And what happens if they do? Economist Barry Eichengreen recommends the best books on the euro. He recommends the best books on the causes of the financial crisis. We all have a bit of the rogue trader in us. So says the chief business commentator of the FT, who tells us about the greed, vanity and weakness that can lead to financial disaster. He picks the best books on financial speculation. Keynes biographer Robert Skidelsky recommends the best books about one of the most important economists of all time, John Maynard Keynes.
Understanding finance is key to understanding how the world works, but many people know very little about it. Journalist John Lanchester picks five accessible books to bring the layperson up to speed. The former banker and author of 12 books on economics says that over the last 30 years economics has been colonising every science. We need to build an entirely new market system, not just patch up the old one, says economics commentator Anatole Kaletsky.
He picks the best books to help us think about what form a new capitalism might take. We ask experts to recommend the five best books in their subject and explain their selection in an interview. This site has an archive of more than one thousand seven hundred interviews, or eight thousand book recommendations. We publish at least two new interviews per week. Five Books participates in the Amazon Associate program and earns money from qualifying purchases.
Support Us. Economics » Financial Crisis. Most Recommended Books. Essays on the Great Depression by Ben Bernanke. The Big Short by Michael Lewis. The best books on The Lessons of the Great Depression , recommended by Robert Barro Harvard macroeconomist Robert Barro takes issue with some common assumptions about the Great Depression, and how America got out of it.
The best books on The Euro , recommended by Barry Eichengreen With hindsight, was the euro a good idea? The best books on Financial Speculation , recommended by John Gapper We all have a bit of the rogue trader in us. The best books on John Maynard Keynes , recommended by Robert Skidelsky Keynes biographer Robert Skidelsky recommends the best books about one of the most important economists of all time, John Maynard Keynes.
But I also wanted each of these books to be really well written and tell a tale. All five of these books are just masterfully written. The US has always had a problem with the concept of a central bank. The initial central bank lasted for 20 years, and was then dissolved. Without a central bank modulating the currency, you tend to have wild swings in money supply, and in the economy you had a series of panics and depressions.
So then we had the second Federal Reserve bank. Same thing — it had a year lifespan, and then it died. They had a hands-off approach. You really get the concept of that in Lords of Finance , not just within the US, but internationally. How it affected the post-World War I, pre-World War II period, what the central bank should have been doing — now that we have the benefit of hindsight — to moderate the effects of the downturn caused by the market crash and the Great Depression.
The Great Depression is, of course, the period Ben Bernanke is an expert on. My biggest problem with Bernanke is not so much him as chairman, as him as Fed Governor under Greenspan. When the economy is in an utter freefall, when everything is going to hell in a hand-basket, [Walter] Bagehot had the right ideas.
The central bank should be the lender of last resort, it should lend on good credit at high rates. What the Federal Reserve did is that, in an attempt to save the banking system, they focused on saving the individual banks. People who ran a bank poorly or invested in bad banks are suitably chastened by the market, and the system is saved. Japan has its own keiretsu system [whereby banks are owned by companies and vice versa across the economy].
Well, the way we let Lehman go down — just take a leap, face down, 50 storeys onto the concrete — no. What we ended up doing with GM and Chrysler was a pre-packaged bankruptcy: You fire the senior management, wipe out the shareholders, renegotiate all the bad deals, and sell off all the bad assets. GM is having its best year in history! Had we done that with the bigger banks, we would be much healthier today. So how should the banks have been dealt with? You work on Wall Street, give me the specifics.
No, no. They just ran into their subprime problem way earlier than everybody else, so when they had to liquidate, there was a bid there. So here is what I am willing to do. If you want to buy them, buy them. So take a walk once around the park, and have a good think. Instead, Dimon outplayed Bernanke. Bernanke is an academic, he was learning on the job. Going back to the underlying causes, the American obsession with deregulation played a big part.
Your second book, The Myth of the Rational Market looks at the intellectual underpinnings of that worldview. Yes, so everything was working fine. The original concept — which started under Carter but was accelerated under Reagan — was that government has gotten too unwieldy. There is a legitimate argument that bureaucracies tend to feed on themselves, and you have to constantly hack back at some of the vines and undergrowth.
In The Myth of the Rational Market Justin Fox explains all of the bad ideas that took root and allowed a very legitimate and worthwhile objective — getting rid of some of the really time-consuming, unjustifiable, expensive regulations that had grown over time — get so wildly imbalanced. He looks at why academics and many market theorists were so wrong about how markets actually operate. He does a wonderful job of telling the story of how the simple concept of the efficient market, the rational economic actor, got completely out of whack.
It really does. There are a slew of these that are all about how academic economists — and especially the Chicago School and other believers in the Efficient Market Hypothesis EMH — got this totally wrong. Human beings are not perfectly efficient, profit-maximising actors. The main thing I remember is that you should be extremely suspicious of people who claim they can beat the market. It remains very practical, sensible advice and it imbued me with a lifelong suspicion of Wall Street and financial professionals.
You only have to read the first five to 10 pages, and you realise that human beings have no place making any decision other than: I hope I remember to put on pants today and let me not eat something unhealthy. The average investor is probably better off dollar cost indexing — putting the same amount of money every month into a broad index, rather than trying to pick stocks. Tell me about your next book, The Quants , and their role in the crisis. The Quants explains how maths, combined with a lot of leverage and a bit of modelling error led to a lot of disasters.
But if you have a 0. Then you have a series of wobbles. But really it hit in the summer of , when the first errors took place with the Bear Stearns hedge fund. You have a huge correlated move with all the quant shops. That was really problematic, and it only got worse over the next couple of years. That really exacerbated a lot of the moves.
And again, goes back to the theme that theoretical models need to be approached with caution. Yes, there are hundreds of variables, and yet people are making these massive, multi-billion dollar bets based on these models. Michael Lewis, to me, is the preeminent narrator of this crisis. He is the guy who constructs the story better than anybody else.
He tells the narrative in just an utterly fascinating and delightful way. So I had this fantasy of Michael Lewis going in with his manuscript to his publisher, and instead of calling it The Big Short , he called it Fuck the Poor. I had this whole debate between him, his publisher and his agent. Be reasonable! In the book, he does what he does in all his books, which is he identifies these quirky, off-kilter guys that have some odd defect.
And the story is essentially a few people looking at the universe from outside, and seeing something everyone else misses. People have described a banker as someone who is willing to lend you an umbrella on a sunny day, i. All this goes back to the Fed taking the rates to such crazy low levels, that every bond manager had to scramble [for yield].
What took place after the crash is that first you had markets down a ridiculous amount every year, and secondly Greenspan took rates so low that the year [US Treasury bond] followed. Instead, they panicked. So everybody piled into that product.
They sold out. Also, by the way, these year mortgages were sold with a day warranty. You can buy a toaster that has a longer warranty than a year mortgage! Whatever you do after that is not my concern. Matt Taibbi is the poet laureate of vitriol.
The deals that were negotiated were just so absurd, so ridiculous. That sense of outrage is just throughout Griftopia. There are few people who are angrier, who are more incensed, and have an ability to express it in prose, better than him. Some of his conclusions I think are fair but I come down on a different spot.
But it is a rollicking, raucous read. Some of it is hilarious. This has been the greatest transfer of wealth in the history of mankind — trillions of dollars — and nothing has been fixed. The overall situation is just as precarious, if not more so, than before the crisis. Until a few weeks ago I lived in upstate New York and just did normal stuff, taking the kids to school, chatting with other mothers.
People were initially very angry, but then Michael Jackson died. Then it was an unusually close American Idol final. Then it was the Super Bowl. Finally a group of people who are really angry at the government giving away all this money to the banks.
These people have just been wildly misled.
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Freefall by Joseph Stiglitz (). The Big Short by Michael Lewis (). Bailout by Neil Barofsky ().