I’m rather surprised that people haven’t asked her more about her fieldwork in Tajikistan. Googling around, I found a lot of interesting and relevant things about Tajikstan that is very relevant to world affairs. You have the interaction between Soviet/post-Soviet ideology and Islam. You have some very interesting gender issues. Men in Tajik society were suppose to be “modern” since they had to go out and work in a Soviet system, and women “traditional” and this caused a interesting interactions when the Soviet Union fell. You had a major and very tragic Civil War, which has some relevance to my life.
Also the fact that she was a goat herder was treated as a point of humor, but I found it interesting that no one seemed to take that seriously. Being in banking, my first reaction was “how do people in Tajikistan make money herding goats” since that hits the second question which is “how can I make money off the people in Tajikistan herding goats.” The only google reference that I can find is that goats are being used for cashmere, which makes me interested in the economics and social structure of goat herding. It seemed from some of the pages that Tajiks are considered to have some special ethnic affinity to goat herding.
The other reason I was pleasant surprised by Tett’s book is that she didn’t do the standard reporter thing. I’m afraid to talk to reporters since I often get the impression that reporters feel that their job is to make you look bad. Reporters seem to assume that life is a battle between good and evil, and heaven help you if a reporter thinks that you are evil.
However besides some nit-picking, I think that it is useful because it addresses a big problem in that most of the public really has no idea what bankers do and how banks work. It’s because no one really has the incentive to explain it to them. It’s not that bankers are intrinstically evil or are hiding something out of shame or fear. The problem is that the risks of being a public figure outweigh the benefits of public knowledge. If there is a one in a million chance that I will be fired or publicly humiliated by something I say, then why should I take the risk, since I personally don’t get any benefit out of greater public knowledge. And the fact that there is no shortage of people that are “out to get you” just increases those risks.
So here is some nitpicking…..
* one thing that I think Tett seems to imply from the interview is that people don’t talk about the “shadow banking system” because they are ashamed or fearful about it. Actually bankers don’t talk about the “shadow banking system” for the same reason that people don’t talk about the clouds or the air they breath. It’s such a nature part of the system, that people don’t think about it. The other thing is that it’s not a matter of the banks hiding things from the regulators. Most of the regulators in 1990-2008, where actively encouraging the development of the new banking system. It’s also not that the regulators were hiding anything from the public, after all it was the public that voted in a series of administrations that believed in loose regulation. It’s not also that bankers had this nasty conspiracy to defraud the public. Most people in banking believed what they were doing was a good thing, and personally I still believe that if you properly regulate derivatives trading that you will end up with a better financial system.
* Something else that Tett also doesn’t make clear is that when she says the banks were able to use CDS to reduce their capital levels. She is referring specifically to European (particularly German) banks. American commercial banks aren’t allowed to do this. This does bring up a problem in that in a global economy, you just can’t fix one countries regulations, since you can side step them. Also, you have to view regulation as a system. In England they drive on the left side of the road. In the US, they drive on the right side. What happens at the intersection. A lot of English regulation is based on what are basically informal “gentleman agreements,” but Americans are suspicious of that sort of system and prefer impersonal rule based systems. These systems work in isolation, but you end up with Frankensteins like AIG-FP when you aren’t careful. One thing that caused problem is that insurance in the US is primarily a state regulated system, and US states normally don’t talk directly with people in other countries, so no one ever thought of getting the New York insurance regulators and the UK FSA in the same room.
And if you have this much trouble making the US and UK financial systems compatible, just wait until you try to bring in China and Saudi Arabia. In the case of China, this turns out to be a lot easier because of Hong Kong.
* Not that it would have helped much. The way that derivatives were used help cause the problem, but the underlying problem was bad loans, and in that area derivatives didn’t play a huge role. For example, Washington Mutual didn’t have much in the way of derivatives, and if you look at the dozens of banks that are failing on the FDIC website, derivatives didn’t play much of a role in their failure.
Twofish's Blog 
And the first moves toward a market economy that China took in 1977 were just minor corrections. Now that the US government has crossed the Rubicon, events are going to take on a life of their own.
What is different is that the default assumptions have changed. Two years ago, you could argue that private companies were better run than state-owned ones and people would generally agree. You now have to argue the point.
Quote: China wants to be a high-end manufacturer, but on the flip side it needs to encourage massive low-end consumption.
Which is why the immediate future of China requires massive creation of low-end service jobs. You build a refrigerator, and you create jobs for truck drivers, refrigerator salesman, refrigerator repairmen, interior decorators, restaurants for refrigerator workers, ice cream parlors, day care providers, etc. etc.
The interesting thing about the structure of Chinese employment is that the number of people employed in manufacturing hasn’t increased in the last twenty years, whereas the main change are fewer people in agriculture and a lot more people in services.
One big problem with the Chinese financial system is that it is biased toward large lenders, whereas the big engine of growth in the Chinese economy are small mom-and-pop enterprises. Part of my disagree with a lot of economists is that people have this misguided notion that if you cut credit to large enterprise, you end up with more credit to the SME’s that you want to support. Except that I’ve never seen a case when this has actually happened.
If you cut credit, then what happens is that if you contract credit, banks will preferentially lend to well known, high capital deep pocketed customers with quasi-official backing which pushes the economy away from the direction that it should go. What you want is to expand credit so that money goes through the infrastructure projects to the SME’s that really need the capital. How do you get the Bank of China to lend money to a dim-sum stand and beauty salon? You don’t. You have BOC lend money to the shipyard that is being built next to the dim-sum stand and beauty salon.
I’d argue that if you count the service jobs that you create around the shipyard, you end up with far, far more wealth creation than the loses that you create from the shipyard. Now once everyone is employed in dim-sum stands and beauty salons, money that you pour into shipyards becomes a dead loss. Which is why China is different from South Korea or Mexico, and why growth in Southeast Asia stalled in 1990, and why the economic policies I proposal will cause Chinese growth to eventually stall if they aren’t changed.
This model also explains why the Soviet model stopped working, they were just pumping money into shipyards, and not letting people start dim-sum stands and beauty salons next to the shipyard. Latin America failed when the owners of the food stands, weren’t able to reinvest their money to create new dim-sum stands.
I agree with most of the criticism of the Chinese and banking financial system, but I cannot understand how most of the policies that are being suggested by some of these critics don’t make the problems far worse.
Also one assumption is that pain and pleasure are balanced and you have to have some pain to get something good. The universe doesn’t always work this way, and (as Mao demonstrated) sometimes you can endure a great deal of pain and get nothing. Given the experience with the Great Leap Forward, you are really going to have to argue the point, if you are arguing that a lot of pain right now is worth it, and I really do not see how widespread unemployment is going to help fix the structural problems in the Chinese economy, and someone needs to explain this to me.