Wednesday, July 08, 2009
The Two Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash, by Charles R. Morris
This is a snappy short book written just before the financial crisis and updated post the meltdown. Of all I've read so far, this is the most illuminating essay on the subject (forget the Australian PM's dull, self serving essay). Yes, Morris does go into a lot of the complex financial instruments that created this tottering tower of fake money, but that didn't put me off too much.
Morris builds up a clear overall picture of the changes that took place to create the current mess, allowing the reader to grasp what has actually happened to America's financial system. Added to this are many tart lines in very frank English that sum up the amazing irresponsibility and stupidity of those that brought about the mess. Morris says outright how egregious the behaviour of the main players has been.
You always think of the world of finance as one being ruled by rational thinking, of mathematical rules and regulations. This is not so. The world of complex financial instruments is an abstract one. They try to make money grow on trees. The money does grow for a while, until it's realised that the tree is being watered with toxic waste. Morris puts it better, saying that the people who created this mess 'built nothing and created nothing'.
In fact, much of the US economy has been fuelled on debt. Morris's prognosis for the future is not a happy one: lower living standards and more work for his fellow Americans. Pumping up the economy with more credit is simply unsustainable.
This all looks like something you read in the history books. Charles MacKay's Extraordinary Popular Delusions and the Madness of Crowds comes to mind. This is our own tulip mania.