The Best Books on the Financial Crisis

by: Michael Shulman

I never used to read business or financial books; I did not even read the one I wrote, Sell Short - I mean, I did write it, after all.

The financial crisis is different. I was on a TV set with Meredith Whitney the day she broke the banks stocks. I was on another TV set when Bear Stearns broke and I wrote an alert on my Blackberry to close the puts I had recommended in my service just before I went on the air. I took a great many phone calls from friends worried about another Great Depression and found myself bonding via telephone with a great many traders, fund managers and analysts as fear crept up on all of us.

So I have read many of the books related to the crisis and am again being asked what is best to read. My thoughts:

The Two Trillion Dollar Meltdown - By far the most powerful book on the crisis because it was written before the real meltdowns rushed to market. This book should be required reading for every man and woman on Capitol Hill and in the White House for current proposals on bank reform do nothing to stop the next trillion dollar meltdown - problems in the financial system are very obvious but are also hidden from most due to their ideological biases and optimism. The author, Charles Morris, is a successful, award winning financial writer and he outdid himself with a brief book that, among other things, de-mystifies derivatives and their impact on the financial system. This is the must-read book about the underlying foundation of the crisis.

Too Big To Fail - Almost too big too read, this will probably be viewed as the standard treatment of the crisis due to the clarity of the writing and the objective stance of the writer, New York Times reporter Andrew Ross Sorkin. Mr. Sorkin does a terrific job pacing inside the board rooms and with the major players as the crisis unfolds; parts of it almost read like a novel, but do not let this undermine the credibility of the author or the material. This is a fine overview of who did what and when to whom. If you have the patience, it is quite good - and if you read multiple books, read it last and you will be able to skip over some paragraphs here and there.

House of Cards - On one hand, the book is uneven, clearly written in two parts - a contemporary, blow by blow account of the failure of Bear Stearns and another, the history of the firm. This gives the book an uneven quality that many readers do not like. So what? The book's mastery of the ten days leading up to J.P. Morgan's (NYSE:JPM) acquisition of Bear is all you need to read - it is more compelling than many novels I have read and depicts the behavior of senior executives beyond surreal; for example, during the last week before the fall, the Chairman refuses to come back to New York because he is playing in a bridge tournament. The book also peeks behind J.P. Morgan's curtain and that of the New York Fed (Tim Geithner was head of that bank at the time) to show their view of the deal - and better than anything, shows, day to day, the impact of the derivatives market on share prices and the ability of Bear to borrow money overnight and continue its operations. A wonderful read, if perhaps too long.

Fool's Gold - Gillian Tett, a brilliant columnist with the Financial Times, wrote this book on the financial engineers who blew up the financial world with their invention, the CDO or credit derivative obligation and what we now call credit default swaps. This financial invention re-defined leverage and when applied to poorly rated RMBS - residential mortgage back securities - well, the world went boom. Her narrative goes back to the early 1990s and walks the reader through the evolution of the product - explaining their utility when invented and their decreasing relationship to anything understandable over time as they became more and more complex and fed the greed of all the players. A wonderful read that, with a little help, could be a novel or a movie.

In Fed We Trust - The second best or must-read by a Wall Street Journal reporter, David Wessel, focuses on Bernanke and the Fed and how their role unfolded during the crisis. The book has been overlooked - maybe it came out too early - but it is the best treatment of how various agencies and individuals evolved their thinking and actions during the crisis. What I remember most from the book is the recurring mantra presented by the author about the actions of the Fed - "whatever it takes" - and if you accept the facts as presented, as I do, Ben Bernanke will someday be the first face on Mt. Rushmore Two.

On the Brink - Hank Paulson is what the nation now lacks - a hard nosed, savvy, center right Republican leader who views ideology as an impediment to getting things done. And when in office, understanding the responsibility to get things done, not work from a playbook. This is a great read - it was the last book I read and it greatly changed my view of Paulson as a man, not as a Treasury Secretary; if you want one historical treatment of the crisis on your bookshelf, this is it (sorry Mr. Sorkin). It simply is better at pushing day to day details of the crisis into perspective, juxtaposing them against government policy, attitudes on Wall Street and so on. And, since I believe what Mr. Paulson wrote, I find him a very appealing public figure, a leader unlike anyone else in the Bush cabinet, and the right man in the right place at, well, the wrong time for all of us.

Chain of Blame - This was the most fun book - an inside look at the birth through death of the subprime mortgage industry. The authors, Paul Muolo and Mathew Padilla, do a great job showing how the mortgage industry ran out of customers so created subprime mortgages just as Wall Street needed new mortgages to bundle, slice, dice and re-sell. This book brings the reader closest to how Main Street and Wall Street contributed to the crisis -- Main Street mortgage brokers prompting customers, creating customers to feed Wall Street's need for products and, alas, commission. An interesting twist in the book is the very positive treatment of industry poster boy Angelo Mozilo of Countrywide Mortgage (now Bank of America (NYSE:BAC)). He hated the thought of lending to subprime customers because of the lack of historical data to properly gauge risk - smart man - but hated giving up market share even worse. The rest is history.

A Colossal Failure of Common Sense - Authors Lawrence G. McDonald and Patrick Robinson do to a bang up job describing the almost surreal behavior of Lehman Brothers executives as the firm melted down. McDonald is a former Lehman vice president and he focuses on a small group of executives who pushed Lehman further and further, with leverage, into higher and higher risk positions to generate profits. The book has prompted some nasty responses - check out some customer reviews on - for it is forceful and pulls no punches on assigning blame, most it going to Dick Fuld, the CEO of Lehman who comes off poorly in virtually everything written about the crisis. The value of the book is its ability to portray the gambling mentality that dominated Lehman - a mentality that led to too much leverage everywhere and is at the very center of the crisis. A very good read, but the book does not approach the crisis as a whole and is a secondary read if you are trying to get a handle on other things going on during the crisis apart from Lehman.