Jeffrey Friedman and Wladimir Kraus's Engineering the Financial Crisis combines careful historical scholarship with a sophisticated theoretical understanding of the structural ignorance that plagues human affairs. Politics represents a uniquely inappropriate institutional context for the coping with our ignorance, while markets can unleash a myriad of mechanisms for the coping with our ignorance. In short, the theory and evidence Friedman and Kraus provide suggest that regulatory ignorance, and not unfettered capitalism, caused the global financial crisis.
This book comes very highly recommended by Sandy Ikeda, Tyler Cowen and Arnold Kling -- and I want to add my voice to this chorus of endorsements. This is an excellent work --- well argued and well written. Friedman and Kraus dig deep into the regulatory history that resulted in the financial crisis. This work, alongside of Friedman's, ed., The Causes of the Financial Crisis, lay out the argument for "a perfect storm of ignorance" in a persuasive manner. I personally think incentive based arguments and ignorance based arguments are more linked than Friedman and Kraus suggest, but there is no denying that this book stands above the crowd of works on the financial crisis. And there is also no denying that incentive based arguments often proceed as if human ignorance can be assumed away, so there work represents an analytic step forward in imperfect knowledge economics as well as institutional analysis of modern financial capitalism.
Congratulations to Jeff and Wladimir for producing such an informative and compelling book on the most challenging contemporary historical challenge to market-oriented thinking.