By James Kwak
It’s holiday season again, which means that I have time to read books again, and you may be looking for last-minute gifts. (If you haven’t used it yet, you can get a free 30-day membership to Amazon Prime, which gives you free two-day shipping; you do have to manually cancel before the thirty days are up or you will get charged. Or you could go to a bookstore.) There have obviously been many books about the financial crisis, and I have only read a few of them, and I’m only going to mention a few of those here. You shouldn’t think of this as a “best of” list, just four books that different people may enjoy.
For simple reading enjoyment, Too Big to Fail by Andrew Ross Sorkin is the book to get. It’s the only crisis book I’ve read that comes remotely close to “can’t put it down” status. It’s a blow-by-blow, meeting by meeting, conference call by conference call account of the period from the acquisition of Bear Stearns in March 2008 through the recapitalization of the big banks in October 2008. Most people who read this blog (or simply read the newspaper regularly) won’t learn anything big that they didn’t know already, but the book is full of behind-the-scenes details, like Robert Kindler’s “2BG2FAIL” license plate, Jamie Dimon’s September 13 speech to the JPMorgan cafeteria about icebergs and lifeboats, and Tim Geithner not carrying enough cash to pay for a taxi. It also did the remarkable job of making me like Henry Paulson (there’s a story about him wearing the same overcoat for twelve years; then, when he finally bought a new cashmere one, his wife made him take it back because it was too expensive).
At the other end of the spectrum is Too Big to Save by Robert Pozen, head of a big asset management firm (and a Yale Law School graduate). It is pretty easy to put down (sorry!) but it does a very good job of explaining all of the complicated aspects of the financial crisis that you (or your parents) may have been wondering about–not just the usual like credit default swaps and mortgage-backed securities, but also short selling and the uptick rule, Basel I and Basel II, regulation (or not) of hedge funds, the organizational structure of financial regulation, and so on. The book is organized by topic, so there’s no real narrative, but Pozen clearly explains each topic and then moves on to recommendations. I don’t agree with some of the recommendations, but he generally outlines the problem clearly and in a non-partisan way. Think about it as a handbook for many of the problems with our financial system.
For a well-written account of the boom and bust in America as a whole, not just on Wall Street, I recommend Our Lot by Alyssa Katz, a book I feel like I’ve cited a zillion times already, which focuses on the impact of the subprime lending, the housing bubble, and the crash on different communities around the country. Katz folds together personal drama, economics, and politics in a narrative that manages to remain compelling even though we all know how it turns out, and that also makes the reader even more infuriated at people we already knew were bad before we picked up the book.
The most informative crisis book I’ve seen, at least for me, is This Time Is Different by Carmen Reinhart and Kenneth Rogoff, whose earlier papers (based on their dataset of financial crisis across sixty-six countries and several countries) played an important role in shaping understanding of the crisis back in 2007-08. This Time Is Different dwarfs the competition in the amount of new information it provides–not surprisingly, since it is based on many years of research. Now, when you take the statistical approach, all financial crises do start to look the same–they are all the product of excess borrowing and then a rapid loss of confidence–and the real question is why that excess borrowing took place. But Reinhart and Rogoff still have important lessons (or warnings) for our situation; for example, in their sample of similar financial crises, government debt rose on average by 86% in the post-crisis period due to collapsing tax revenues (p. 224). For people who enjoy reading about economics and economic history, this might be the one.
Disclosure: I got a free copy of Too Big to Fail–not that anyone sent me one, but Simon gave me one of the multiple unsolicited free copies he got. The rest I paid for with old-fashioned cash money. I also saw Sorkin and Pozen present at Yale Law School; Pozen was great, and even cold-called the audience (which is more than most YLS professors do).
Update: I should have said, feel free to suggest others in the comments for people who are looking for last-minute gifts.