Bailout Nation by Barry Ritholtz should be required reading for all investors seeking to better understand the events that lead to the Great Recession. The book, published by Wiley, succinctly covers the framework of problems that caused the housing boom and subsequent bust.
Rarely do I read a book where, upon completion, I can say I agree entirely with all of the major points argued. Somehow, I usually find one or two points that I just can go along with. Barry does a great job of going through the history of bailouts from Chrysler, the S&L crisis and how they were all subsequently an unintended consequence of the first moral hazard created by the Lockheed bailout.
One of the most important parts, in my view, is that he clearly and unambiguously lays blame at the feet of “The Maestro” Alan Greenspan. Many people, it seems, hold Mr. Greenspan in the same “untouchable” light as Warren Buffet. Rarely is harsh criticism assigned to him because of the various policies he implemented which were designed to not allow capitalism to work. Barry shows how his policies not only ignored all of the warning signs, that even his colleagues brought to his attention, but he actually did quite the opposite and continued to promote the reckless lending standards that helped add fuel to the subprime tank.
Furthermore, he goes on to shows the causal relationship that regulators, ratings agencies, broker-dealers, legislators and others played in the freezing of credit and the collapse in the mortgage market. One of the unique factors that I liked about the book is that after he goes through the history of bailouts, the blame game, and how the market failed, he actually put his suggestions as to how we could solve the problem. A novel idea which most writers conveniently leave out.
Some of the advice given, which I wish Ben Bernanke would listen too, is to allow the market to establish true price discovery and allow home prices to fall.
I encourage you to pick up a copy of the book or you can simply follow his thoughts on his blog at ritholtz.com.
Disclosure: No positions mentioned