Charles R. Morris "The Trillion Dollar Meltdown"

This book was written in late 2007 and finished in the first couple of months of 2008, but it nails the current economic crisis. It explains how this built up from 30 years of deregulation building up to a crescendo over-leveraged risk taking that has collapsed and taken the economy down. At the time he wrote this book he was among the few who saw it as more than "contained to the sub-prime market" as Federal Reserve Chairman Ben Bernanke characterized it.

This book has a table that summarizes the expected trillion dollar losses:$450B in residential mortgages, $325B in corporate debt, $215B in "other" debts including credit cards and bond writedowns. This was highly accuraate. He worried about the credit collapse moving into the bond insurers and the credit default swap markets but was not able to put a figure on that. Sadly, the collapse has now moved into those markets making it a many trillion dollar problem. He worried about this, warned it could happen, but was a bit more optimistic that the reality that has unfolded.

The real value of this book is the knowledgeable insider look at what caused the collapse: financial "engineering" and excessive leveraging. He documents the steps leading up to this final grand finale collapse:

• The "portfolio insurance" scheme that led to the 1987 stock market collapse as all the programmed trading of this "insurance" tried to sell at the same time.
• The 1994 collateralized mortgage securities collapse which serves as a prelude to the whole menagerie of "collateralized" entities which have now collapsed: CDOs, CLOs, CBOs, CMOs.
• The 1998 collapse of the financial engineering goliath Long Term Capital Management.
• The Greenspan "put" that created lemon socialism (profits in the financial sector go to the highly paid wheelers and dealers while the losses are picked up by the taxpayer).
• The "free money" that Greenspan injected into the system during the 2002-2005 that goosed the real estate bubble and was leveraged by the financial players into the $500T debt structure that is so complex that it is proving very hard to deleverage, has frozen credit, and has spilled into the real economy creating is the current economic crisis, the 2009-10 depression.

This book is a sad, detailed accounting of how market fundamentalism (belief in homo economicus as a rational optimizer, belief in efficient markets, belief that government is the problem and not the solution so markets need to be radically deregulated) has led to the current collapse. Morris is an insider. He isn't a wild-eyed radical. He welcomed the shift from the 30 year swing to the left from FDR to LBJ to the 30 year swing to the right under Reagan to Bush. But he sees each era carrying the seed of its own destruction:

My personal belief is that the 1980s shift from a government-centric style of economic management toward more markets-drive one was a critical factor in the American economic recovery of the 1980s and 1990s. But the breadth of the current financial crash suggests that we've reached the point where it is market dogmatism that has become the problem, rather than the solution. And after a quarter-century run, it's time for the pendulum to swing in the other direction.