Category Archives: Book reviews

Along with Michael Lewis’ The Big Short, Gregory Zuckerman’s The Greatest Trade Ever shows that at least some investors were aware that the housing bubble of the mid-2000s was likely to collapse, with severe repercussions on the economy. The book (whose alternate subtitle is “How One Man Bet Against the Markets and Made $20 Billion”) focuses on John Paulson, whose Paulson & Company was considered a minor player until he shorted so many mortgage bonds that he made the company $14 billion (plus $4 billion for himself).

Believers in the “efficient market hypothesis” argue that there will always be investors willing to bet on both sides of any market. The resulting prices, they say, represent the most accurate possible evaluations of the true value of any investment. One problem with this hypothesis, Zuckerman shows, is that some investments are asymmetrical, which leads to a bias in the markets.

Continue reading →

Today and tomorrow, as a part of the Antiplanner’s continuing series about the 2008 economic meltdown, I am going to look at many of the supposed causes of the crisis and show that, while some of them may have made the crisis worse, none of them were the ultimate cause of the crisis. In some cases, I’ll quote a 2009 paper written by two of my colleagues at Cato. In doing so, I have to confess that, while we agree about what didn’t cause the crisis, I haven’t been able to convince all of my Cato colleagues, including at least one of the authors of this paper, about what did cause it.

I’ll also quote from William Cohan’s House of Cards, a book that is mainly about Bear Stearns. In fact, only the first third of the book is about the 2008 crisis; the rest is on the history of that company in the 75 years before that crisis. Unlike some financial writers, Cohan actually worked on Wall Street for 17 years, including a decade as a managing director at JPMorgan Chase. Perhaps this is why Cohan can supply of lot of insights and details missing from some of the other books I’ve read on the crisis.

Continue reading →

The Antiplanner continues to read recent books about the 2008 financial crisis, but there are definite diminishing returns. I just finished Roger Lowenstein‘s The End of Wall Street and found it disappointing. It covered almost exactly the same ground as Too Big to Fail, but unlike the latter book, which was based mainly on interviews, Lowenstein’s book seems to be based heavily on articles and op eds in various newspapers and magazines.

The book is poorly referenced–sometimes a citation to a critical point lists nothing more than a person’s name–and somewhat superficial in its description of complex events. Lowenstein focuses heavily on subprime mortgages, but (as I’ll explain in detail in a later post) I don’t think they were the real problem. “Rampant speculation (and abuse) in mortgages was surely the primary cause of the bubble,” he concludes, but he doesn’t even sound like he believes it. There was just as much mortgage “abuse” in Texas as in California, yet Texas had no bubble. Rampant speculation only takes place after prices are already rapidly rising, so such speculation by itself can’t have caused the bubble.

Continue reading →

Nobel-prize-winning economist Joseph Stiglitz‘s take on the 2008 financial crisis is simple: Free markets are bad; government is good; we need more government. This is, essentially, a reiteration of what is known as the Greenwald-Stiglitz theorem, which states that markets are imperfect, so “government could potentially almost always improve upon the market’s resource allocation.”

A flaw common to both the Greenwald-Stiglitz theorem and Freefall is that, while Stiglitz goes to great efforts to show that markets are imperfect, he makes no effort at all to show that government will do better. His theorem says government could potentially do better, and another one of his theorems says an “ideal government” could do better, but the real question, which he never addresses, is whether a real, not ideal, imperfect government will actually do any better than an imperfect market.

Freefall makes no genuine effort to analyze the causes of the 2008 financial meltdown. Instead, Stiglitz merely uses it as another example in his case for bigger government. The crisis resulted from the failure of American capitalism, he says, and he dismisses any other explanation (if he mentions it at all) as “sheer nonsense” (p. 10).

Continue reading →

As previously noted, the Antiplanner has been reading a lot of books about the financial crisis lately. Some have tried (but failed) to be comprehensive. Most cover just a slice of the crisis, such as Bear Stearns (House of Cards) or Lehman Brothers (A Colossal Failure of Common Sense)

One of the most valuable books of the latter sort is Fool’s Gold, which focuses on J.P. Morgan. Curiously, this book has gone through a series of at least four subtitles:

1. How an Ingenious Tribe of Bankers Rewrote the Rules of Finance, Made a Fortune and Survived a Catastrophe
2. How Unrestrained Greed Corrupted a Dream, Shattered Global Markets, and Unleashed a Catastrophe
3. How the Bold Dream of a Small Tribe at J.P. Morgan was Corrupted by Wall Street Greed and Unleashed a Catastrophe
4. The Inside Story of J.P. Morgan and How Wall St. Greed Corrupted Its Bold Dream and Created a Financial Catastrophe

Continue reading →

The Antiplanner finished reading Too Big to Fail, a 539-page tome describing the events of the financial crisis from the Bear Stearns collapse in March, 2008 to the Treasury’s forced purchase of billions of dollars worth of shares in nine major banks in October, 2008. New York Times reporter Sorkin says the book is based on “more than five hundred hours of interviews with more than two hundred individuals who participated directly in the events surrounding the financial crisis.”

With the exception of an eleven-page epilogue, the author makes no apparent attempt to interject his own opinions about what happened. As such, the book represents the best and worst of modern journalism: the best because it appears to be a frank recitation of events on Wall Street, in the Fed, and the U.S. Treasury; and the worst because the accuracy of that recitation depends on who the author interviewed (whose names he doesn’t specifically reveal).

Continue reading →

The 2008 financial crisis has proven to be a bonanza for at least one industry: Book publishers have issued dozens of tomes about what went wrong and how to fix it. Lately, the Antiplanner has been reading as many of these as possible.

Most of the authors have an axe to grind and many blame the crisis on one chief player: the Federal Reserve, private bankers, the mortgage industry, bond rating companies, politicians trying to increase homeownership, etc. Of course, loyal Antiplanner readers know the real culprit was growth-management planning, a thesis few of the book writers recognize–the main exception being Thomas Sowell in The Housing Boom and Bust.

In reading the other books, my goal has been to sift out the overblown rhetoric about greed and malice to find as many useful facts and insights as possible. Here are a few of the more interesting points.

Continue reading →