Book Review: Guaranteed to Fail by Viral V. Acharya, Matthew Richardson, Stijn Van Nieuwerburgh and Lawrence J. White

Title: Guaranteed to Fail
Author/s: Viral V. Acharya, Matthew Richardson, Stijn Van Nieuwerburgh and Lawrence J. White
Publisher: Collins Business
ISBN: 978-9350290651
Genre: Non-Fiction, Business
PP: 240 pages
Price: Rs. 399
Source: Publisher
Rating: 4/5

A key point to note as you read this excellent book is that it is written by not one, but four professors – so, if you are expecting a thriller that explores the nefarious nexus between Washington and Wall Street, you will be deeply disappointed. I, personally, was disappointed there was no end of chapter questions and that the solutions to the non-existent odd numbered problems were missing in the back pages.

Kidding aside, I strongly believe in comparative advantage and we should not expect professors to become Carl Bernstein and Bob Woodward or vice-versa. The book is very well-served by the academic approach as the authors navigate the reader through economics, finance, history, and public policy issues with ease and eloquence. Fannie and Freddie are presented as two neglected children of abusive self-serving parents (the government and the equity holder) and the entire family has developed some very bad habits. There is a striking metaphor in the book that compares the creation of the agencies and Frankenstein. I was very impressed with the aptness of several metaphors that are interspersed throughout the book. Likening the entry of Fannie and Freddie into the high risk mortgage market to Caesar’s crossing the Rubicon is another one worth mentioning.

A well-researched essay on housing markets across the globe and how and why different countries stacked up the way they did during the crisis provides a global perspective. The discussion of potential conflicts because of Fed’s ownership of GSE securities and its important tool for monetary policy, the interest rate is interesting. The reforms proposed in the book, for example the recommendation to set up a system similar to TRIA will provide material to mull over several cups of coffee.

While there are references to corporate governance and implicit signals of government support through the presidential appointees in the boards, the incentive plans of Fannie and Freddie’s management and how compensation metrics played a part could have been provided more context.

Despite ample coverage of the housing crisis in the popular press and numerous other publications, this book will still appeal to the student or the “student at heart” due to its well-thought out structure, clever use of anecdotes and analogies. The authors have not been averse to including quotes from a variety of sources to enhance the reader’s experience.

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