Five Books on the Financial Crisis: Kling's Favorites
By Arnold Kling
Most recently we were struck by this Five Books list, in which Francis Fukuyama described his nominees for the best books on the Financial Crisis. So we asked our crack book reviewer and former Freddie Mac executive Arnold Kling if he would offer his suggestions, and here they are… Only one title also appears in Fukuyama’s list.
Frankly, my favorite overview of the financial crisis is the one I wrote, Not What They Had in Mind.* But here are five other books I recommend:
1. There are many competing narratives about the causes of the crisis. My experience in the mortgage business leads me to highlight the role of capital regulations. In Engineering the Financial Crisis, Jeffrey Friedman and Wladimir Kraus take this point of view. I reviewed their book here at Econlib.
2. Most other narratives I find less convincing. But one alternative narrative that is worth considering emphasizes the role of political influence leading to a decline in mortgage lending standards. Peter Wallison’s Hidden in Plain Sight makes the strongest case in that genre.
3. Of the journalistic accounts of the crisis, my favorite is Bethany McLean and Joe Nocera, All the Devils are Here. I think that it helps to bring out two important aspects of the crisis. One aspect is the lack of awareness that many senior executives at financial firms had about the complex risks embedded in their firms’ portfolios. Another aspect is the role played by lobbying by Wall Street firms and Fannie Mae in shaping the mortgage finance system as it evolved in the decades leading up to the crisis.
4. Days of Slaughter, by Susan Wharton Gates, presents an insider’s account of the poor decision-making at Freddie Mac, one of the key firms that failed during the crisis. I reviewed her book here at Econlib as well.
5. Finally, there are the entertaining stories of investors who were able to anticipate the crisis and find ways to profit by selling short some of the exotic securities. The most well known of these is The Big Short, by Michael Lewis (the movie is also well done). But my personal favorite is The Greatest Trade Ever, by Gregory Zuckerman.
So… what are YOUR recommendations for the best books on the crisis???
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