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Review Essay

What Caused the Crash?

The Political Roots of the Financial Crisis

In This Review

The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—From the Financial Crisis
The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—From the Financial Crisis
By Martin Wolf
Penguin Press, 2014, 465 pp. $35.00 Purchase

Crises are an inevitable outgrowth of the modern capitalist economy. So argues Martin Wolf, chief economics commentator for the Financial Times, in his authoritative account of the 2008 financial crisis. Instability reveals itself in the form of shocks; even a seemingly small deviation from the norm can set off a major crisis. Consider the decline in U.S. housing prices, which began in 2006 and hit its nadir in 2012. In isolation, the trend appeared manageable. After a period of exceptionally high housing prices, U.S. policymakers initially welcomed the drop, which they saw as a much-needed correction to the market, a gradual unwinding of excess. They did not expect a crisis of the magnitude that eventually arrived; nearly no one did.

With characteristic thoroughness and clarity, Wolf identifies a number of culprits for this failure. At the broadest level, it was a failure of imagination. Bankers, regulators, and policymakers assumed that a

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