Top Ten Books for the Financial Crisis

by Stephen Webb on February 19, 2009

Amidst the great tsunami wave of new personal finance books on the market, it may become a little overwhelming in trying to gather appropriate reading on the financial crisis. I’d like to offer up a top ten list sans self help, but with particular relevance to the financial crisis and economic downturn.

Several of the books on the list were written in direct response to the crisis. But I’ve also included a few classic staples with downright eery similarities to the current times.  Some contain a good bit of humor, some are a bit frightening, and some provide palpable suggestions on ways to improve the financial system.  Overall, they’re all good food for thought.  So whether you’re looking for new material to dazzle an audience with at the next cocktail party or just looking for a few extra stow away items in your Financial Armageddon bunker, make sure to pick these up.

10. Liar’s Poker by Michael Lewis
Although initially intended as overt criticism for Wall Street’s culture of greed, Lewis’s semi-autobiographical story of a rising bond trader at Salomon Brothers somehow evolved into the must read for young financiers embarking on their careers.  Recently, its popularity has grown outside the spheres of finance.  The book is incredibly funny and provides straightforward explanations of America’s new found obsession with leverage in the late 1980’s.  Oh, and they also peddle some really crappy mortgage bonds for a quick buck.  Sound familiar?

9. Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve by William A. Fleckenstein
Pointing the finger at the Fed for the current mess is certainly a popular one and Bill Fleckenstein has been one of the most vocal critics of the Maestro.  His argument focuses on Greenspan’s inability to properly handle rising asset bubbles and permit the markets to correct themselves naturally.  Although the book ultimately resorts to the blame game, it provides a valid argument and a good overview of how the Fed operates.

8. When Genius Failed by Roger Lowenstein
Lowenstein provides a captivating recount of the rise and fall of Long Term Capital Management.  The hedge fund’s epic demise in 1998 serves as a cautionary tale for the dangerous formula that comes from combining academic elites with hubris, a few quant models, and a little too much leverage.  Apparently ten years after the fact, most hedge fund managers failed to get the memo.

7. Den of Thieves by James B. Stewart
Another true tail of greed in the 1980’s, this book describes the grievances of junk bond kings: Michael Milken, Ivan Boevsky, Martin Siegel, and Dennis Levine.  Amidst a new era of hostile takeovers and leverage buyouts, these guys did whatever it took to make bank, the law be damned.  Stewart provides a highly detailed recount and the bad guys get it in the end.

6. The New Paradigm for Financial Market: The Credit Crisis of 2008 and What it Means by George Soros
With a mixture of philosophy and insight into the boom and bust cycles of financial markets, legendary investor Soros describes how the old belief, namely that markets move towards equilibrium, is now obsolete.  In continuing support for his theory of reflexivity, he argues that a strict reliance on mathematics and modeling is no longer applicable in attempting to predict the actions of financial markets.

5. The World is Curved by David Smick
An interesting view of how global markets played an intricate role in shaping the crisis.  Smick claims the industrialized world has surrendered control of the entire financial system to a few thousand analysts.  The result is that uncertainty is amplified and the ability to make accurate market forecasts becomes exponentially more challenging.

4. Mobs, Messiahs, and Markets by William Bonner and Lila Rajiva
Although a bit extreme in their criticisms, Bonner and Rajiva deliver an interesting and irreverent look at globalization and the perils of the herd mentality.  It certainly helps that there’s an abundance of sharp humor to boot.  If you’re an eternal optimist with a strong belief in the system, you might not enjoy this one.

3. The Return of Depression Economics and the Crisis of 2008 by Paul Krugman
In a newly updated version from his 1999 work, Krugman recounts a history of financial crashes and draws frightening parallels (particularly of 80’s Latin America and 90’s Asia) to the US Economy.

2. Fooling Some of the People All of the Time by David Einhorn
Greenlight Capital’s David Einhorn provides an intriguing recount of his famous whistle-blowing on Allied Capital over allegations of accounting and lending fraud.  This reads like a suspense novel while also providing easily understandable concepts and insight into how a hedge fund conducts its research.

1. Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently by Riccardo Rebonato
In a similar vein (but with less technical prose) than Nassim Nicholas Taleb’s The Black Swan, Rebonato analyzes the problems with current quantitative risk management practices and the value-at-risk (VAR) methodology.  The solutions he offers encompass unique ways to incorporate probability, decision theory, and a little bit of psychology.  This is a fascinating read and could be picked up by either a professional risk manager or a market novice.

Tagged as: Finance Books, Financial Crisis

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