Getting A Grip Through Reading: The Financial Crisis
Like many in my peer group, I’ve developed a particular fascination with the global financial crisis of 2008 and have been in a constant search for understanding of its causes, the warning signs, what happened “during” the crisis, the lasting effects, and what it means for the future.
I entered college in the Fall of 2007, and one of my first classes was Economics 102, Macroeconomics, with Professor John Abell. One of the major focuses (that I remember) of our class that semester was on the developing danger of sub-prime mortgages. I remember being aware of the absurdly pricey real-estate market in Northern Virginia at the time and was excited to be learning why some things were the way they were. We talked a lot about Robert Shiller, his housing index, and how things had gotten seriously out of whack.
Jump forward four years to 2011. The financial crisis of 2008 reared its ugly head and wreaked havoc upon the world economy, leaving many families, homes, personal fortunes, and businesses in tatters, and sending many recent college graduates back to their parent’s homes to fruitlessly search for jobs in one of the worst labor markets ever (And yes, I really mean EVER).
This amazing period of time from late 2007 through...now(?) is one that has been talked about and agonized over, and reframed and rehashed in innumerable books, movies, and television shows. Everyone knows the jargon; sub-prime mortgages, credit default swaps, moral hazard, too big too fail, etc, etc, but I think that most people still don’t have a really tight grip on just what happened. At least I know I’d certainly like to understand it all a bit better.
Over the last few years, I’ve been steadily, and almost subconsciously, amassing a small collection of books that touch on the crisis directly (the who/what/where/when/why/how of ‘07 and 08′) and indirectly (past crises, future crises, etc) and haven’t been able to bring myself to dig into them, b/c I wanted to attack them in a properly structured way. Well...this is the time.
I’m my personal unread stacks I have:
Too Big to Fail, by Andrew Ross Sorkin
This Time is Different, by Reinhart & Rogoff
The Great Crash of 1929, by John Kenneth Galbraith
The Alchemists, by Neil Irwin
On the Brink, by Henry M. Paulson
A Short History of Financial Euphoria, by John Kenneth Galbraith
On the Origin of Financial Crisis, by George Cooper
(I understand that this is not an exhaustive list. HERE is one of the best of those I’ve found. And I’m not committing myself to necessarily reading all of these, or limiting myself to only these titles)
The economic turmoil we’ve recently witnessed at the end of 2018 and the start of 2019 is possibly indicating that this long bull market may be coming to an end, and the pessimistic side of me is bracing for something catastrophic. I’m wise enough (though not very wise) to know that things will not go the way they did just over a decade ago. Things may not be nearly as bad, or things could be much worse. We (consumers, the government, financial institutions, homeowners, big businesses) have learned from our past mistakes, but are not insulated from making new ones.
“The next time” will look and feel different than a decade ago. As Mark Twain is said to have said (he almost certainly did NOT say this:) “History doesn’t repeat itself - but it sure does rhyme.”
A 2016 quote from Hank Paulson, the Secretary of the Treasury during some of the headiest days of The Crisis puts things into stark relief:
“I can't help but think what would have happened if a divisive character such as Trump were president during the 2008 financial crisis, at a time when leadership, compromise, and careful analysis were critical.”