The authors are correct that the main problem causing the current severe economic worldwide crisis has been the massive speculation in financial assets engaged in by the private commercial banking industry and the private investment banks on Wall Street.So far so good.A problem arises when the authors,who are both economists,ascribe the speculative excesses primarily to what they claim were excessively low rates of interest engineered by Alan Greenspan and various other central banks .This is simply not the case.The major problem has always been the loan practices of the private banking system.The important question is to whom are the banks making loans ? It appears that the authors have not read Adam Smith and/or John Maynard Keynes carefully.They claim that " In all truth,you do not need to be Adam Smith or John Maynard Keynes to work out what had gone wrong and why "(p.192).This is not the case.

Both Smith and Keynes advocate a policy regime of low rates of interest maintained permanently over the long run.Smith's version would set thia rate a little bit higher than the market clearing rate charged to the most credit worthy of customer (prime customers).The crucial part of Smith's preventitive approach is the implementation of a policy of credit restriction imposed on the banks by a privately controled central bank that is independent of the government AND THE PRIVATE BANKING INDUSTRY.THE GOAL OF THE CENTRAL BANK IS TO PREVENT THE EXTENSION OF LOANS TO PROJECTORS,IMPRUDENT RISK TAKERS ,AND PRODIGALS (Keynes advocated a policy of credit restriction in his Treatise on Money(1930) and post GT articles on the finance demand for money where the unsatisfied fringe of borrowers would always consist of speculators and rentiers .These two categories are the same as Smith's three categories).Smith correctly realized that loans made to these categories of borrower will be " ...wasted and destroyed...".This is exactly what has happened today.It has absolutely nothing to do with a policy of low interest rates and everything to do with WHO is getting the loans.Is it the Smithian " sober people " who use the loans to start new businesses and/or expand existing businesses ,or are the loans going to the private equity firms/hedge firms,who are using the loans to finance leveraged buyouts or engage in debt leverage in the financial markets ? Both Smith and Keynes had the wisdom to realize that it was what the loans were used for that was crucial.


In summary, the authors have written an above average book that describes what went wrong and why.However,their belief that you don't need to read what Keynes and Smith wrote on this topic leads them into erroneously ascribing speculation to low interest rates when such speculation is in fact due to the loan policies of the private commercial banks.Unfortunately,the large private commercial banks in the USA have been able to maintain effective political control over the central bank,the Federal Reserve System.This explains the current 6 trillion dollar bailout of such banks and other allied financial institutions,such as AIG.