Alchemists of Loss

An engaging look at how modern finance almost destroyed our global economy Over the last thirty years, capital markets have been restructured through the tenets of modern finance. This has been enormously profitable for the financial services sector. However, these innovations, coupled with unsound risk and regulatory practices have proved disastrous for the global economy. In a clear and accessible style, ex-investment banker and financial journalist Martin Hutchinson, and highly respected academic, Kevin Dowd show how modern finance combined with easy money threatened to bring down the world financial system. At the heart of the book is modern finance as a U.S. invention, the theories and practices associated with them, and the changes they made in business models and risk management on Wall Street and other major financial centers. Breaks down the events involved in the 2007-08 financial collapse Reveals how botched policy response made a bad situation worse Focuses on lessons that the practice of finance must learn from recent events The Alchemists of Loss will help you to understand how our financial system crashed and show you what it will take to make sure this won't happen again as we move forward.

An engaging look at how modern finance almost destroyed ourglobal economyOver the last thirty years, capital markets have beenrestructured through the tenets of modern finance. This has beenenormously profitable for the financial services sector. Howeverthese innovations, coupled with unsound risk and regulatorypractices have proved disastrous for the global economy.In a clear and accessible style, ex-investment banker andfinancial journalist Martin Hutchinson, and highly respectedacademic, Kevin Dowd show how modern finance combined with easymoney threatened to bring down the world financial system. At theheart of the book is modern finance as a U.S. invention, thetheories and practices associated with them, and the changes theymade in business models and risk management on Wall Street andother major financial centers.* Breaks down the events involved in the 2007-08 financialcollapse* Reveals how botched policy response made a bad situationworse* Focuses on lessons that the practice of finance must learn fromrecent eventsThe Alchemists of Loss will help you to understand howour financial system crashed and show you what it will taketo make sure this won't happen again as we move forward.

Acknowledgements & Dedication vForeword viPart One: Past Successes and Disasters 11 Introduction 32 Pre-Modern Finance 173 Lessons from Past Financial Crises 33Part Two: The Modern Financial Theory Engine 634 Theoretical Foundations of Modern Finance 655 Modern Financial Theory's Hideous Flaws 876 Risk Management: Daft Theory, Dodgy Practice 111Part Three: Interactions with the Real World 1377 The Real World Becomes Modern Finance-friendly 1398 Modern Finance Captures Wall Street 1599 And Wall Street Metamorphoses 19910 Derivatives and Other Disasters 225Part Four: Policy Accommodates Modern Finance 24511 Loose Money 24712 Government Meddling in the Financial System 269Part Five: Götterdämmerung 29513 Bubble, Burst, and Panic 29714 The Slope Down Which We're Heading 331Part Six: Charting a New Way Forward 34915 The Math of Proper Risk Management 35116 Back to the Future - A New Vision of Finance 37317 A Blueprint for Reform 38918 Lessons to Take Away 403Bibliography 407Index 413