The Volatility Machine: Emerging Economies and the Threat of Their Financial Collapse

Rating:
Summary: A refreshing view
Review: Michael Pettis has succeeded in mystifying the collapse of EM economies. His approach is new and indeed very methodical. I found the book intellectually challenging and have learned quite a lot reading it. I highly recommend it for those who want to understand how LDC economies rise and fall. Having a background in corpporate finance is crucial to enjoying the book though.

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Summary: Exonerates the hedge funds
Review: One of the most common (mis)interpretations of the east Asian currency crises of the late 1990s is that they were caused by George Soros and other speculators, hedge fund principals for the most part, who shorted those currencies and the respective bonds in order to create a self-fulfilling prophecy.

I was happy to se that Mr. Pettis knows better. He writes that he was in regular contact with three large macro hedge funds in 1997, in his capacity as an emerging markets specialist for Bear Stearns, "including the most famous of these, and our discussions about Asia generally centered on ways to gain protected access to LONG rupiah positions. There was very little interest in shorting the currency."

Indonesia and its rupiah provides a particularly vivid example of the capital structure trap that Pettis adumbrates so admirably in this book.

Rating:
Summary: Understand What's Happening In Emerging Markets
Review: This book completely transformed the way I think about sovereign financial crises. Michael Pettis creates a simple yet elegant framework by which to think of sovereign crises, the fundametal problems which precede them and potential solutions. This book should be every finance minister's primary reference tool for the development of sovereign capital structure.

Rating:
Summary: Understand What's Happening In Emerging Markets
Review: This is a MUST READ for institutional investors worldwide! For the first time I have a confident sense of what is at the core of emerging market instability. Now if only some government policy makers would read this (even they would understand it!), the causal conditions might start to improve.