Top 10 Articles About the Financial Crisis
September 27, 2008
Of the many articles I’ve read about the financial crisis, the following ten have been the most informative. Read them all, and I think you will have a very solid understanding of what is going on.
1) The Financialization of America A broad overview of how 1) insanely profitable Wall St. became in the past two decades and 2) this profitability was due to implicit government subsidization of risk. This includes the “too big to fail policy” and the “Greenspan put”.
2) The Global Pool of Money [MP3] – An hour long podcast from NPR about the selling of subprime mortgages. Hear the story of hustlers, smooth talking sales guys, fast cars, and big money. It’s like something out of a movie.
3) Triple-A Failure: The Ratings Game by Roger Lowenstein of the NYTimes. You may ask, who was buying these securities that were so obviously shoddy? Government regulations mandated that certain investors – mutual funds, insurance companies, pension funds – could only buy bonds rated as investment grade by one of the three official rating agencies – Fitch, Moody’s or S&P.  But these rating agencies were for-profit companies that earned more money by giving banks higher ratings. This conflict of interest resulted in systematically underestimating risk.
4) How regulation breeds complex financial products and Why Lax Regulation Did Not Cause the Crisis by Mindles Dreck. The author works in the investment banking industry. He relates how the industry had actually seen a dramatic increase in regulation as a result of Enron and the Patriot Act. But the effect of regulation was not to make finance less risky, but rather regulations encouraged the creation of more complex financial products that outsmarted the regulators and gamed the system.
5) Fannie Mae’s Golden Goose – A Lesson in Moral Hazard – The author, Bill Burnham, has worked as a Wall St analyst, venture capitalist and hedge fund manager. In the mid-90’s he consulted with Fannie Mae for a year. He tells the story of how Fannie Mae abused its implicit government backing to make very risky loans at low interest rates.
6) Commodity Hysteria – An Overview by Nick Szabo, a former programmer, now a law school academic. He explains how the simultaneous rise in price of dozens of diverse commodities is best explained by rising inflation expectations due to the financial crisis. As inflation increases, more people buy ETF’s and commodity index funds. Additionally, producers have no incentive to pump more oil, as oil in the ground is worth more than a dollars in the pocket.
7) Record Central Bank Financing Continues by Brad Setser, an academic economist. Setser notes that foreign central banks are buying up massive amounts of American debt. Foreign countries have deemed the U.S. government too big to fail: “Sometimes I think the US should drop the façade of auctioning off Treasuries and just negotiate private placements with the People’s Bank of China and the Saudi Monetary Agency.”
8) How Stocks are like Baseball Cards by Mark Cuban. Mark Cuban is famous for selling Broadcast.com for billions during the dot com bubble. He explains how the decline of dividends has turned stocks into purely speculative collectibles, rather than ownership shares that earn the investor money.
9) How the Fed lowered the reserve ratio and caused a decade of inflation and asset booms – In 1995 the Federal reserve created special exemptions allowing banks to keep 0% reserves in many cases. This lead to an explosion of the broad money supply, and successive bubbles in the stock market and housing market.
10) Maturity transformation considered harmful: an unauthorized biography of the bank crisis by Mencius Moldbug, a semi-retired software engineer who’s spent the past two years studying history and economics full-time. He traces the roots of the financial crisis to a fundamental flaw in our banking system that has been around for 300 years. He proposes a solution to fix things up and prevent these crises from ever happening again.
September 29, 2008 at 4:26 am
Read anything/everything by Nouriel Roubini:
http://news.google.com/news?hl=en&q=nouriel%20roubini&um=1&ie=UTF-8&sa=N&tab=wn
He’s got a number of videos, too.
September 29, 2008 at 11:06 am
Very informative and good reading, but the real bottom line here is that our society has not only become addicted to oil, but addicted to debt, low prices and cheap labor. It’s the something for nothing syndrome.
Until the people and businesses of the United States and increasingly the world use their brains instead of their emotions when making purchases, expanding their businesses and using credit, the economy will continue down a path of self-induced destruction.
At this point, the best thing we could do is let the financial markets fail, feel the pain for a few years and get back to living within our means. A middle class family of four does not need 4 cars, a McMansion or 4 televisions. We don’t need 10 pairs of shoes in our closets. We’ve become a nation of addicts. Addicted to prescription drugs, technology, highly discounted goods and are willing to accept poor customer service and generally sleazy behavior.
We will elect our officials for their moral values while we ignore our own values and do business with oppressive regimes who force abortions, take advantage of their workers simply so that we can buy more stuff that we don’t need at rock bottom prices.
There must be a sea change in the way we behave for anything to change. Without that, the next institution that is “too big to let fail” is hiding around the next corner.
September 29, 2008 at 11:24 am
Thanks for this nice compilation. Really great.
September 29, 2008 at 11:29 am
I don’t find this anything helpful, sorry mate.
September 29, 2008 at 12:45 pm
I just wanted to know your opinion on this video posted on YouTube: http://www.youtube.com/watch?v=H5tZc8oH–o
I listened to the entire NPR program twice and found it very informative, this video however puts much of the blame on bad government policies including the Community Reinvestment Act which forced banks to hand out mortgage loans to under qualified applicants in order to assist in community development.
October 1, 2008 at 8:12 pm
Thank you, here’s another you might find interesting:
http://randomjunkyramblings.blogspot.com/2008/09/anatomy-of-financial-crisis-good-times.html
October 9, 2008 at 9:22 am
Thanx to Chrisco for the links also @More to come.
Nice article.
Thanks for posting it.
October 10, 2008 at 1:10 pm
Read also this…
http://peekablog.net/2008/10/what-caused-the-financial-crisis/
October 10, 2008 at 10:37 pm
Read these articles and ignore that youtube about the CRA. It is complete crap. The only thing it gets right is that there is blame to go around, but it’s focus on the CRA and Obama is laughably simplistic and just straight up lies in many cases.
The other thing I didn’t see in the list (but I didn’t read every article) was the role of Credit Default Swaps. Most of these companies failed because they relied on the Credit Default Swap to become massively over leveraged in Mortgage securities. So it looked on paper like they had hedged all their bets. When it became clear that companies selling these unregulated swaps couldn’t possibly pay out, and AIG went bankrupt, the sh*t hit the fan, all the over leveraged banks looked like sure bankruptcy cases, everyone stopped loaning, and wall street sold all the related equities.
It’s going to get worse than this, my friends.
October 10, 2008 at 10:45 pm
also, this argument about the CRA ‘forcing’ banks to lend is not only ridiculous, but it is just coded racism.
It’s the typical Republican attack line: ‘Democrats get dark people to vote for them by promising welfare, cheap housing blah blah blah’. It’s really a sick argument.
October 19, 2008 at 3:16 pm
I’ll just leave this here
http://www.zeitgeistmovie.com
October 20, 2008 at 6:51 pm
Most of these articles have something quite good going on in them.
But what I believe is missing from all of them are 2 major points.
1. The international financial architecture since the collapse of Bretton Woods and where that takes us. It importantly underpins a lot of what’s going on the above articles.
2. The deregulation of financial markets under Clinton.
In any case please look at Robert Wade- Financial Regime Change which just came out. I would put it at the top of any list of this type. He’s an economist at London School of Economics.
Here it is, contextualized by an economics student there:
http://bloggingourway2bombay.com/2008/10/18/what-is-the-nature-of-this-financial-crisis-and-what-does-it-mean/
October 22, 2008 at 3:36 pm
http://sternfinance.blogspot.com/ <– this site might also be rather useful. It is run by some business faculty and the articles on finance are straight to the point
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February 15, 2009 at 2:32 pm
Many lies, little Truth; please read my articles about the Financial Crisis.
February 16, 2009 at 5:27 pm
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May 23, 2009 at 9:51 am
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Thank you
July 2, 2009 at 7:53 am
The articles on financial movement of the world are very much demanding in the present scenario and also helpful for the finance people. Because, economic cheating is rising day by day. So to stay away from it we need more Interrogatories to keep the account safe from the down turn.