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Credit Crunching books
To illuminate the credit crunch and to find a new way forward, Peace News has chosen four recently-published books about the financial crisis.
Charles R Morris, The Trillion Dollar Meltdown (Perseus Publishing, 2008; ISBN 9781586485634; pp224; £10.99)
By summer 2007, the American banking policy of lending to house buyers with fragile repaying prospects caught up with itself, leaving American banks with up to $400 billion in lending commitments. Morris predicts that over the next two years, these billions of dollars will be reset, raising defaults and perhaps causing up to two million people to lose their homes.
Morris’ book is a fascinating history of America’s place in the emergence of the global economy and, in turn, of its current dire straits. As a former banker, he has a tendency to occasionally whiz through acronyms and terminology in his eagerness to show us what he knows. Generally, however, he takes the time to define and explain key aspects of the financial system in layman’s terms. For a book that is part history, part exposé, The Trillion Dollar Meltdown is ideal, though it may be helpful to take notes.
Robert Shiller, The Subprime Solution (Princeton University Press 2008; ISBN: 0691139296; pp208; £9.95)
Shiller’s book focuses on the American housing crisis as the spark for the global credit crunch. Shiller, an American economics professor specialising in the volatility of markets, proposes short-term fixes and long-term reformist “solutions”. (He cites microlending to small businesses in the third world by Muhammad Yunus and the Grameen Bank as an example of his proposed “financial democracy”.)
Shiller’s book, though it has a narrow and American-centric focus that may not be for all readers, is excellent. He describes the housing crisis clearly and without condescension, and while his goal of democratising finance is lofty, reading about it filled me with a sense of hope for tomorrow despite the crisis we face today.
Graham Turner, The Credit Crunch (Pluto Press, 2008; ISBN 9780745328102; pp240; £14.99)
Turner, a UK economic consultant, attributes the credit crunch to several factors: falling wages, globalisation and the drive to cut labour costs, and the UK and US’ “addiction to debt.” UK borrowing, for example, has risen by 167% since New Labour came to power in 1997. Market regulation in these circumstances was lax not only because it suited financiers in the private sector, but also because it suited politicians’ agenda: to foster strong economic growth in the short term.
Turner argues that the real problem with the credit crunch is falling house prices, and that the objective for government is to fight potentially rapidly rising homelessness. The solution, he contends, is quantitative easing: a situation in which central banks buy government bonds to drive yields down. Quantitative easing, if done correctly, would push mortgage rates lower and prevent rampant forclosure.
Turner’s book would make a very good introductory textbook; in fact, reading it is like taking an economics class. His is an expansive and widespread analysis, looking at the global financial crisis from all angles. But as a text for public consumption, it can be overpowering.
George Soros, The New Paradigm for Financial Markets (PublicAffairs, 2008; ISBN: 9781586486839; pp208)
The current paradigm is the idea that financial markets tend towards equilibrium, or that it naturally balances itself out. This caused the political concept of “market fundamentalism,” or the belief that the market has the answers. Soros believes that this year’s credit crunch is a bust of a “superboom” that had lasted for over twenty-five years.
Personally, I cannot recommend this book highly enough: it encompasses both economics and philosophy in a way that made me passionate about the subject. Soros argues that it was not just the market, but the way we think about the market that caused the credit crunch.