait for the 4th book, especially with covid pandemic bringing the world to it's knees. Thank you Vivek Kaul - the Master !!! Reading this series is must for anyone wanting to understand the genesis, evolution and intricacies of money. Vivek's writing is lucid and simple to understand, even for anyone without degree in economics or understanding of stock market and/or central banks. I for one cannot wait for the 4th book, especially with covid pandemic bringing the world to it's knees. Thank you Vivek Kaul - the Master !!!

  5. 4 out of 5

    Anubhav Jalan

    Recommended book for students of commerce and economics to get a good overview of concepts as well as history of crisis in a succinct way.

  6. 5 out of 5

    Palani

    Vivek Kaul does a great job of explaining finance jargon in simple terms. Great book to read.

  7. 4 out of 5

    Chaitanya

    Although a lot had been said,written and documented about 2008 financial crisis, this trilogy not only explains it in a great detail, also gives comprehensive outlook of current global financial system since it's inception . It sufficiently answers how and why related to '08 crisis,world debt, Dollar as world currency in engaging way. As you reach to the conclusion, you will have more questions than the answers. But questions will be new,far scary and difficult to answer ! Although a lot had been said,written and documented about 2008 financial crisis, this trilogy not only explains it in a great detail, also gives comprehensive outlook of current global financial system since it's inception . It sufficiently answers how and why related to '08 crisis,world debt, Dollar as world currency in engaging way. As you reach to the conclusion, you will have more questions than the answers. But questions will be new,far scary and difficult to answer !

  8. 4 out of 5

    Sujoy

    Really nice book. In the same lines as the previous one, it gives a very good insight on what happened and why. The reader friendly explanation is really what makes this book enjoyable, otherwise there is a lot of financial and economic mumbo-jumbo to make the head spin a bit. This book made me curious to know more. So, am reading Satyajit Das's Extreme Money now, as Vivek cited him quite a lot in the book and also one of the first in the acknowledgements. Extreme Money is definitely recommended Really nice book. In the same lines as the previous one, it gives a very good insight on what happened and why. The reader friendly explanation is really what makes this book enjoyable, otherwise there is a lot of financial and economic mumbo-jumbo to make the head spin a bit. This book made me curious to know more. So, am reading Satyajit Das's Extreme Money now, as Vivek cited him quite a lot in the book and also one of the first in the acknowledgements. Extreme Money is definitely recommended to those who don't want to remain ignorant to global matters.

  9. 5 out of 5

    Virat Sharma

    An unputdownable book for those who would like to know about the Sub-prime crises and its aftermath effects, Moral Hazard created by the U.S govt after continuous bailouts, Why some big financial institutions are too big to fail and the missed opportunity to break them off and why banks are reluctant to raise fresh capital (because it affects its return on Equity and thus, profitability). There is much much more in this book to be learnt ! A page turner and I can vouch for this book . Buy it. Re An unputdownable book for those who would like to know about the Sub-prime crises and its aftermath effects, Moral Hazard created by the U.S govt after continuous bailouts, Why some big financial institutions are too big to fail and the missed opportunity to break them off and why banks are reluctant to raise fresh capital (because it affects its return on Equity and thus, profitability). There is much much more in this book to be learnt ! A page turner and I can vouch for this book . Buy it. Read it. Read it again.

  10. 4 out of 5

    Vivek Kaul

  11. 4 out of 5

    Mayur Patil

  12. 4 out of 5

    Vinayak Tyagi

  13. 5 out of 5

    Yash Jain

  14. 4 out of 5

    Rishi Kumar

  15. 4 out of 5

    Prashant Gupta

  16. 4 out of 5

    Manoj jhawar

  17. 5 out of 5

    Utkarsh Sinha

  18. 4 out of 5

    Rakesh

  19. 5 out of 5

    Rohit Pande

  20. 5 out of 5

    Hrishant Singhal

  21. 5 out of 5

    Himanshu Kumar

  22. 5 out of 5

    Praveen Kumar Garlapati

  23. 5 out of 5

    Hanuma Kumar

  24. 5 out of 5

    Jithu Gopal

  25. 5 out of 5

    Sai Kashyap

  26. 4 out of 5

    Sidhant Rustagi

  27. 4 out of 5

    Rizwan Raiyan

  28. 4 out of 5

    KrishnaKumar Balachandran

  29. 5 out of 5

    Chaitanya Gunisetti

  30. 5 out of 5

    Govi

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