“This book is an absolutely excellent narrative of the horror that we have in the credit markets right now… It’s a wonderful explanation of how it happened and why it’s so rotten, and why it will take a long time to unwind.” (Paul Steiger, former Mng Editor, Wall Street Journal)
Yup, you’ve got it right! I’m currently re-reading The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash (by Charles R. Morris) and I thought to give you a little push into reading it, too. So, here we go:
First of all, you have to know that Morris is criminally smart, deliciously pissed, and just the kind of crochety old “In my day…” guy I would want to be in charge of my money, if I had any. Though his political leanings are pretty obviously to the left of center, they serve to underscore an important truth: every American is a free-market capitalist, however much he may have loved the Che Guevara poster on his dorm-room wall.
Morris essentially explains (and predicts, given it was written long before) the current financial crash. He writes with more flair than most in his field and also shows certain daring with many of the ideas he expresses. Here are some examples:
“Intellectuals are reliable lagging indicators, near-infallible guides to what used to be true.”
“In its modern form, Chicago school economics has mutated from a style of analysis into a Theory of Everything. For almost any public or social issue, adherents believe, the free market, if allowed to work without obstruction, will consistently produce optimal outcomes. The omnivorous streak in Chicago economics has drawn it into the realms of crime, welfare, education, health care, and other areas once thought to be mostly outside economics purview.”
“As a general rule, only the very smartest people can make truly catastrophic mistakes.”
This book is a short but sturdy treatment of a crisis that Morris and other predicted, and that we are currently in the throes of. Morris stops short in more or less the same place George Soros does (I mentioned Soros’s writings in my older posts, he has some brilliant theories, too), arbitrarily taking a late-channel spot of capitalism and defending it from other economic systems. One wonders if, by the time this crisis is through, the average American will not conclude that capitalism, always and every time, ruins itself. That will likely end the privatizing of profits – or at least the socializing of losses.
According to Morris, the astronomical leverage at investment banks and their hedge fund and private equity clients virtually guarantees massive disruption in global markets. The crash, when it comes, has no firebreaks. A quarter century of free-market zealotry that extolled asset stripping, abusive lending, and hedge fund secrecy crashes down with it.
The Trillion Dollar Meltdown explains how things are likely to get worse before they better. If you aren’t familiar with some of the terminology, it might feel a bit dense to read. If you work in the industry, it will feel like a good, well-written, but long Bloomberg magazine article. Also, if you are a die-hard Chicago free market conservative, a lot of the writing will be very annoying. But given it was written over a few years ago, before our economic nuclear winter started, pretty insightful.
As a practical conclusion, the financial crisis is only the beginning: a more profound economic and political restructuring is on its way. Oddest fact from the book? US Economy is about $14 trillion. The world economy is about $54 trillion. Value of financial derivatives before this meltdown began? $500 trillion. Have a nice reading.