John R. Talbott's "Contagion: The Financial Epidemic That is Sweeping the Global Economy"

This is the second book by John R. Talbott that I've read. First I read his Obamanomics which was a good overview (dating from early 2008) of where he thought Obama would lead the country economically. Now I've read this book which reviews the financial collapse caused by Wall Streets botched "financial innovations" based on models that failed to truly capture the risk in these innovations.

I would recommend this short (200 page) book as an excellent introduction to what went wrong and what needs to be done to fix the problem. This guy wrote a prescient book on the coming housing crash that was published in May 2003. (I sure wish I had read that and really absorbed its message. Oh well.)

Talbott sees the root of the problem in the fact that Wall Street has bought the government via its lobbying efforts and huge political "contributions" (aka "bribery"):

So a great deal of work has to be done in Washington to reinstitute meaningful and effective legislation and regulation on Wall Street and the financial markets. But Washington itself needs reform. It was Washington who looked the other way when asked to more closely supervise Fannie Mae and Freddie Mac, to better regulate overly aggressive mortgage lenders, to allow a $65 trillion CDS market to develop from scratch, and to ignore that major financial players like hedge funds had no reporting requirements at all. Elected representatives are not stupid. It is inconceivable that they didn't have prior warnings about the weaknesses in the system prior to October 2008 or that they didn't realize that their lack of regulation and supervision was causing great problems to the financial system and th economy. Their inaction is testimony to the fundamental underlying problem behind all of this. A system of lobbying and campaign contributions from corporations and banks assured that congressional representatives never took action on the behalf of the voters. Elected representatives were being paid to dismantle laws and regulations that their clints on Wall Street found offensive.

In 2007 financial service companies spent more than $402 million on lobbying expense. This is a record for annual gift giving by the financial services industry, with the exception of the $417 million they spent on lobbying in 1999 to repeal the Glass-Steagall Act. Of course the repeal of the Glass-Steagall Act allowed commercial banks to package and sell mortgage securities globally, which was a prime reason for the current crisis. They were able to get troubled loans off their balance sheet and thus lost most of the incentive for tough credit analysis of borrowers." (pages 203-204)

This book names names. It shows the corruption. It makes clear that the current Obama administration has not faced up to the real problems because Obama has been bought by political contributions from Wall Street.

Note: You can peruse this book via Google Books here.