- Hardcover: 400 pages
- Publisher: Random House (1 August 2016)
- Language: English
- ISBN-10: 9780553447231
- ISBN-13: 978-0553447231
- ASIN: 0553447238
- Product Dimensions: 16.3 x 3.3 x 24.1 cm
- Average Customer Review: 4 customer reviews
- Amazon Bestsellers Rank: #57,983 in Books (See Top 100 in Books)
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Voted one of the Best Books of 2016 by the Financial Times and one of the best books of the year by Bloomberg BusinessWeek.
"A well-told exploration of why our current economy is leaving too many behind." - The New York Times
"A masterly account of the disproportionate power that the financial sector exercises in the economy and the disastrous consequences this has for society as a whole." - Forbes.com
"A credible explanation for the rise of economic populism in the 2016 U.S. presidential race. Anyone seeking to truly understand the resonance of the anti–Wall Street vitriol of Bernie Sanders and Donald Trump could do worse than to start here." - Fortune.com
“Foroohar demystifies the decline in America’s economic prominence, showing that the competitive threats came not from the outside—migration or China—but from within our borders. She explains how finance has permeated every aspect of our economic and political life, and how those who caused the financial crisis wound up benefiting from it.” - Joseph E. Stiglitz, Nobel laureate in economics and former head of the Council of Economic Advisors
“A fast-paced, exciting, and well-researched tale that brings alive the shady dealings that have been part of the recent rise of finance (the takers). Wall Street has prospered beyond measure by consuming far too much of the value created by the real economy (the makers). Readers will be shocked by the shenanigans that are revealed, and then eager to help fix what has been so badly broken. It’s up to us—all of us.” - John C. Bogle, founder and former CEO, Vanguard
“In this well-written, refreshing, and provocative book, Rana Foroohar analyzes how Wall Street went from an enabler of prosperity to a headwind to growth and a contributor to inequality. This engaging analysis identifies five key policy areas that will rightly be the subject of debate and, hopefully, some political action. This is a must-read for those looking to better understand how, why, and when financial engineering went too far, and what to do about it." - Mohamed A. El-Erian, chief economic adviser, Allianz; former CEO, PIMCO
“From the leading edge of business journalism, Rana Foroohar has produced a powerful book about how financial manipulation has spread beyond the financial sector itself to colonize the American economy, to the enormous detriment of real, productive activities. By mapping the rise of financialization and its effects, Foroohar sheds light on almost everything we now see, from the inequality debate to presidential politics to America’s global competitiveness. A phenomenal achievement.” - Charles Ferguson, producer, Inside Job
“As the next US election looms, one of the most important questions that voters will need to ask is what is wrong with the American economy—and what can be done to fix it. Foroohar’s book is required reading for this. With deft storytelling and clear analysis, she explains how America’s economy has become stealthily “financialized”—and why this process has been so debilitating for American growth, not to mention the lives of ordinary people. The 2008 financial crisis was one sign of this; however, the issues have not ended there. Foroohar not only argues that it is crucial that America tackle these woes but offers commonsense solutions for doing so. Politicians—and voters—should take note.” - Gillian Tett, US managing editor, Financial Times, author of The Silo Effect
“There is no bigger question in public policy than whether the emergence of an ever-larger financial sector has made for a smaller and less equal society. Makers and Takers provides an intellectually compelling, and beautifully written, answer to that question, one which policy makers cannot and should not duck.” - Andy Haldane, chief economist and executive director of monetary analysis and statistics at the Bank of England
“Rana Foroohar offers a sometimes maddening, thoroughly fascinating look at the financial sector’s outsized role in the US economy and what it means for America’s future. This is a critical story that speaks directly to the ways in which banks are stripping businesses of their potential—and to the income inequality that increasingly defines our times.” - Ian Bremmer, Founder and Head of the Eurasia Group
“Foroohar is one of the rare journalists with the insider knowledge and contacts, as well as the deft writing touch, to criticize the “financialization” of the US economy in a way that will sound credible to Wall Street, and readable on Main Street. In this fast-paced book she makes a compelling case for how businesses have come to focus more on engineering their finances than engineering good products, and the negative effect this has on US growth and productivity." - Ruchir Sharma, Chief Macroeconomist and Head of Emerging Markets, Morgan Stanley Investment Management
About the Author
Rana Foroohar was recently named global business columnist and Associate Editor for the Financial Times. She is also CNN’s global economic analyst.
Prior to joining the FT and CNN, Foroohar was for six years the assistant managing editor in charge of business and economics at TIME, as well as the magazine’s economic columnist. She also spent 13 years at Newsweek, as an economic and foreign affairs editor and a foreign correspondent covering Europe and the Middle East. During that time, she was awarded the German Marshall Fund’s Peter Weitz Prize for transatlantic reporting. She has also received awards and fellowships from institutions such as the Johns Hopkins School of International Affairs and the East West Center. She is a life member of the Council on Foreign Relations.
Foroohar graduated in 1992 from Barnard College, Columbia University. She lives in Brooklyn with her husband, the writer John Sedgwick, and her two children, Darya and Alex.
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Makers and Takers
The book’s central argument is that finance should be a utility. Unlike an electric company, which allocates energy to businesses and people to power the economy, banks allocate capital. Theoretically, in an efficient financial system all an entrepreneur needs to do is have a great idea and a solid business plan. The bank evaluates the plan, loans the money, and makes a profit on the interest. It’s an easy, boring business. If things work out the entrepreneur becomes wealthy, people are employed, and the community receives long term investment. Foroohar presents the case that McNamara spearheaded a revolution that moved finance from a supporter of the economy to the center piece. It no longer allocates capital and gets out of the way; today finance manages nearly all aspects of business. It no longer helps make society; it takes from society.
You may be asking yourself, “Didn’t McNamara’s approach double profits in a few years? Didn’t he he bring a company back from the dead?” I think Foroohar’s answer would be: not really. Of course, every firm needs some level of financial structure to succeed, and he should be applauded for his contribution. But during the post-WW2 era, Ford’s growth was driven primarily by societal trends not anything one person did. The U.S. government invested $25 billion to create a 41,000 mile interstate highway system that reduced the time it took to cross the country from about two months to five days. Incomes rose by 2.5 percent a year creating the middle class. In plain English, McNamara’s arrival coincided with both a massive increase in the demand for cars and a budding infrastructure to drive them on. He was born on third base, and everyone thought he hit a triple.
From a product perspective, Ford was in such good shape that it took about a decade for McNamara’s impact to be felt. According David Halberstam’s The Reckoning, a 1986 opus on the decline of the American automobile industry, under his system, managers “contrived not to improve but in the most subtle way to weaken each car model, year by year.” This meant “a cheaper metal here, a quicker drying paint there.” Foroohar reports that the system tried to eliminate spare tires in the vehicles, because managers didn’t know anyone who ever had to change a tire (Executives often had company cars—replaced every six months). Eventually the small cutbacks led to huge profits at the expense of quality. During his tenure, Ford debuted two of the most universally loathed cars in the history of the industry: The Pinto and the Edsel. “Accountants were replacing tradesmen,” Foroohar writes. “Making money was slowly but surely replacing the goal of making great products.”
The hidden poison: Modern finance destroyed innovation
The most damaging legacy of McNamara may have been his impact on labor relations. Labor became a commodified input. It was now something to be managed and squeezed; just a cost of doing business. Never mind that one of the major drivers of innovation is the collaboration of the factory floor and the engineering team. There’s a reason why Bell Labs designed their buildings to house both engineering and manufacturing—a strategy Tesla uses today. While Japanese and German firms were becoming more productive and agile by engraining labor into the strategic decisions of the company—America was building walls and eroding key competencies by outsourcing production.
Foroohar’s book isn’t perfect–it goes on a bit long and only offers a few solutions—but it’s a well-meaning and well researched book on the modern economy. Not the economy that we hear about on the nightly news or in sound bytes, but the actual structure and incentives driving modern business. She makes a good case that yes, modern the modern financial system has destroyed America’s ability to innovate. The entire system rewards short term gain, over long term investment. The good thing, she notes is that none of this is permanent. “We can remake [the economy] as we see fit to better serve our shared prosperity and economic growth.”
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The author (RF) defines financialization as “the trend by which Wall Street and its way of thinking,” which she terms “short-term [and] risky,” have come to “permeate not just the financial industry but all of American business” (@5). She covers numerous aspects of this problem, including: how firms like Apple spend more on buying back their own shares than on R&D, how investment banks like Goldman Sachs hoard physical commodities like aluminum and drive up prices, how private equity firms now control most of the US rental housing market (that one was new to me), how fund managers are helping themselves to Americans’ retirement savings, as well as how financialization has distorted MBA education, the tax code and Washington regulators. I admit I didn’t pay much attention to her proposed solutions: I lack the faith of most American business journalists that big corporate capitalism can provide solutions. But RF’s diagnosis is valuable because it’s so wide-ranging.
While some reviewers found the book easy to read, I found it more average in that regard: passionate, quite serious, with some arresting anecdotes, but otherwise fact-filled and at times very jumpy in its timeline. It doesn’t go into depth on many topics of interest: e.g., it’s not the go-to book to understand the derivatives involved in the 2008 financial meltdown (read some chapters of Janet Tavakoli, instead). There are a few celebrity-journalist touches, such as an awkward passage describing how corporate raider Carl Icahn entertained RF with his voice impressions (@121), but these don’t become overwhelming. Immediately before picking up this book I’d read “And the Weak Suffer What They Must?” by the former finance minister of Greece, Yannis Varoufakis. That book covers a different topic (the evolution of the global financial system, and especially the Euro) but shares some features of this book, such as a choppy timeline and name-dropping personal anecdotes. Nonetheless, Varoufakis is a clearer and more thorough expositor of complicated economic ideas, while inserting a good deal of charm and humor. He is a professor who obviously cares about teaching, while RF is a very busy journalist: that contrast may give you some idea of what to expect from this book.
A consequence is that the book omits a few simple explanations that might help readers to fit more pieces of the puzzle together. One is that transactions on the stock market generally don’t bring any money to the company whose shares are being traded — the money just trades hands between buyers and sellers. Despite what textbooks tell you about the important social role of the stock market, less than 1% of the annual value of all exchange-based equity trading around the world goes to companies as new capital to expand their businesses; the rest is gambling. So when RF mentions that "activist investors" don't deserve huge dividends from tech companies because they had no role in helping to create the companies' innovative technology or making their products (@124), the same is true of just about any poor zhlub who bought shares on the market: your money didn't help the company accomplish anything. It also might help readers to know that that the value of financial transactions, including on the stock, bond, derivatives and forex markets, is officially excluded from the definition of GDP, which represents the “real” economy of goods and services. The global annual value of trades on stock exchanges alone is bigger than global GDP, and when you consider the value of all trades in all sorts of financial assets, you get many multiples of global GDP. That, in a nutshell, is why rich people see financial markets as a much better place to make money than the real economy in which most of us work, earn money and spend.
Some minor issues: RF omits to mention the role of stock analysts in driving both share prices and executive behavior, and to define such terms as “asset values” and “Chinese walls” (and "eating-club": it's a Princeton thing, apparently). Some of her history, especially in Chapter 3, seemed to me a bit off in a few details, too. Surely systems analysis originated not in finance (@75) but in engineering and military operations research: see S. Optner, ed., “Systems Analysis” (Penguin 1973). RF seems to suggest that managers in the 1950s were focused on stock price (@81); but as I recall from listening to grown-ups as a child in the early 1960s, investors cared most about dividends (and “clipping coupons” if they were bondholders), i.e., about a steady stream of income accruing from holding onto assets, not from making money by trading. Also, by equating the emphasis on the bottom line and accounting that prevailed in that era with “financialization” (@79), RF seems to be using the word in a different sense from her definition at the beginning of the book. Finally, I found at least one significant mistake: RF says that the 1919 Michigan Supreme Court case of Dodge v. Ford “enshrined in law” the notion that “companies ha[ve] a legal obligation to maximize profits for investors, and that their interests trumped those of anyone else” (@70-71). When it comes to the day-to-day operations of a company (as distinguished from sale of the company in certain M&A transactions), this is simply not true in any US state or major country of the world, with the possible exception of Michigan. Plenty of businesspeople do believe there is such a legal duty, which often leads to corporations acting like jerks; so it doesn’t help for this book to encourage that false impression.
In sum, this isn't a book to read for its style, nor, aside from a few anecdotes, for its details. But for its big picture of how finance has invaded and destabilized so many areas of our lives, it's worth your time.
The author spends a lot of time writing about Wall Street and "financialization" of businesses. Robert McNamara and the "Whiz Kids" changed the auto industry and not in a good way. That was only one of many examples of what I would call accounting and numbers becoming a focus over engineering and quality. Carly Fiorina is another.
She does an excellent job of following history and how along with financial deregulation, there has been a shift in priorities taught in business schools. Greed is good, tax inversions are ok, and the concept of "financial engineering." Corporate buybacks and short term profit over long term stability.
On the financialization of business she covers Jack Welch (a pioneer in outsourcing American jobs) and GE's crossing over into financial services.
Another very important subject is the slow recovery from the Great Recession. A lot of wealth is being kept in a "closed feedback loop" at the top.
I wasn't aware of how much big banks were buying up distressed housing. That highlights the emphasis on the housing recovery in general - cover the banks that gambled rather than the homeowners.
There are plenty of rogues in the gallery- Goldman Sachs and their aluminum hoarding scandal. Pfizer and their quest to dodge corporate taxes in the US.
Amid all the gloom the author does offer some more than reasonable solutions to the many problems.
This is a 5 star book and then some!