2008 financial crisis reading list

Books

The Financial Crisis Inquiry Report

Ben Bernanke, Hank Paulson, and Timothy Geithner, Firefighting and First Responders

Alan Binder, After the Music Stopped

Alan Binder, Andrew Lo, and Robert M. Solow, Rethinking the Financial Crisis

Jeffrey Friedman and Wladimir Kraus, Engineering the Financial Crisis

Michael Lewis, The Big Short

Bethany Mclean and Joe Nocera, All the Devils Are Here

Gretchen Morgenson, Reckless Endangerment

Andrew Ross Sorkin, Too Big to Fail

Adam Tooze, Crashed

Martin Wolf, The Shifts and the Shocks

Essays

Martin Neil Baily, Matthew S. Johnson, and Robert E. Litan, “The Origins of the Financial Crisis” (Brookings)

Perry Anderson, “Situationism à L’envers?” (review of Tooze’s Crashed), New Left Review

Films and Videos

The Big Short, directed by Adam McKay

Panic, HBO’s Vice

Crisis on Wall Street, CNBC

YouTube: “The Crisis of Credit Visualized” (by graphixmdp), “The 2008 Financial Crisis” (by CrashCourse), “Crises of Capitalism” (RSA animation of David Harvey lecture), “The Root Cause of the Financial Crisis: The CDO” (by Paddy Hirsch), “The Financial Crisis: A Decade of Debt” (by Financial Times)

Crisis on Wall Street Extended Cut interviews: Jamie Dimon, Warren Buffett, Hank Paulson, Timothy Geithner

Radio and Podcasts

“The Giant Pool of Money,” This American Life

The extreme brevity of financial memory

From the second chapter of John Kenneth Galbraith’s A Short History of Financial Euphoria (1990):

Contributing to and supporting this euphoria are two further factors little noticed in our time or in past times. The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

The second factor contributing to speculative euphoria and programmed collapse is the specious association of money and intelligence. Mention of this is not a formula for eliciting reputable applause, but, alas, it must be accepted, for acceptance is also highly useful, a major protection against personal or institutional disaster.

The basic situation is wonderfully clear. In all free-enterprise (once called capitalist) attitudes there is a strong tendency to believe that the more money, either as income or assets, of which an individual is possessed or with which he is associated, the deeper and more compelling his economic and social perception, the more astute and penetrating his mental processes. Money is the measure of capitalist achievement. The more money, the greater the achievement and the intelligence that supports it.

Further, in a world where for many the acquisition of money is difficult and the resulting sums palpably insufficient, the possession of it in large amount seems a miracle. Accordingly, possession must be associated with some special genius. This view is then reinforced by the air of self-confidence and self-approval that is commonly assumed by the affluent.

Facts which there can be no mistaking

How disorienting to read the opening of Henry George’s Progress and Poverty (1879), apparently the best selling book of late nineteenth-century America after the Bible, as if it weren’t written today:

The present century has been marked by a prodigious increase in wealth-producing power. The utilization of steam and electricity, the introduction of improved processes and labor-saving machinery, the greater subdivision and grander scale of production, the wonderful facilitation of exchanges, have multiplied enormously the effectiveness of labor.

At the beginning of this marvelous era it was natural to expect, and it was expected, that labor-saving inventions would lighten the toil and improve the condition of the laborer; that the enormous increase in the power of producing wealth would make real poverty a thing of the past. Could a man of the last century—a Franklin or a Priestley—have seen, in a vision of the future, the steamship taking the place of the sailing vessel, the railroad train of the wagon, the reaping machine of the scythe, the threshing machine of the flail; could he have heard the throb of the engines that in obedience to human will, and for the satisfaction of human desire, exert a power greater than that of all the men and all the beasts of burden of the earth combined; could he have seen the forest tree transformed into finished lumber—into doors, sashes, blinds, boxes or barrels, with hardly the touch of a human hand; the great workshops where boots and shoes are turned out by the case with less labor than the old-fashioned cobbler could have put on a sole; the factories where, under the eye of a girl, cotton becomes cloth faster than hundreds of stalwart weavers could have turned it out with their handlooms; could he have seen steam hammers shaping mammoth shafts and mighty anchors, and delicate machinery making tiny watches; the diamond drill cutting through the heart of the rocks, and coal oil sparing the whale; could he have realized the enormous saving of labor resulting from improved facilities of exchange and communication—sheep killed in Australia eaten fresh in England, and the order given by the London banker in the afternoon executed in San Francisco in the morning of the same day; could he have conceived of the hundred thousand improvements which these only suggest, what would he have inferred as to the social condition of mankind?

It would not have seemed like an inference; further than the vision went it would have seemed as though he saw; and his heart would have leaped and his nerves would have thrilled, as one who from a height beholds just ahead of the thirst-stricken caravan the living gleam of rustling woods and the glint of laughing waters. Plainly, in the sight of the imagination, he would have beheld these new forces elevating society from its very foundations, lifting the very poorest above the possibility of want, exempting the very lowest from anxiety for the material needs of life; he would have seen these slaves of the lamp of knowledge taking on themselves the traditional curse, these muscles of iron and sinews of steel making the poorest laborer’s life a holiday, in which every high quality and noble impulse could have scope to grow.

And out of these bounteous material conditions he would have seen arising, as necessary sequences, moral conditions realizing the golden age of which mankind have always dreamed. Youth no longer stunted and starved; age no longer harried by avarice; the child at play with the tiger; the man with the muck-rake drinking in the glory of the stars! Foul things fled, fierce things tame; discord turned to harmony! For how could there be greed where all had enough? How could the vice, the crime, the ignorance, the brutality, that spring from poverty and the fear of poverty, exist where poverty had vanished? Who should crouch where all were freemen; who oppress where all were peers?

More or less vague or clear, these have been the hopes, these the dreams born of the improvements which give this wonderful century its preëminence. They have sunk so deeply into the popular mind as radically to change the currents of thought, to recast creeds and displace the most fundamental conceptions. The haunting visions of higher possibilities have not merely gathered splendor and vividness, but their direction has changed—instead of seeing behind the faint tinges of an expiring sunset, all the glory of the daybreak has decked the skies before.

It is true that disappointment has followed disappointment, and that discovery upon discovery, and invention after invention, have neither lessened the toil of those who most need respite, nor brought plenty to the poor. But there have been so many things to which it seemed this failure could be laid, that up to our time the new faith has hardly weakened. We have better appreciated the difficulties to be overcome; but not the less trusted that the tendency of the times was to overcome them.

Now, however, we are coming into collision with facts which there can be no mistaking. From all parts of the civilized world come complaints of industrial depression; of labor condemned to involuntary idleness; of capital massed and wasting; of pecuniary distress among business men; of want and suffering and anxiety among the working classes. All the dull, deadening pain, all the keen, maddening anguish, that to great masses of men are involved in the words “hard times,” afflict the world to-day. This state of things, common to communities differing so widely in situation, in political institutions, in fiscal and financial systems, in density of population and in social organization, can hardly be accounted for by local causes. There is distress where large standing armies are maintained, but there is also distress where the standing armies are nominal; there is distress where protective tariffs stupidly and wastefully hamper trade, but there is also distress where trade is nearly free; there is distress where autocratic government yet prevails, but there is also distress where political power is wholly in the hands of the people; in countries where paper is money, and in countries where gold and silver are the only currency. Evidently, beneath all such things as these, we must infer a common cause.

That there is a common cause, and that it is either what we call material progress or something closely connected with material progress, becomes more than an inference when it is noted that the phenomena we class together and speak of as industrial depression are but intensifications of phenomena which always accompany material progress, and which show themselves more clearly and strongly as material progress goes on. Where the conditions to which material progress everywhere tends are most fully realized—that is to say, where population is densest, wealth greatest, and the machinery of production and exchange most highly developed—we find the deepest poverty, the sharpest struggle for existence, and the most of enforced idleness.

It is to the newer countries—that is, to the countries where material progress is yet in its earlier stages—that laborers emigrate in search of higher wages, and capital flows in search of higher interest. It is in the older countries—that is to say, the countries where material progress has reached later stages—that widespread destitution is found in the midst of the greatest abundance. Go into one of the new communities where Anglo-Saxon vigor is just beginning the race of progress; where the machinery of production and exchange is yet rude and inefficient; where the increment of wealth is not yet great enough to enable any class to live in ease and luxury; where the best house is but a cabin of logs or a cloth and paper shanty, and the richest man is forced to daily work—and though you will find an absence of wealth and all its concomitants, you will find no beggars. There is no luxury, but there is no destitution. No one makes an easy living, nor a very good living; but every one can make a living, and no one able and willing to work is oppressed by the fear of want.

But just as such a community realizes the conditions which all civilized communities are striving for, and advances in the scale of material progress—just as closer settlement and a more intimate connection with the rest of the world, and greater utilization of labor-saving machinery, make possible greater economies in production and exchange, and wealth in consequence increases, not merely in the aggregate, but in proportion to population—so does poverty take a darker aspect. Some get an infinitely better and easier living, but others find it hard to get a living at all. The “tramp” comes with the locomotive, and almshouses and prisons are as surely the marks of “material progress” as are costly dwellings, rich warehouses, and magnificent churches. Upon streets lighted with gas and patrolled by uniformed policemen, beggars wait for the passer-by, and in the shadow of college, and library, and museum, are gathering the more hideous Huns and fiercer Vandals of whom Macaulay prophesied.

This fact—the great fact that poverty and all its concomitants show themselves in communities just as they develop into the conditions toward which material progress tends—proves that the social difficulties existing wherever a certain stage of progress has been reached, do not arise from local circumstances, but are, in some way or another, engendered by progress itself.

And, unpleasant as it may be to admit it, it is at last becoming evident that the enormous increase in productive power which has marked the present century and is still going on with accelerating ratio, has no tendency to extirpate poverty or to lighten the burdens of those compelled to toil. It simply widens the gulf between Dives and Lazarus, and makes the struggle for existence more intense. The march of invention has clothed mankind with powers of which a century ago the boldest imagination could not have dreamed. But in factories where labor-saving machinery has reached its most wonderful development, little children are at work; wherever the new forces are anything like fully utilized, large classes are maintained by charity or live on the verge of recourse to it; amid the greatest accumulations of wealth, men die of starvation, and puny infants suckle dry breasts; while everywhere the greed of gain, the worship of wealth, shows the force of the fear of want. The promised land flies before us like the mirage. The fruits of the tree of knowledge turn as we grasp them to apples of Sodom that crumble at the touch.

It is true that wealth has been greatly increased, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share. I do not mean that the condition of the lowest class has nowhere nor in anything been improved; but that there is nowhere any improvement which can be credited to increased productive power. I mean that the tendency of what we call material progress is in nowise to improve the condition of the lowest class in the essentials of healthy, happy human life. Nay, more, that it is still further to depress the condition of the lowest class. The new forces, elevating in their nature though they be, do not act upon the social fabric from underneath, as was for a long time hoped and believed, but strike it at a point intermediate between top and bottom. It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.

This depressing effect is not generally realized, for it is not apparent where there has long existed a class just able to live. Where the lowest class barely lives, as has been the case for a long time in many parts of Europe, it is impossible for it to get any lower, for the next lowest step is out of existence, and no tendency to further depression can readily show itself. But in the progress of new settlements to the conditions of older communities it may clearly be seen that material progress does not merely fail to relieve poverty—it actually produces it. In the United States it is clear that squalor and misery, and the vices and crimes that spring from them, everywhere increase as the village grows to the city, and the march of development brings the advantages of the improved methods of production and exchange. It is in the older and richer sections of the Union that pauperism and distress among the working classes are becoming most painfully apparent. If there is less deep poverty in San Francisco than in New York, is it not because San Francisco is yet behind New York in all that both cities are striving for? When San Francisco reaches the point where New York now is, who can doubt that there will also be ragged and barefooted children on her streets?

This association of poverty with progress is the great enigma of our times. It is the central fact from which spring industrial, social, and political difficulties that perplex the world, and with which statesmanship and philanthropy and education grapple in vain. From it come the clouds that overhang the future of the most progressive and self-reliant nations. It is the riddle which the Sphinx of Fate puts to our civilization, and which not to answer is to be destroyed. So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty, is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are theoretically equal, is to stand a pyramid on its apex.

A certain tincture of socialism

A selection from William Morris’s review of Edward Bellamy’s Looking Backward, in Commonweal (1889), the opening paragraph of which might well have been written today:

We often hear it said that the signs of the spread of Socialism among English-speaking people are both abundant and striking. This is true; six or seven years ago the word Socialism was known in this country, but few even among the “educated” classes knew more about its meaning than Mr. Bradlaugh, Mr. Gladstone, or Admiral Maxse know nowi.e., nothing. Whereas at present it is fashionable for even West-end dinner-parties to affect an interest in and knowledge of it, which indicates a wide and deep public interest. This interest is more obvious in literature perhaps than in anything else, quite outside the propagandist tracts issued by definitely Socialist societies. A certain tincture of Socialism, for instance (generally very watery), is almost a necessary ingredient nowadays in a novel which aims at being at once serious and life-like, while more serious treatment of the subject at the hands of non-Socialists is common enough. In short the golden haze of self-satisfaction and content with the best of all possible societies is rolling away before the sun-heat bred of misery and aspiration, and all people above the lowest level of intelligence (which I take to be low gambling and statesmanship) are looking towards the new development, some timorously, some anxiously, some hopefully.

[…]

Mr. Bellamy’s ideas of life are curiously limited; he has no idea beyond existence in a great city; his dwelling of man in the future is Boston (U.S.A.) beautified. In one passage, indeed, he mentions villages, but with unconscious simplicity shows that they do not come into his scheme of economical equality, but are mere servants of the great centres of civilisation. This seems strange to some of us, who cannot help thinking that our experience ought to have taught us that such aggregations of population afford the worst possible form of dwelling-place, whatever the second-worst might be.

In short, a machine-life is the best which Mr. Bellamy can imagine for us on all sides; it is not to be wondered at then this his only idea of making labour tolerable is to decrease the amount of it by means of fresh and ever fresh developments of machinery. This view I know he will share with many Socialists with whom I might otherwise agree more than I can with him; but I think a word or two is due to this important side of the subject. Now surely this ideal of the great reduction of the hours of labour by the mere means of machinery is a futility. The human race has always put forth about as much energy as it could in given conditions of climate and the like, though that energy has had to struggle against the natural laziness of mankind: and the development of man’s resources, which has given him greater power over nature, has driven him also into fresh desires and fresh demands on nature, and thus made his expenditure of energy much what it was before. I believe that this will be always so, and the multiplication of machinery will just—multiply machinery; I believe that the ideal of the future does not point to the lessening of men’s energy by the reduction of labour to a minimum, but rather to the reduction of pain in labour to a minimum, so small that it will cease to be a pain; a gain to humanity which can only be dreamed of till men are even more completely equal than Mr. Bellamy’s utopia would allow them to be, but which will most assuredly come about when men are really equal in condition; although it is probable that much of our so-called “refinement,” our luxury—in short, our civilisation—will have to be sacrificed to it. In this part of his scheme, therefore, Mr. Bellamy worries himself unnecessarily in seeking (with obvious failure) some incentive to labour to replace the fear of starvation, which is at present our only one, whereas it cannot be too often repeated that the true incentive to useful and happy labour is and must be pleasure in the work itself.

The drudgery of being useful

Benjamin, from “Paris, die Hauptstadt des XIX Jahrhunderts”:

Das Interieur ist die Zufluchtsstätte der Kunst. Der Sammler ist der wahre Insasse des Interieurs. Er macht die Verklärung der Dinge zu seiner Sache. Ihm fällt die Sisyphosaufgabe zu, durch seinen Besitz an den Dingen den Warencharakter von ihnen abzustreifen. Aber er verleiht ihnen nur den Liebhaberwert statt des Gebrauchswerts. Der Sammler träumt sich nicht nur in eine ferne oder vergangene Welt, sondern zugleich in eine bessere, in der zwar die Menschen ebensowenig mit dem versehen sind, was sie brauchen, wie in der alltäglichen, aber die Dinge von der Fron frei sind, nützlich zu sein.

translated by Kevin McLaughlin:

The interior is the asylum of art. The collector is the true resident of the interior. He makes his concern the transfiguration of things. To him falls the Sisyphean task of divesting things of their commodity character by taking possession of them. But he bestows on them only connoisseur value, rather than use value. The collector dreams his way not only into a distant or bygone world but also into a better one—one in which, to be sure, human beings are no better provided with what they need than in the everyday world, but in which things are freed from the drudgery of being useful.