The World Is Curved: Hidden Dangers to the Global Economy

The World Is Curved Hidden Dangers to the Global Economy by David M. Smick (based on 27 customer reviews)

(Hardcover)
Author: David M. Smick
Publisher: Portfolio Hardcover

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Most useful review as voted by customers:
40 out of 45 people found the following review helpful.
Review Date: 9/11/08

Continues where "Flat" left off (and rebuts it)

Smick uses a fascinating series of facts and stories to paint a picture of the world-to-be that is frightening, enlightening, awe-inspiring and hopeful (for the person that knows how to exploit the opporunities). I haven't read a book that changed my world view this much since How to Measure Anything: Finding the Value of "Intangibles" in Business by Doug Hubbard (which Smick could probably have used on a couple of points in his book).

Smick takes, I think, a more realistic view of the world than Friedman's The World Is Flat 3.0: A Brief History of the Twenty-first Century. Where Friedman optimistically sees a move toward an equalibrium of an "even playing field" between all of the world's economic participants, Smick sees something less even - and not entirely in the favor of the developed West. Smick sees market uncertainties, the mortgage crisis, and consumer debt as evidence of a trend toward increasing uncertainties. China is the new economic giant, but lends itself to much less predictability than the relatively solid advances of the western world in the last quarter century.

I have to wonder if Smick makes the "narrative fallacy" as explained in Taleb's The Black Swan: The Impact of the Highly Improbable or his earlier Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets. Still, Smick seems to make a convincing case, even if at times anecdotal.

Smick discusses the possibility of a Chinese financial bubble alongside the details of US monetary policy. Utterly unnerving and engaging, it will should eclipse "Flat" as the "must read" for long-term thinkers.

35 out of 42 people found the following review helpful.
Review Date: 9/24/08

A Blockbuster of a book that everyone should read

This extremely well-written book describes the current financial problems of globalization. It is easy to follow, easy to understand, and eliminates jargon. It's a great example of communication out of the Frank Lutz 'words that work' school.

The problems of globalization, as the book described' are critical as a major period of entrepreneurial prosperity may be coming to an end. The availability of `oceans of money' started with a liberalized program in the USA during the early 1980's and later elsewhere with the rejuvenation of pension funds and other financial instruments. Capitalization/reserve requirements of banks were reduced, capital gains taxes were cut and a variety of new investment vehicles freed up large sources of capital. Smaller businesses were funded as the need to invest capital continued to grow and consequently, new wealth, new jobs and prosperity resulted. Moreover, many countries established sovereign funds that needed to be invested too. Rapid machine computation facilitated an explosion of capital transfer and global investment. Because the USA was perceived as the safest haven with the highest level of global transparency, it benefited from these changes. Moreover, the USA with labor market flexibility, higher education, a benign political environment, innovative strategies and quality of corporate management is considered the prime country in which global funds invest. However, the USA is not an island, but is interconnected and therefore subject to global economic events. But is it fading?

The downside was securitization, a process of spreading out investment into multiple income streams to reduce risks. Securitization also involves arcane practices that are difficult for most policy makers, bankers and financial institutions to fully understand. In the process are no longer tied to the risk of the borrower, making capital easier to lend. Even riskier is the overlay of lack of transparency in many countries, including China. Eventually, underpriced and hidden risk will lead to major market corrections, as we have seen recently. Moreover, global forces and lower international trade barriers have diminished the role of government to influence their own economies.

We now see increasing political risk in the USA that may kill the goose that laid the golden egg. The rising tendency of anti-global trade pacts, envy, class warfare, and populism, are placing the US at economic risk. American politicians, according to Smick, have only one option and that is to make the American economy the most attractive destination for global investment on a LONG-TERM basis.

The wild card in all of this is China and I cannot detail the intricacies in Smick's chapter. China's approach includes widespread investment for strategic advantage, and a lack of transparency. Also it is involved in widespread commodity stockpiling. There, foreign investment is controlled. Chinese banking does not understand credit risks and are viewed instead as social and political instruments. In short, their economic system is extremely unstable and a bursting of its bubble will have worldwide cascading consequences

The chapter on Japan's economic activities is well worth reading, as is the chapter on the sterling crisis of 1992.

But perhaps the biggest change during the past 25 years is the diminishing role of central banks. As private entrepreneurs and government sovereign funds accumulate large amounts of cash, the role of central banks has diminished. With diminished governmental roles, people's vulnerabilities are increasing and one of the consequences is political pandering in the form of abetting class warfare,. We see it today. That is the underlying cause of the current backing-off by congressional democrats from free trade. It is a disaster in the making
The closing chapter on "Surviving and prospering in this age of volatility" would require a long review in itself. It is not only worth reading, but needs to be reread to fully comprehend the economic mess we are in today and possible solutions out of that mess.

Other reviewers have suggested both major presidential candidates should read this book. I can only concur. In fact, everyone needs to read this book to navigate the choppy waters ahead.

24 out of 29 people found the following review helpful.
Review Date: 9/14/08

A Must-Read For All U.S. Voters and Candidates

The impact of so-called free trade agreements have been a Pandora's Box for many in the United States who have had to suffer through off-shoring and trade imbalance. Smick argues persuasively that the influx of capital from globalization has fueled a level of growth and innovation that is unprecidented and that tampering with that with protectionism or poorly conceived legislation to control complex financial instruments, such as Mortgage Backed Securities, will result in a contraction in the global economy that could be catastrophic. Americans need to understand what has been created. Given that the Chinese are consciously accumulating vast reserves that they can use as an ocean-sized war-chest to exert vast global influence, we must find a way to safely level the playing field. I did not appreciate how difficult that might be until I read this book. It is very well written and terrifying!

11 out of 12 people found the following review helpful.
Review Date: 9/30/08

Globalization and why it should be saved

Excellent overview of the current (29 Sept 2008) macroevents and the how we got here. Fascinating for me as I remember the 70's gas lines and lived in DC in the 80's -- Mr. Smick, clearly walked the halls of power and understand how we got into this mess. Note - he seems to be quite balanced in that both Dem's and Republicans are at fault. He gives Bill Clinton a lot of credit for pushing thru NAFTA, Welfare reform and cutting Capital Gains by 30% thus allowing all of us to benefit from globalization.

He also suggests that China is in a large bubble and what the impact is to us. I was there a few years ago and they and Dubai are clearly over the top (dot commish even) so it will likely get ugly for all of us when China blows.

The only disappointment I have is the last chapter "Surviving and Prospering in This Age of Volatility". This is about how to govern better not what you can do in your personal investments. Interesting but not something I can act on, except perhaps voting.

Best quote was from Marc Leland, former US Treasury official... "Globalization is like the two institutions we know as democracy and marriage. Both institutions at times can be problematic, but the alternatives are highly unattractive" Reminds me of Churchill's famous quote "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."

9 out of 9 people found the following review helpful.
Review Date: 9/12/08

Insider shares dire threats for the global economy

It's a fraught time, writes hedge-fund guru 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 economybeholden 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.

Another book I recommend that I really enjoyed this week takes a hands-on approach to solving an everyday problem that managers (and the people that work for them) face in the workplace. It's called Squawk!: How to Stop Making Noise and Start Getting Results

4 out of 5 people found the following review helpful.
Review Date: 9/19/08

This Man Is Seriously Smart & Well Connected

This is an on point book about the current crisis that captures the reasons why there is and should be fear in the markets today. He tells us how the world that he knows from the inside was never what it appeared. While he is part of the hedge fund and central bankers club, his skepticism of their abilities remains high. He explains how he invested in China Cement early, and despite the vast growth of the country and industry, lost money (probably the only time). Even he will need to turn this book into a blog, as events overtake the markets. I wonder what he advised regarding the U.S. takeover of Fannie Mae, Freddie Mac, and AIG.

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