Books for a Bear Market
Experts analyze what happened and what your options are now.
By Bob Frick, Senior Editor
From Kiplinger's Personal Finance magazine, December 2008
Advertisement
One slice of the economy isn't complaining about the credit crisis: book publishing. The printing presses are smoking as every week brings to bookstore shelves a new take on how and why we got into this mess.
Some seem like rush jobs. Kevin Phillips, former Nixon strategist and author of best-selling American Theocracy, tries his hand at finance with Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism. But the book's distinctive mix of history, politics and economics is full of loose ends and half-baked ideas -- not the least of which is a sort-of accusation that Washington is in cahoots with Wall Street to grant the financial sector supremacy over all other sectors. Is this true? Phillips says he has "no personal firsthand knowledge," and besides, he won't look into it in part because he says he doesn't want to be sued. Weak.
Harry S. Dent Jr. does his charts-and-trends shtick for a gloomy tome titled The Great Depression of 2010-2012. Let's hope he's as accurate as he was with his 2004 forecast that the Dow would hit 40,000. The first manuscript of his new book, which is due out in December, carried the title The Great Crash of 2009-2010. That underscores how tough it's been for authors to keep up with current events. Many of the books are peppered with the phrase, "As this book goes to press ..."
Both of these books terrify and confuse. But in trying times such as these, what's needed is cool and cogent analysis. Our list of the year's best money books starts with a slim volume written by a cool customer.
Deflating the bubble. Robert Shiller's expertise on financial bubbles and the U.S. housing market gives him a unique vantage. His book Irrational Exuberance warned of the bubble in tech stocks not long before they began a long and painful slide, and Standard & Poor's/Case-Shiller Home Price indexes are the standard in tracking home-price changes. In his latest book, The Subprime Solution: How Today's Global Financial Crisis Happened and What to Do About It (Princeton University Press, $17), he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate.
Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures. Shiller compares the buoyant optimism about housing prices to a social contagion that became an epidemic and overwhelmed rational thinking. The best medicine to combat such bad behavior, Shiller says, is to teach average people -- whom he calls the household sector -- sound financial principles. Otherwise, he suggests, they'll continue to "limp along with practically medieval financial insight."
He also proposes a safety commission for financial products, modeled after the Consumer Product Safety Commission; more and better financial disclosure; and a derivatives market in real estate that would allow investors to sell property short to help burst speculative bubbles before they become too dangerous.
A more detailed look at the crisis comes from economist Mark Zandi, co-founder of Moody's Economy.com. His Financial Shock: A 360¡ Look at the Subprime Mortgage Implosion and How to Avoid the Next Financial Crisis (FT Press, $25), delves deeply into the history of the mortgage market, the bad loans, the globalization of trashy subprime paper and how homebuilders ran amok.
Discuss