James Pressley reviews Myth of the Rational Market for Bloomberg

In a very nice review, Bloomberg's James Pressley calls 'Myth':

a rich history of the world’s most seductive investing
idea, the efficient markets theory.

The jacket copy is right to call this “an intellectual
whodunit.” Taken together, the academics and their models
helped precipitate the ugliest financial meltdown since the
Great Depression. Too bad investors didn’t ignore the professors
and follow the lead of Warren Buffett, who made his billions by
beating the “unbeatable” market.

Fox, an economics columnist for Time magazine, shows us
where the bodies are buried among the bell curves as he traces
the rise and fall of a theory that lulled investors into
believing that markets knew best, spread risk and regulated
themselves. The price was always right, until even Alan
Greenspan
said it wasn’t.

He does end on a critical note:

[O]ne wonders why Fox gives such short
shrift to Hyman Minsky’s Financial Instability Hypothesis, which
argues that markets whip up their own internal forces,
triggering waves of first credit expansion and asset inflation
and then credit contraction and asset deflation.

Many investors consider this to be an antidote to what
financial writer George Cooper calls “the efficient market
fallacy.” Yet Fox limits his discussion of Minsky to a brief
brush-off in the epilogue.

Isn’t history meant to be written by the winners?

It's an entirely valid point. And if Pressley is in fact wondering why I shunted Hyman Minsky to the epilogue, it's because I tried really hard to fit him earlier in the narrative and I just couldn't make it work. I imagine that if I been writing (as opposed to just tweaking) after September 2008, I would have tried much harder to fit Minsky in, but it was always going to be difficult because he simply wasn't part of the debate among finance scholars. He still isn't, I imagine—which tells you something about academic finance. Since I'd made the decision to write the book as a series of interlocking narratives, having somebody who wasn't interlocked with the rest of the narrative at all was always gonna be problematic. That said, there has to be some way I could have woven in Minsky and his popularizer Charlie Kindleberger, and Kindleberger's ongoing debate with rational-market true believer Peter Garber. I just never figured out what it was.

But there are lots of paths-not-taken like that when you write a book. I'm still wondering if maybe I made a huge mistake in not giving MIT's Andrew Lo a big role in the narrative. I think this is what I'll discuss in all my TV and radio interviews—my failure to give Hyman Minsky and Andy Lo their due. That kind of stuff totally sells books, right?

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