I am planning a series of book reviews covering the financial crisis. While some time has passed, that is helpful in pulling the information together. We have financial reform legislation on the verge of passage, even before the official Commission has delivered findings. Economists will be weighing in on this for years.
It is a good time for you to read these books, think about them, and learn the lessons. My own interest is a bit broader than most of the financial punditry. I am looking at books by policy makers as well as financial journalists or analysts.
Bailout Nation, by Barry Ritholtz
Barry Ritholtz had the early lead in writing about the financial crisis, despite a setback from his original publisher. He does not pull any punches, and the first proposed publisher should have realized that. (There were well-founded criticisms of a subsidiary to the publisher, and the author would not cave in on his content. Hats off!). The author, living, writing, and trading through the crisis, had ample material from his popular blog. There is a big step from blog content to a book, however, so this was only a starting edge.
Summary: Read this Book
A great book should be informative, stimulating, and enjoyable to read. Bailout Nation meets all of these tests. I have recommended the book to a personal audience that includes academic intellectuals, intelligent neighbors, and my over-achieving son (who often grabs books from my shelf).
Does this mean that I agree with the author on all counts. Of course not. If you only read works where you were in complete alignment, you would never learn anything. My favorite conversations with friends quickly move from the large zone of agreement to the marginal issues of dispute.
With this general conclusion in mind, here are some of my reactions -- highly personal, and reflecting my own background.
My Favorite Features
There were many things I liked about this book. Here are some highlights:
- There is an excellent intellectual framework -- analyzing policy using a concept called the counter factual. What would have happened if things had been different? The author sets this up cleverly and I do not want to spoil it for readers, but it is essential to thinking about "bailout" policy.
- There is a helpful and authoritative history of past rescues.
- The author does a nice job of setting up the drift in government interventions. At first, there was an explicit national policy interest. Later, the public policy objective became more ambiguous. This "slippery slope" problem is a classic. How did the recent moves stack up?
- The author also highlights the mixed objectives of the many government agencies involved.
- The narrative is very entertaining. Ritholtz fans are drawn to his irreverent style, and readers of this book will be as well.
- There is a lot of "inside baseball." The writer is well-informed and well-connected. This shows in the narrative.
- When it comes time to assess the blame, the book provides a complete scorecard of the players, and plenty of information. Even if you disagree with Mr. Ritholtz, you have the information to form your own conclusion.
Regular readers of "A Dash" might guess that I disagree with various conclusions reached by the author. True enough. Here are a few general observations.
- The book places most of the blame on former Fed Chair Greenspan and the Fed. My own scoring of responsibility reflects a much more complex situation. I'll discuss this more as I review more books on the crisis.
- The author seems at first to emphasize the total tab for bailouts, pushing the worst case. Actually, careful readers will note that he eventually recognizes that the final bill is still unknown.
- Opinions about economic data. I found some of these arguments unconvincing, but that reflects my own background and information. The Boskin Commission, for example, did a tough job in the face of political opposition. Their work has stood the test of time. I do not see the significance of the debate over inflation measurement to the main theses. It seems to be a hobby horse of the author.
- Moral Hazard. This also seems a bit overstated. The "bailout" of Long Term Capital Management, for example, did not encourage future excess. The partners were wiped out. It is a complex subject, but the author provides plenty of information for you to decide on a case-by-case basis.
It is not my purpose here to argue these points in detail -- mostly because they do not matter for potential readers. As I noted above, a strength of the book is the underlying information. You can and should read critically. Then decide for yourself. It is a valuable resource for your own analysis.
Bailout Nation is now added to our list of recommended readings. It is easy and fun to read, so it is even suitable as a vacation book.
Readers should note that a new paperback edition is now available, including comments on financial reform. My review is based upon my original hardback copy, which I purchased as soon as it came out.