This Is the End


Markets, Risk and Human Interaction

May 2, 2011

Readings on the Financial Crisis

The following reflects my personal views.

The two best treatments of the financial crisis are both free for the reading, courtesy of the U.S. government.

The first to hit the press, the 600-page Financial Crisis Inquiry Report, is the product of a year and a half of work, seven hundred interviews, over a dozen hearings, and millions of pages of documents. The report is not as tome-like as it appears. It is a 400 page book (albeit one with small print) followed by 200 pages of references, appendices and dissents. Don't let the dissents bother you -- they are dealing with second-order issues.

What is most remarkable about this report is that it is written like a best-seller. For example, each chapter subsection begins with a clincher quote taken from the interviews. This not only keeps the story line going, it also allows the Commission to put forward some strong views through the eyes of the crisis participants. It will keep you on the edge of your seat, or at least as far toward the edge of your seat as any of the scores of crisis books written over the past few years.

The second work is the Anatomy of a Financial Collapse, a.k.a. the Levin-Coburn Report of the Senate Permanent Subcommittee on Investigations. This report, which came out in mid-April, weighs in at 640 pages of text, which includes almost three thousand footnotes. It is a brilliant work, constructed through four case studies that show the mortgage mess wending its way from the banks (WaMu), ducking past the regulators (OTS), then turbocharged by the rating agencies (S&P and Moody's) before landing into the waiting arms of the investment banks (Goldman with Deutsche Bank in a supporting role).

While the FCIC report covers the entire landscape, the Levin-Coburn Report, by putting the crisis into a set of interconnected and detailed case studies, distills the essence of the crisis with an historian's perspective and a novelist's flair.