November 11, 2011

nicolelee asked: Hi Anna! Could you recommend any good books about the current economic crisis? I don't know a lot about the topic and would love to learn. I'm not even familiar with what seem like basic concepts, like bonds. Maybe a general "Global Economy for Dummies" book?

I’d like to tell you how happy it makes me that you would take it upon yourself to figure out this subject. One, because it is knottily complicated, and it takes a solid mind and sheer doggedness to get to the bottom of it (and if you have both, you’re my kind of people), and two, because it is crucial to understanding the world we live in today.

I must admit, however, that whatever knowledge I have of what’s going on, it has not come from books, but from being steeped in it daily since my Bloomberg days. I did study economics back in school, but those lessons proved useless in this particular crisis. In case it wasn’t clear, we’re all witnessing History unfold in a very complex mix of politics, finance, and economics.

I don’t believe any one book will give you a complete overview of what’s going on, but that is not to say reading won’t be valuable. For example:

  • This Time Is Different: Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth Rogoff, in which the two economists present their detailed research of historical data, giving us a perspective on what’s happening today;
  • The Big Short, by Michael Lewis, is about the few people who saw the distressed debt crisis coming, and wondered for a while whether it was them or the rest of the world who were losing their minds. It gives a fairly good account of how the real estate bubble started it all, how the financial industry used it for easy money, and how it all went to hell. It’s also a real page-turner.
  • Boomerang, still by Michael Lewis, is the compilation of his Vanity Fair articles about Iceland, Greece, Ireland, Germany, and California. It is fantastic, because it doesn’t get lost in technical details, but focuses on the cultural aspects of each place that made them vulnerable to the crisis.

For purely financial and economic terms, here’s The Economist’s dictionary, which is fairly complete. You could use it as accompaniment, because I think you’ll understand most of these when you see them repeatedly in context.

Important actors of this ongoing nightmare are Central Banks everywhere. I’ll bet you’ve heard a lot about the Federal Reserve (former head Alan Greenspan, new head Ben Bernanke), the European Central Bank (former head Jean-Claude Trichet and new head Mario Draghi), and the Bank of England (head Mervyn King). These guys have all been put between a rock and a hard place during these times of turmoil (although many say Greenspan is hugely responsible for the collapse). Their job is to promote growth without causing inflation. Many of them resorted to low interest rates and quantitative easing (a way to inject tons of cash into the real economy), with limited success. If you want to know more about their role here, I suggest you take a look at this.

One last thing I’d recommend: the Planet Money podcast on NPR. It’s free on iTunes, and well worth a listen. It was born after NPR News’ Adam Davidson and This American Life’s Alex Blumberg collaborated on the Giant Pool of Money and Another Frightening Show about the Economy episodes of TAL. They did a fantastic job of explaining it all in plain English, without dumbing any of it down.

Here’s the thing. What is going on today is so unprecedented, and the mechanisms are so new and complicated, that no real manual has been written yet. But it can be understood, I promise you that.

And since you’re in San Francisco, I’d very much enjoy sitting down with you and explaining some of this stuff in some level of detail, of course! However you get there, I’m glad you’re doing this.

— From SF.

  1. whileyouweresleeping posted this
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