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Subprime Crisis Books

posted by Alan White

As the subprime crisis enters its fourth or fifth year, depending on when your version of the story begins, there is an ever-expanding menu of crisis books to choose from.  I have particularly enjoyed the less scholarly and more journalistic tales set in the boiler rooms of Orange County California (the Monster, by Michael Hudson) and the towers of Wall Street (Griftopia, by Matt Taibbi).  Others on my list include Dan Immergluck’s Foreclosed, and Thirteen Bankers, by Simon Johnson and James Kwak, which tell the stories of mortgage regulation/deregulation and the financial-regulatory complex, respectively, less colorfully but more exhaustively.  Next on my list:  The Big Short and Too Big to Fail.  The bookshelves are also bulging with chronicles of collapsed (or nearly collapsed) companies—Lehman Brothers, AIG, General Motors, etc… So gentle readers, which are your favorite crisis books?

Comments

If you are talking specifically about books related the crisis, "13 Bankers" takes the Zenith. I am excited to read Ace Greenberg's book which I got super-cheap, but in all honesty I haven't read it yet. And also I think Satyajit Das's book "Trader's, Guns, and Money" is very under-rated and somehow seems to be off the radar screen. Again this may seem hypocritical of me to say, I haven't read Satyajit's book yet, but I can tell just buy skimming it he breaks down derivatives better than almost anybody (including better than Yves Smith). It's at the top of my 2011 catch-up reading.

I'm trying to catch up on my great fiction literature reading the last few months and my Finance reading has suffered because of it....... or maybe I'm just lazy. Oh well, I will get around to it....

http://www.amazon.com/Confessions-Subprime-Lender-Insiders-Ignorance/dp/0470402199

I still like: Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance, by Richard Bitner.

It is a view from the ground, and it strips away all the BS reasons for the crisis. There were warehouse lines of credit available from the big boys for any kind of mortgage your could write. Since they were being bundled up, any attention to quality just lowered your volume.

Fannie and Freddie had too many rules, and subprimes simply paid more money to the mortgage brokers than conventional loans - so you sold the low paperwork subprimes and made extra money on the higher yield spread premium.

I think James Grant's Mr. Market Miscalculates has some really great essays on subprime securitization (originally written in like 2006 or 2007!).

Alan - thanks for your recommendations. I'll add them to my list.

I found "Fools Gold : How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed" by Gillian Tett informative about the "evolution" of the derivatives including their role in the 2007 implosion. "Fools Gold" follows the JP Morgan derivatives team from its inception to the crisis of 2007 so it's probably within the time frame you've asked about.

One of the limitations about most books about financial crises is that they tend to focus on a single institution or even major players within the institution. So does news coverage. Blaming rogue traders or small groups of people disregards the inherent causes of why the institutions allowed, condoned or even encouraged the "rogues" to engage in what management later claims was misconduct (e.g., unauthorized trading).

A timeless book is "F.I.A.S.C.O. : Blood in the Water on Wall Street" by Frank Partnoy. FIASCO is Mr. Partnoy's account of his experiences during the early days (late 80's to early-mid 90's) of the derivatives trading. Without spoiling the assorted nefarious schemes the "bankers" concocted, I'll suggest that a substantial if not the primary purpose of derivatives has always been to circumvent nations' ability to influence their currency, banking regulators to assure the soundness of their financial institutions, insurance regulators to protect policy holders through the use of "permissible investments", and to conceal risks by eliminating the transparency provided by financial statements issued by publicly traded companies.

The root causes of the crisis of 2007 were not addressed.

A third suggestion is "Belly Up" by Zweig. On a literal level, it's the story of how a small bank in a strip mall in suburban Oklahoma City originated loan participations which sunk Continental Illinois and contributed to the insolvency of Security Pacific ("Sec Pac") and other banks. The reason that I highly recommend "Belly Up" is because it provides the best illustration of how tax policy, asset price bubbles, technological obstacles, and easy credit terms cause or contribute to asset price bubbles (i.e., the "boom - bust" cycle).

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