In his introduction, Smith explains how the
financial crash of 2008 was cause by a mixture of over-zealous crediting agency,
poor investments, and little foresight from a number of Wall Street (and other)
banks and hedge funds. After its relatively small beginnings with the two Bear Stearns
hedge funds failings, it snowballed into the bursting of the ‘housing bubble’ and
eventual bailing out of Fannie Mae (the Federal National Mortgage Association) and
Freddie Mac (the Federal Home Loan Corporation) which were so huge and ‘stable’
that their failings held very grave connotations for economists the world over.
In his 'Appetizer', Smith begins to
define what economics really is, and how truly integrated it is with our
society- he also explains that economics can be used to understand why there
really is no such thing as a free lunch. Once the tone is set for the rest of
the book, he begins to, really, delve deeper into the heart of the book. In the
next chapter, the subject of housing is addressed, as Smith discusses the
factors affecting house prices, and how the housing market is very different in
the way in which it operates to that of ‘potatoes’. He also touches on ‘value
added’ in reference to homes, and some basic theory surrounding equity.
The next installment of my review of 'Free Lunch' will be coming up in the next few days so, keep checking in!
K
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