I was on a panel yesterday about the financial bailout, and someone there asked me what they could read to understand the financial crisis. As I've said before, I don't think anyone understands the financial crisis. Ben Bernanke is probably the one guy you would have picked out of all the economists in the US to be in charge during a major financial crisis, and he seems kind of stumped. Nonetheless, you can understand it better.
So, books, a slightly updated version of the list I put up a few weeks ago:
- The Great Contraction by Milton Friedman and Anna Schwartz. Just the 1929-1933 chapter of Friedman's massive work. The book is somewhat technical, but with half an hour on investopedia looking up terms like velocity, it should be accessible to anyone decently intelligent and well informed. Since this is the work that shaped the modern understanding of what happened in the Great Depression, it's well worth diving into.
- The Great Crash by John Kenneth Galbraith. Basically the opposite of the Great Contraction: often technically
incorrect
outdated, but very accessible, and while much of the economic theory is
questionable, the history is extremely engaging and often quite funny. - A Short History of Financial Euphoria by John Kenneth Galbraith Same caveats, and praise, as above apply. The book is tiny-readable in one leg of a commute for an average reader.
- Once in Golconda by John Brooks an extraordinarily enjoyable account of life on Wall Street prior to, and just after, the 1929 crash.
- Liar's Poker by Michael Lewis He didn't mean to, but he gave a pretty good primer of the explosion of the mortgage backed securities market in the 1980s. It's also hilarious reading, and we could all use a laugh
- Manias, Panics and Crashes by Charles Kindleberger the definitive primer.
- Extraordinary Popular Delusions and the Madness of Crowds The first attempt to explain why people go so crazy over . . . well, nearly everything.
- Risk and Business Cycles by Tyler Cowen. The authorship speaks for itself.
- The Return of Depression Economics by Paul Krugman Ten years old, but an excellent introduction to many of the current issues.
- The Black Swan and Fooled by Randomness by Nassim Taleb
- The Misbehavior of Markets by Bernard Mandelbrot
- Essays on the Great Depression
by Ben Bernanke
- When Genius Failed: The Rise and Fall of Long-Term Capital Management
by Roger Lowenstein
- The Panic of 1907: Lessons Learned from the Market's Perfect Storm
by Robert Bruner and Sean Carr
- And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina
by Paul Blustein. This crisis is rapidly spreading to emerging markets; this is the best popular account I've seen of what a currency crisis looks like when you borrow in foreign currency
- Irrational Exuberance
by Robert Shiller
- The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It
by Robert Shiller
- Against the Gods: The Remarkable Story of Risk
Blogs (in no particular order):
Brad Delong
Naked Capitalism
Marginal Revolution
Derivative Dribble
Calculated Risk
Felix Salmon
James Surowiecki
Free Exchange
EconLog
The Big Picture
Capital Gains and Games
Greg Mankiw
Paul Krugman
Dani Rodrik
Clive Crook
Daniel Davies
Mark Thoma
The Economics of Contempt
FT Alphaville
That's a big list; few of you will read them all. But almost any of them is a good place to start. I note that the temptation to read only people close to you on the ideological spectrum is a huge mistake; you should try to get as rounded a picture of the thought out there as possible.
Or... assuming you know nothing about economics to begin with, Planet Money by NPR (blog and podcast) is doing a good job of starting with zero knowledge and working up. Too simple for Megan's taste, no doubt, but invaluable to we finance Luddites.
You are missing one of the best ones. Anatomy of the Bear by Charles Napier.
Well...I agree ideological diversity in understanding this is a good thing. Too bad that list isn't very diverse.
Try the good ole UMass economics department for a different (i.e. Marxist) perspective on this.
http://www.amherstwire.com/features/market-meltdown-101/
See Steve Forbes' article in latest issue of FORBES.
Rather than MacKay's book, consider Edward Chancellor's Devil Take the Hindmost.
Having read half the list and many more let me share the bad news. In almost all "events" that reach the panic/depression/severe recession level there is nothing that gets done that helps. In fact in virtually all cases the perceived solutions hinder rather than resolve the current crisis.
Only after all the bits are laid on the table years later are the post mortems arrived at. In fact even then there is considerable argument as what the remedy should have been.
It is for these reasons I have stated from the beginning that no plan was better than any plan. Economically our current situation and those through history shout the economic equivalent of the "cover up is worse than the crime".
What we have embarked on now with these Orwellian adventures will result in a world forever changed. Central planning has made a great leap forward.
A few years back, out of curiosity about the gold standard, banking crises, the greenback vs the Euro, "petrodollars" etc I read "How Credit Money Shapes the Economy" by Guttman.
It's really dry and he rambles at the end about world currency, but I got a lot out of it.
I arbitrarily picked it out of the stacks at the library, and really don't know anything about the author or whether of not the book is respectable. With my luck, the guy's a crackpot.
You should really also add the Irvine Housing Blog, which does daily reports on properties listed in irvine CA which show from a ground-up perspective house by house how we got into this mess. Yes is one city but one at the epicenter of the mortgage and host Irvine Renter has very good insights into the market. Very practical and highly recommended.
www.irvinehousingblog.com
I was just about to suggest Irvine Housing Blog but Scott beat me to it. And I agree with his rationale regarding ground-up perspective. It's a very useful counterpoint to broad overviews in most of the other examples.
It's also useful for Republicans seeking traction after they are thoroughly beaten this Tuesday. This morning's NY Times had an article on possible government bailouts for homeowners, ending with the example of the guy who drew $200,000 out of his $350,000 house that could have the mortgage reset to something like $180,000 based on the house's new lower value. Irvine Housing Blog has a daily roster of these grotesqueries. I'm a lifelong Democrat but I certainly will cheer any Republicans who oppose a hoemowner bailout that will direct any tax money to these types of situations.
You got a bunch of books, with varying points of view, describing economic crises. If people read Benjamin Graham, they might be able to actually do something about their situation.His books are good even if you're not Warren Buffett. I'm sure as hell not.
What do you think of the Becker-Posner blog?
Black Swan and Fooled by Randomness are basically the same book. Choose one and save time for something else. Black Swan, being the second draft, is better, although the chapters on 'market noise' in FbR are fun.
Nice list.
From this side of the (wet) Atlantic, I would add Martin Wolf and friends at The Economists' Forum of the FT.Since I must (reluctantly) let in Brad De Long, I would also add Willem Buiter's Mavercon, also of the FT stable.
From your side of the ocean, I would add, with due humility, Asymetric Information.
Megan,
Just because you're not intelligent enough to understand the crisis doesn't mean "nobody understands it."
It's quite easy to understand. Let me explain it to you:
1) It's illegal in this country for a bank to require citizenship in order to receive credit.
2) The government is rounding up illegal aliens by the thousands and deporting them. When this occurs, the illegal aliens, of course, have no further means of repaying their bank loans.
3) This will only get worse, as now the government, via its ownership position in the banks, will require even more wacked out lending practices.
Only a moron would loan money to someone who can skip the country at the drop of a kosher Iowa chicken; and yet, our government requires that banks do this.
Everything else about the crisis flows from this. You don't need to know anything else about the crisis. Yes, it's that simple. It's very easy to understand, unless ...
Unless it is politically incorrect for journalists to write about the cause of the problem for fear that they will be labelled racists.
understander:
Ditto.
They don't give you a moving van when they deport you. So, if you are forced to leave behind everything you bought on credit, the natural thing to do is stop paying and say "f you".
Starting last year, prudent illegals sold their homes at quick sale prices, leaving behind the comparables that SOx used to bust the real estate bubble.
Remember, conservative estimates placed 20,000,000 illegals in the US and they were so rich they were sending $50 billion home to support their families - rich enough to get NINJA loans.
Over-regulation caused this catastrophe.
For those of you who are post-literate, the best and most enjoyable explanation of how regulation always screws up free markets is the movie "The Wheeler-Dealers" starring James Garner and Doris Day.
You forgot to mention one of the few books -- and blogs -- that correctly anticipated (as opposed to discussing after the fact) the worst financial crisis this century -- Financial Armageddon.
Right now, we are going throught what I described in Chapter 6, "Systemic Crisis."
The next chapter: "Depression."
Here is what Edward Chancellor, author of the acclaimed Devil Take the Hindmost, had to say about the book (first published in March 2007):
“Michael Panzner fluently describes the build-up of financial risk on a number of fronts -- from credit derivatives through to the governments long-term fiscal problems -- and imagines how a future crisis might develop. A breathtaking and coherent vision of financial disaster.”
Like Understander, I also don't quite see what's so hard to understand. But then, I think what Understander wrote is half-cracked, so I guess that's where the confusion begins. To me it's a pretty straight forward story: intersts rates stay low too long; money gets sloshy. Real estate goes on a tear, and has rarely really crashed before, so it becomes the faddish investment. Everyone wants to get on the train - lenders and borrowers alike - and mutually reinforcing incentives toward unwise loans build up. But that's okay b/c as long as real estate doesn't crash, the numbers work just fine. Real estate crashes (slowly; kind of) -- peoples' loans go upside down. That would be okay except everyone already spent their equity on either nice stuff or not making a down payment. Foreclosures begin among those with ARMs. Foreclosures continue and expand, credit contracts; real estate collapses. Subprime crisis. Subprime crisis is okay, except all the loans have been securitized and have now been purchased at ridiculous prices and leveraged at ridiculous multiples by investment houses and banks. Those investments in turn have been insured or hedged by AIG and swaps. We've leveraged our way into a meltdown. System freezes. Government to the rescue!
That's about it.
Love the Becker-Posner blog, but blogging only once a week, they don't cover the crisis that often, and when they do, other econ blogs almost always link it