Reviews and Press for The World Is Curved

From “The World Is Curved," by Jonathan Chevreau in the National Post, October 29, 2008:

“If you’re looking for an indepth read on how the mortgage crisis led to this brutal bear market, get hold of a copy of David Smick’s The World is Curved: Hidden Dangers to the Global Economy. ”

From “If Entire Countries Go Broke, We’ll Go With Them,” by David Smick in the Washington Post, October 26, 2008:

“The global financial market is like a rich, generous but occasionally paranoid great uncle. Normally, this benevolent great uncle sprinkles money calmly and wisely throughout the family, taking a careful reading of risk and potential investment reward. But every so often, a deep paranoia overtakes him. Panicked, he turns off the spigot. Why? Sometimes he thinks his relatives are not telling him everything he needs to know. Other times, paranoia sets in because the facts of a relative’s scenario don’t add up.

Today the great uncle has reached a level of paranoia not seen since the 1930s, and the massive ‘shock and awe’ campaign of bold rescue efforts from the world’s wealthiest countries has not calmed him down. The world financial market still thinks the numbers don’t add up.

This is primarily because of a new and fast-moving blip on the global radar screen: the growing concern that entire countries could default on their financial obligations. While Washington frets about bank failures and the potential collapse of the corporate sector, the financial market is far ahead of it. Global markets are now fixated on the economic, social, political and foreign policy shipwrecks that could be triggered if waves of country defaults sweep across the world.

In an alarming number of nations, the amount of dubious debt held by the domestic banking system dwarfs the country’s GDP. This is particularly true in such emerging capitalist economies as Hungary, Iceland, Belarus, Ukraine and Pakistan.

That’s scary. In the past, some emerging market economies have defaulted (Argentina comes to mind) and managed to survive without dragging the rest of the world off a cliff. But things are different today. The global financial system itself is on life support. If an emerging market collapses, the damage won’t be limited to just one country.

Here’s why all this matters to the average working American: Emerging markets are major purchasers of U.S. exports and a critical engine of global growth. If their economies fail, ours will fail, too.

The root of today’s credit crisis is not that the world lacks money; the world is awash in cash, with $6 trillion sitting idly in global money markets alone. But if countries start to fail, the remainder of the world’s investment capital could be spooked out of productive investments as well.

Nor do we have the tools to avert disaster. The International Monetary Fund’s resources are a pittance compared to the financial exposure of the countries in most danger. And as a result of the industrialized world’s government bailouts and bank guarantees, there won’t be any more capital for emerging markets that are still flailing.

Take, for example, a country as large and powerful as Germany: Deutsche Bank’s assets represent 80 percent of the nation’s GDP. In Switzerland, the assets of the bank UBS represent 450 percent of the country’s GDP. The financial exposure of the British banks is similarly alarming: Barclays PLC’s assets amount to more than 100 percent of the United Kingdom’s GDP, and the Royal Bank of Scotland’s holdings reach 140 percent of British GDP.

These countries aren’t even the biggest worry. That honor goes to the nations of Eastern Europe and some of the undercapitalized Asian countries. But globalization means we’re all connected. If Hungary were to default on its financial obligations, Austria’s banks would soon collapse. If that happened, Germany’s banks might well follow suit.

There’s plenty to fret about in Asia, too. Pakistan is facing default. Many investors worry about South Korea as well: Its exports are plummeting, and foreign investors are fleeing an already weak stock market. In an emergency, would the South Korean government, or even the IMF, have the resources to come to the rescue? We can’t be sure.

American investors wouldn’t be of much use, either. After all, what banker in today’s partially taxpayer-owned, soon-to-be-politicized financial system would want to testify before Congress about a risky loan to some small foreign country when safe domestic investments had been available?

Note, too, that the slowdown in securitization—the slicing and dicing of assets to be sold as securities—will add to this potential mess. In the past, the much-maligned process funneled huge amounts of capital to the developing world. That’s not going to be happening anymore, at least not for a while.

No wonder global markets are so jittery about the prospect of countries defaulting. The rich, developed countries enjoy huge resources that can save them from financial collapse. But those resources are not unlimited. In Europe, taxes as a percentage of GDP have grown to 43 percent (compared to roughly 20 percent for the United States). Translation: If Hungary, Pakistan or South Korea went broke and European governments were forced to raise taxes to finance a bailout, the economic pain would be excruciating.

That is why the ‘shock and awe’ of the current bank bailout efforts hasn’t yet stabilized world financial markets. Investors suspect that the problem is just too expensive to confront. The IMF estimates that global banks have already lost $1.4 trillion. By the time the world fully enters into recession next year, global bank losses will almost certainly have increased dramatically. Some experts expect them to reach a whopping $5 trillion.

So the question remains: Do the world’s governments have the resources to take on such a massive rescue operation? The global markets aren’t sure.

Our next president, beginning the day after the election, needs to call for global contingency plans in case countries collapse—because the financial market will bet against the global economy as long as this uncertainty exists. Eliminate that uncertainty, or at least show how the world economy will cope with such calamities, and our policymakers can return to the thorny job of cajoling our bankers into lending again. The great uncle is not assuming that the worst is over.”

From “If Larry and Sergei Asked for a Loan…” by Thomas Friedman in the New York Times, October 26, 2008:

“‘Government bailouts and guarantees, while at times needed, always come with unintended consequences,’ notes the financial strategist David Smick. ‘The winners: the strong, the big, the established, the domestic and the safe—the folks who, relatively speaking, don’t need the money. The losers: the new, the small, the foreign and the risky—emerging markets, entrepreneurs and small businesses not politically connected. After all, what banker in a Capitol Hill hearing now would want to defend a loan to an emerging market? Yet emerging economies are the big markets for American exports.’”

From “A curved-earther scans the horizon,” by Christopher Cook in the Financial Times, October 26, 2008:

“Smick also fears that this new world means policymakers at central banks and in finance ministries have lost some of their tools and their sources of information. With poorly informed policymakers beholden to unpredictable and unreliable regimes, he worries that popular pressure will mount to end financial globalisation, or just tax and regulate it until it flees offshore. In the book’s view, the US must look to remain an attractive location for investment, but also correct these imbalances.”

From “Ten Books to Read in the Financial Crisis,” by Jeffrey A. Trachtenberg in the Wall Street Journal, October 23, 2008:

“Number 5: The World Is Curved: Hidden Dangers to the Global Economy by David M. Smick. An inside look at what went wrong with the banking system here and abroad.”

From “Financial muscle moves to Washington,” by William Neikirk in the Chicago Tribune, October 14, 2008:
“‘The general European view is that the credit crisis will lead to the permanent neutering of the once-dominant financial-services industry,’ said David Smick, a global financial expert and author of a book on the global economy. ‘America’s ability to finance risk will be restricted,’ said Smick, who sounded out European opinion about America’s standing at the World Bank and International Monetary Fund meetings.”

From “New Book Covers ‘End of the World’ to Surviving Age of Volatility,” by Gloria McDonough-Taub on CNBC.com, October 13, 2008:
“‘There is nothing quite like the potential for the world economy’s coming to an end to focus the mind and shake up a quiet summer.’ This is how David M. Smick begins his book, The World Is Curved: Hidden Dangers To The Global Economy.

It is a must-read in Washington, London, on Wall Street and yes, on Main Street since it clearly and vividly tells us how we all got into this mess, outlines what needs to be done to get out of this mess and of equal importance how to thrive while in the midst of this mess.”

From “The Post-Binge World,” by Thomas Friedman in the New York Times, October 12, 2008:
“So what could ease this crisis? ‘There is going to have to be a workout,’ said the financial strategist David Smick, author of The World Is Curved, a book about the hidden dangers in today’s global economy. ‘There will have to be a restructuring of all these institutions to clean up their balance sheets and recapitalize them.’ Banks and insurance companies will have to be reconstituted, merged or left to die, until these toxic assets are properly priced and off the books.

The government’s job—which it is still trying to figure out exactly how to do—will be to provide a safety net of guarantees for the surviving banks, so they will be honest about pricing their assets, and then, once they have been, to help recapitalize them. ‘Government’s other job,’ added Smick, ‘is to quickly establish the new rules of the road for truth-in-lending on a global basis. We still need these kind of lending facilities if the economy is going to grow again.’”

From “Why There's a Crisis—And How to Stop It,” by David Smick for CNN International, October 10, 2008:

“?At this point in the credit crisis, at least one thing is certain: most policymakers lack a clue of what is really at stake. Those with some knowledge are driving policy looking through the rearview mirror.

Begin with the U.S. Treasury’s $700 billion bailout package. This was presented as some magic pill which, if gulped down, would quickly restore financial stability.

The ‘shock and awe’ of the sheer size of the taxpayer-funded bailout would somehow restore confidence. Instead, stock markets collapsed and credit markets remained frozen.

This is because the credit crisis reflects something more fundamental than a serious problem of mortgage defaults. Global investors, now on the sidelines, have declared a buyers’ strike against the sophisticated paper assets of securitization that financial institutions use to measure and offload risk.

In recent years, our banks, borrowing to maximize the leverage of their assets at unheard-of levels, produced mountains of financial paper instruments (called asset-backed securities) with little means of measuring their value. Incredibly, these paper instruments were insured by more dubious paper instruments.

Therefore, the housing crisis was a mere trigger for a collapse of trust in paper, followed by a de-leveraging of the entire global financial system. As a result, we are experiencing the painful downward reappraisal of the value of virtually every asset in the world.

So what are these paper instruments, these asset-backed or mortgage-backed securities? I like to use a salad analogy. Before the last decade, bankers simply lent in the form of syndicated loans. But with the huge expansion of the global economy in the 1990s, which produced an ocean of new capital, the bankers came up with an idea called securitization.

Instead of making simple loans and holding them until maturity, a bank collected all its loans together, then diced and sliced them up into a big, beautiful tossed salad.

The idea was to sell (for huge fees) individual servings of diversified financial salad around the world.

The only problem: under an occasional piece of lettuce was a speck of toxic waste in the form of a defaulting subprime mortgage.

Eat that piece of salad, and you’re dead. The overall salad looked delicious, but suddenly global investors were no longer ordering salad. No one knew the location of the toxic waste. This distrust heightened when global interest rates began to rise.

So what does this salad boycott mean for the future and why have financial markets collapsed so brutally? The markets are telling us the world will face a serious credit crunch in 2009 regardless of how much money government spends to remove the toxic salad from bank balance sheets.

Policymakers have no means of forcing the banks to start lending short of nationalizing the entire financial system. After all, the U.S. banks alone so far during the crisis have lost upwards of $2 trillion from their collective asset base.
Most banks are leveraged by more than 10 to 1. Translation: The U.S. financial system will have a whopping $15 trillion to $20 trillion less credit available next year than was around a year and a half before. The cost of money is rising and the availability shrinking.

True, the banks will still lend—but the fear is they will do it only to people such as Warren Buffett, who don’t need loans. What is uncertain is the amount of lending to borrowers engaged in entrepreneurial risk, the center of business reinvention and job creation.

Apart from the economic pain resulting from shrinking credit markets, we are about to see an earthquake in the relationship between government and financial markets. The great uncertainty is whether government has the power to rescue the financial system in times of crisis. It seems doubtful.

In the United Kingdom, for example, the collected assets of the major banks are four times the nation’s gross domestic product (GDP). A similar situation exists in many Euro zone countries. This means government cannot bail out the system even if it wanted to. Given such massive exposure, government guarantees in a time of crisis become meaningless.

Yet because of the interconnected web of global financial relationships, we are all vulnerable to the threat. The collapse of, say, a major European bank would hardly leave American workers immune.

Our policy leaders in Washington are thinking domestically when the solution to the credit crisis will be global. It is not that the world lacks money; it is that the world’s money is sitting on the sidelines—more than $6 trillion in idle global money markets alone.

The challenge will be to reform our financial system quickly to draw that global capital back into more productive uses. The first step should be efforts to make the market for future asset-backed paper more transparent and credible.

We need a private/public global bank clearing facility. The bankers don’t trust each other. The central banks, working with the private institutions in providing enhanced data, need to begin to refashion the world’s financial architecture.
And while that is happening, the major governments of the world, including the Chinese, should begin major fiscal efforts to stimulate their weakening economies.

From “People Who Live in Glass Häuser,” by Daniel Gross, in Newsweek and Slate/The Big Money, October 10, 2008:
“Der Spiegel noted with disapproval that ‘the total value of all outstanding mortgage loans in the United States—$11 trillion (€7.6 trillion)—is almost as large as the country’s gross domestic product.’ Surely, the good burghers of Brussels and shopkeepers of England wouldn’t be so foolish with debt, would they? But in Europe, ‘they embraced financial capitalism and leverage more than we did,’ says David Smick, founder of The International Economy magazine and author of The World Is Curved. The assets of tiny Iceland’s big banks were about 10 times the island nation’s gross domestic product.”

From “Financial chiefs seek global unity,” by David R. Sands, Washington Times, October 10, 2008:
“‘They’re going to have to do something collectively, because there is no way the U.S. government or any other country can do something meaningful on its own,’ said David Smick, head of the Washington-based market advisory firm Johnson Smick International and author of the influential new book on the changing world of finance, The World Is Curved.

Mr. Smick said the economic problems on Main Street could be directly affected by how the world’s economic powers coordinate policy and deal with structural problems with the globe’s financial ‘plumbing.’ The recent panic that started on Wall Street has produced plunging stock values, shrinking retirement funds and vanishing markets for small-business and consumer loans.

‘The idea that some of these guys seem to have had that you could see a major bank failure in another country and not have it hurt the American worker is out the window,’ said Mr. Smick. ‘We’re all connected now.’”

From “Financial titles rise and fall with news,” by Patti Thorn, Rocky Mountain News, October 9, 2008:
“Smick, editor of The International Economy, posits that this crisis was a long time coming—and he wrote his book before the $700 billion bailout. Readers will give him credit for prescience and hope he can tell us what’s coming next. Er, strike that word credit. It tends to make people awfully twitchy these days.”

From “Investors, bankers have lost their faith,” by David J. Lynch in USA Today, October 9, 2008:
“‘You have a crisis of confidence because people don’t believe the bankers, and the bankers don’t believe each other,’ says David Smick, author of The World Is Curved: Hidden Dangers to the Global Economy.”

From “No safe haven, no exit for the global economy this week,” by David Ignatius, Washington Post, October 9, 2008:
“David Smick, whose fine book The World Is Curved offered clairvoyant early warnings of disaster, proposes that private financial institutions might finance 60 percent of the cost of this clearinghouse, and central banks the remaining 40 percent. To play and get protection, private institutions would have to share all data, which means coming clean about the toxic paper on their books.

What matters is the collective commitment to create a global backstop—so that there is a foundation for lending and commerce, all the way down the line. ‘What’s happening is the reappraisal of the value of every asset in the world,’ says Smick. ‘The solution has got to be global.’”

From “The Testing Time,” by David Brooks, syndicated column in the New York Times, October 7, 2008:
“In his astonishingly prescient book, The World Is Curved: Hidden Dangers to the Global Economy, David M. Smick argues that we have inherited an impressive global economic system. It, with the U.S. as the hub, has produced unprecedented levels of global prosperity. But it has now spun wildly out of control. It can’t be fixed with the shock and awe of a $700 billion rescue package, Smick says. The fundamental architecture needs to be reformed.

It will take, he suggests, a global leadership class that can answer essential questions: How much leverage should be allowed? Can we preserve the development model in which certain nations pile up giant reserves and park them in the U.S.?”

From “Money for Nothing: A bird’s-eye view of Wall Street’s nervous breakdown,” a review by Matthew Continetti in The Weekly Standard, October 6, 2008:
“The World Is Curved is a discursive book, ranging from Tokyo to Martha’s Vineyard, from European Central banker Jean-Claude Trichet to the decidedly non-European New York senator Charles Schumer. The attentive reader will quickly grasp two key themes. The first is that the so-called information economy is imbued with ignorance. A lack of transparency rules. ‘[I]n the new global economy,’ [David] Smick writes, ‘this crazy ocean of global liquidity has not only increased the number of unknowns but also re-arranged their relationships and relative importance.’ What you don’t know really can hurt you.”

From The Daily Beast (www.thedailybeast.com), October 5, 2008:
“Especially at this time every thoughtful American needs to learn as much as possible about the relationship of politics to economics,” says former President Bill Clinton. He recommends The World Is Curved to help understand the Wall Street bailout.

From “Not So Flat After All” by Bret Swanson, Forbes, September 29, 2008:
“[A] well-timed and lucid tour of the global economy. With continuing chaos on Wall Street—and in Washington—[David] Smick’s insights appear supremely prescient. Dozens of recent books, of course, predicted doom, gloom and even ‘financial Armageddon.’ But dozens of books always predict these things. Smick’s warnings warrant more attention because he mostly eschews the perennially wrongheaded tsk-tsk triad of the trade, budget and savings deficits. In its place he substitutes a more nuanced view of the promises and perils of globalization.”

From “The Clueless: Why neither presidential candidate knows what’s about to hit him,” by Nina Easton, Fortune, September 24:
“[David] Smick, a longtime investment advisor, has also played in politics, so I asked him what advice he would give a candidate. He begins with this diagnosis: The world capital markets are like a house of cards because of a lack of investor confidence, which in turn is caused by a lack of transparency. Sour mortgages weren't the problem so much as the fact that no one, here or abroad, knew how much toxic stuff was on their books because it had been securitized into obscure financial instruments. We’ve all heard the same diagnosis—and the same calls for new government rules—from both Democrats and Republicans.

But here’s where Smick departs into bolder territory. Legislative action in Washington isn't the answer, he argues, and could well hurt U.S. markets. ‘You can’t do it alone,’ says Smick. ‘It’s too easy to play the central banks off one another. Financial institutions are too clever at arbitraging different international regulatory systems.’

Instead, he says, the next President, acting with urgency, should convene a successor to the 1944 Bretton Woods conference, which gave birth to a post-World War II international monetary system. In addition to setting transparency standards, the industrial nations should look to provide a buffer when political turmoil disrupts capital flows—whether it's Russia invading Georgia or the possibility that slowing growth in China will lead to social chaos there.”

Smick concedes it won't be easy: "Huge amounts of global capital are held by nondemocratic regimes that aren't in a cooperative mood," he says, and democracies have plenty of "weak political leadership."

From “Paulson’s Panic” by Robert J. Samuelson, Washington Post, September 24, 2008:
“What we are discovering is that all the complex securities, combined with ever-greater international investment flows, have created a global financial system ‘so arcane that few people can understand its workings,’ David Smick writes in The World Is Curved: Hidden Dangers to the Global Economy. The difference between now and two years ago is that financial managers then thought they understood the system; now they know they don’t. Ignorance breeds risk-aversion and fear.”

From “World Is Curved Offers Valuable Historical Perspective,” by Steve Weinberg, in a review that appeared in USA Today, September 22, 2008:
“Offering valuable historical perspective, [David] Smick explains that international financial markets have always been plagued by uncertainty. In recent years, the unknown factors have multiplied.

‘There are new players with new perspectives,’ Smick says. ‘All of a sudden, a huge pool of funds is competing around the world for investment opportunities. Bankers, business people and governments in industrialized economies are now competing with entrepreneurs, start-ups and old state-controlled companies in emerging economies to attract those funds.’

‘With new kinds of securitized debt, mezzanine investing and outrageously complicated financing instruments, it is almost impossible to figure out what is going on at any given time. Investors need new kinds of information to make good decisions. But exactly what information is that? And where do they get it?”

From “The Woe on Wall Street,” by Todd G. Buchholz, a review of The World Is Curved that appeared in the Wall Street Journal, September 19, 2008:
“Mr. Smick, a Washington consultant, neatly spells out both the upsides and downsides of economic liberalization: the hundreds of millions of people lifted from poverty as well as the middle-class workers struggling to keep their jobs amid ferocious competition. Overall he gives two cheers for global capitalism, offering a quote from Kofi Annan that must have staggered many of the former U.N. secretary-general’s fans: ‘The main losers in today’s very unequal world are not those who are too much exposed to globalization. They are those who have been left out.’

But Mr. Smick is hardly a flat-Earther of the Friedman stripe. He attacks the pernicious leverage practices of the past decade and describes how hypocritical banks slashed hedge-fund lending after Long-Term Capital Management nearly blew up the world in 1998 but then juiced up their own leverage. How did they do this? How did they escape the restraints of the Basel capital standards adopted to ensure global financial stability in the wake of the LTCM debacle? By shunting risky positions to new, separate entities. In other words, Wall Street has been torching itself of late because banks thought they could avoid scrutiny by writing down their risky bets on a completely separate piece of paper!”

From “No More Lipstick—With Financial Crisis, Politics Gets Serious,” by Mort Kondracke in Roll Call, September 18, 2008 (featured on realclearpolitics.com):
“Neither [candidate], either, has taken up the idea of investment guru David Smick, editor of The International Economy Magazine, for an international summit after the election where heads of state—and the president-elect—would pledge to keep international credit flowing.

Smick, author of the new book, The World Is Curved, describes international credit as ‘the lifeblood of the world economy’ and warns it’s in danger of shutting down because of collapsing confidence and the short-sightedness of central bankers other than U.S. Fed Chairman Ben Bernanke.”

From “David Smick on Today’s Hidden Dangers: The adviser and author fears the credit crisis could sink the global economy,” by Kirk Shinkle, U.S. News & World Report, September 17, 2008:
“David Smick has hovered near the nexus of global economic power for decades, consulting with high-profile financiers and policymakers the world over. In The World Is Curved: Hidden Dangers to the Global Economy, he argues that radical shifts in the financial sector could threaten the benefits of globalization, especially if policymakers back away from a commitment to free trade.

•What does Thomas Friedman’s book The World Is Flat get wrong?
Tom Friedman wrote a great book on the revolution in the global supply chain, but as I began looking at the world I know, the financial market, the world is anything but flat. We can’t see the dangers lurking over the horizon.

•What’s the level of risk today?
Global markets could come to the conclusion that there’s a breakdown in the economic and financial order. That’s what happened in the 1930s; the fight for commodities, hugely nationalistic impulses, disagreements where trade and capital flows are suddenly affected—it’s very, very dangerous.

•What should policymakers understand?
We are seeing a tectonic shift in financial power away from the West. If you look at the big new powers in global finance—Asian central banks, commodity producers, global hedge funds, and private-equity funds—the amount of capital they control is a pile of money approaching the size of pension fund money, traditionally one of the big pools for global investment. They’ll ultimately have to judge the American economy based on its ability to attract capital.”

From Harvard Business Review, by John T. Landry, September 2008:
“Economists love to talk about the flexibility of markets, and [David] Smick, a prominent adviser on international finance, is no exception. But he argues forcefully that the world economy is not as laissez-faire as we think. The very production-oriented government policies that have driven success in China and the rest of Asia have also brought corruption and a consequent investment bubble. If Western bankers are slow to overhaul the shortsighted financing strategies behind the present worldwide credit crunch, the bubble will burst—resulting in a protectionist reaction that will bring on a global depression. Smick concedes that any predictions are difficult given the complexity of capital flows, but he rightly points out that globalization is under attack everywhere because it tends to exacerbate income inequality.”

From “The Economy: How the American Financial System Came to Be Such a Mess,” by Peter Behr in the Washington Post, September 7, 2008:
“[David] Smick built his career through the classic Washington practice of networking and advice-giving, and his analysis is sprinkled with stories of encounters with big players in global finance. He describes his sweaty-palmed interview with Singapore’s legendary leader Lee Kuan Yew, who blasted Smick for his confidence in U.S. markets, then gave him a consulting contract. It’s classic name-dropping, but it enlivens his account.”

From “Global Risk Is Just Around the Curve,” by Vivianne Rodrigues for Reuters, September 4, 2008:
“In The World Is Curved: Hidden Dangers to the Global Economy, author David Smick argues that today’s vast pools of global liquidity mean financiers and political leaders are losing the ability to see financial risk ahead. ‘A small village in Arctic Norway can see its entire financial future destroyed because its financial managers invested heavily in a Citigroup product called a collaterized debt obligation,’ Smick said. ‘We are being forced to travel down an endless, dangerously twisting road of volatility.’”

From the Tampa Tribune, by Kevin Walker, September 7, 2008:
“David M. Smick lays down some scary information in The World Is Curved: Hidden Dangers to the Global Economy. His basic premise is the credit crisis is just the beginning of a worldwide problem because of complex interlocking global financial systems. Smick promises to help you understand how these systems work.”

From Kirkus Reviews, July 1, 2008:
It’s a fraught time, writes hedge-fund guru [David] Smick in this timely book. If the “Chinese juggernaut” doesn’t sink us, then class warfare and our spendthrift ways will.

Borrowing his title, obviously, from Thomas Friedman's optimistic The World Is Flat (2005), Smick dourly notes that in finance, the horizon is near while the dangers lurk out of sight—“nothing happens in a straight line. Instead, there is a continual series of unforeseen discontinuities—twists and turns of uncertainty that often require millions of market participants to stand conventional wisdom on its head.” Seeing over the horizon is the job of sound analysts and good political leaders, who seem to be in short supply. Weathering the fiscal storms is ever harder for numerous reasons, one of them the declining vigor of central banks, another, in the United States, an accumulation of personal debt that threatens to put the economy into a Japan-like state of decades-long stagnation. Globalism, some would object, is a vehicle for weakening national economies, but Smick counters that “liberated global financial markets and free trade” are largely responsible for the creation of vast wealth in the last quarter-century (during which the Dow Jones Industrial Average rose from 800 to more than 12,000) and should not be unduly regulated, since economies seem to be slipping beyond the control of national governments. Instability will thus be the norm in the future, especially inasmuch as private concerns dwarf whole economies: The exposure of the Swiss bank UBS to the subprime mortgage meltdown was four times as large as the entire Swiss economy, Smick observes. Couple profligate habits with an ever-growing Chinese economy beholden to no one, and suddenly the future looks like a roller-coaster ride for even the most aggressive investor.

A supremely useful book for portfolio planning, though not the thing to give someone who’s inclined to worry about the state of the world.”

From Publishers Weekly, August 25, 2008:
With this illuminating book, [David] Smick revisits Thomas Friedman’s description of the “flat” world produced by globalization, arguing instead that the uncertainty produced by globalized financial markets has created a world that is curved, where events and their consequences are unpredictable. Smick begins with a puzzle: why did the subprime mortgage crisis, an event that directly impacted a relatively small piece of the global market, have such a catastrophic impact on the world market as a whole? From there, the author turns to topics as complex and varied as the potential 21st century Chinese financial bubble and the policy dilemmas currently facing the Fed. Throughout the book, the author returns to the argument that political trends are increasingly at odds with the forces driving the globalized world economy. Smick brings expertise and lucidity to many difficult subjects, and while his book’s appeal will likely be limited to those with some background in the field, it will undoubtedly stir interest and debate amongst investors, policymakers and strategists alike.