Thursday, December 30, 2010

Books: The Financial Crisis

I'll review three different books on financial crisis.

Bailout Nation, by Barry Ritholtz, 5 stars out of 5

Ritholtz, a lawyer and writer of the popular blog The Big Picture, penned an excellent history of government bailouts since the 1970's through 2009. He shows that we have history of socializing risk while privatizing profits, beginning with Lockheed and Chrysler and most recently with the large banks receiving corporate welfare for their highly margined gambles. The powerful corporations skillfully navigate the political waters, while the average Joe is often left footing the bill. Ritholtz has been voicing his opinion about taxpayer-funded bailouts, bubble economics and the overbought housing market on his blog for years. Bailout Nation represents a book-length argument for his thesis, as he makes the case for creative destruction and regulation to save our world economic system. Well written, from an informed market player, Ritholtz' analysis is worthwhile as a history and an outline of what needs to be done in the future.

Griftopia, by Matt Taibbi, 4 stars out of 5

The skilled Rolling Stone writer attacks Wall Street with his usual acerbic wit and populist lefty rage. He explains the crisis well-enough, although the other books in this review are better, but Taibbi shines with his portrayal of Goldman Sachs as the evil Vampire Squid whose tentacle suck blood from everyone. He's laugh out loud funny when he takes down the Tea Party who vote against their own best economic interests because of the skilled sales job by Wall Street manipulators and their minions like Rick Santelli. Taibbi is juiced with appropriate anger when he calls former Fed Chief Alan Greenspan the "biggest asshole in the world" for his status as acolyte of Ayn Rand, the architect Selfishness, in his younger years, only to blow up the world economy with bubbliciously low interest rates and bank deregulation in adulthood. Taibbi is a guilty pleasure with his gratuitous bitch-slapping, but a pleasure nonetheless.

The Big Short, by Michael Lewis, 5 stars out of 5

My favorite of the trio. Lewis spent time in his youth as a bond trader for Salomon Brothers, before he continued his career as a writer. He calls this present tome a sequel to his 1989 bestseller Liar's Poker , confessing that he never thought that the orgy of capitalism that he described 20 years ago would have lasted this long. Lewis' style is to present mini-biographies of the principal players, focusing on personality traits and motivations, weaving their tales into a coherent narrative. Lewis explains, with just the correct amount of detail, the arcane instruments of destruction: collateral debt obligation, credit default swap, etc. Obfuscation is the modus operandi of the Wall Street product machine, and Lewis points out that while such gambling should be a zero sum game, even the biggest losers in the bet walked away with millions of dollars in bonuses.

Lewis' vignettes are heart-wrenching, especially his exchange with his former boss at Salomon near the end of the book. Lewis got a bit of grief for being too sympathetic to the short-sellers in his drama, but I would disagree. The short-sellers, while fueling the generation of new product, were right in the end; they never asked for or got a bailout; many tried to alert the SEC and other authorities about malfeasance by ratings agencies, mortgage lenders and investment banks. Short-sellers didn't create the mess, they took considerable risks and won. Ironically, despite their astounding riches, the short-sellers remained tortured after the huge unwind; some troubled by the corrupt system, others emotionally destroyed, and yet others paranoid and broken.


All these books add certain details to the current economic destruction. The lesson I take home is that we haven't learned the lesson (yet).


Hilary said...

I am a Taibi fan, so I read Griftopia soon after its release. The subject matter was depressing, but I enjoyed the book anyway. The only other book about the financial crisis I have read (to date) is Bethany McLean's All the Devils are Here: The Hidden History of the Financial Crisis. McLean coauthored Smartest Guys in the Room about the rise and fall of Enron (which I also recommend), if her name sounds familiar. If you have the time and tolerance for another book about the crisis, I would recommend Devils for yet more perspective.

Tony said...

Thanks, Hilary, I'll look that one up. Yes, I am a Taibbi fan as well and enjoyed Griftopia-- damn that boy can write! But I think Ritholtz and Lewis explained the nuts and bolts better. I'll read Devils, too. It's odd, but I've got this insatiable fascination about the level of sociopathy engendered in this crisis.

antipundit said...

Sociopathy is just another name for masters of the universe to these folks I
fear. Nice review!

Hilary said...

There is something captivating about sociopaths in powerful positions. How so many of them are able to fly under the radar and defraud so many people is staggering. Their sociopathy is second only to their sense of entitlement, or perhaps it's the other way around. Other than his pieces in Rolling Stone (which I subscribe to for the sole purpose of his writings), the only other of Taibi's books I have read is Great Derangement. When you are not busy defending your position on abortion on your blog (sorry, I couldn't resist after trying to read through one of your recent entries), I would recommend Great Derangement as it is both enlightening and entertaining. Cheers!