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| The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash | 
 enlarge | Author: Charles R. Morris
Publisher: PublicAffairs
Category: Book
List Price: $22.95
Buy New: $10.95
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Avg. Customer Rating:  60 reviews
Sales Rank: 174
Media: Hardcover
Number Of Items: 1
Pages: 224
Shipping Weight (lbs): 0.8
Dimensions (in): 8.3 x 5.8 x 0.9
ISBN: 1586485636
Dewey Decimal Number: 332.04150973
EAN: 9781586485634
ASIN: 1586485636
Publication Date: March 3, 2008
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| Customer Reviews:
Morris finally gets it right-speculation leads to economic downturns March 30, 2008
23 out of 28 found this review helpful
Morris has done an excellent job in this book in explaining to the average citizen why allowing banks to make loans to speculators to leverage their debt positions in the financial markets ,or if banks themselves engage in speculative behavior, will eventually lead to some sort of economic downturn.Morris provides a modern history of the last 40 years detailing how the regulatory apparatus set up to deal with the speculative causes of the Great Depression(balloon payment financing of real estate in the mid to late 1920's and margin account financing of stock market purchases in the same period),haphazardly based on the ancient wisdom of John Maynard Keynes(General Theory,1936,chapter 12;pp.321-327,338-353;371-377) and Adam Smith(The Wealth of Nations,1776,pp.280-340,especially Smith's summary on pp.339-340 demonstrating that no loans are ever to be provided by commercial banks to speculators(projectors),prodigals,and imprudent risk takers) has been systematically dismantled since 1979 by the Carter,Reagan,Bush I,Clinton,and Bush II administrations.Morris himself is only vaguely aware of this ancient wisdom, as he himself was a promoter-supporter of Reagan-Bush I policy changes that led to the speculative excesses of the 1980's resulting in the recession of 1990-91.Similarly,the speculation of the 1993-1999 years lead to the recession of 2000-2001.We are currently witnessing the speculation of the 2003-2006 period leading to the recession of 2008-?.
Morris's book is worth buying.It may wake Americans up to the possibility that the switch from guaranteed pensions to IRA accounts based on stock market portfolios may be just a giant Ponzi scheme.
Illuminating March 28, 2008
22 out of 26 found this review helpful
This is the best explanation of the credit crunch that I have seen to date. Most writers on this subject try to "simplify" their descriptions of CDOs, SIVs etc. in the mistaken belief that they are helping the reader. Instead all that happens is that the average reader never gets to understand what's really going on.
Morris explains the nitty gritty of these financial instruments in good, clear English and that in itself makes the book worth the price.
I would have given this book 5 stars, but for the last chapter. I was hoping for Morris' input on how (and when) this crisis will pan out, and what businees model banks will adopt now that the present one is so broken. Unfortunately Morris gets diverted into a diatribe on health care and other interesting but irrelevant matters, and we never really find out much about his vision of the new world post 2008. That's a shame - but read the book anyway if you want to really understand what's going on in the world of finance today.
 Interesting, and Greatly Helps Understand Today's Market Problems! April 9, 2008
20 out of 25 found this review helpful
Not long ago stocks, bonds, loans, and mortgages together approximated global GNP. Now they total about 4X GDP, and financial derivatives exceed 10X GDP.
Subprime is just the first of an avalanche of asset write-downs that 2008 will bring - corporate debt, commercial mortgages, and credit card debacles will follow. Even municipal bonds may be at risk. Morris attributes our current free-market cycle's birth to the Reagan years.
Restoring credibility requires purging absurd valuations, phony trip-A ratings, inflated balance sheets and hidden liabilities via increased regulation. (By 2006 only about 25% of lending occurred in regulated sectors, vs. 80% 20 years prior. Failure to do so may exceed the forthcoming $1 trillion+ in writedowns.
Morris sees the 1960s as bringing forth a rise in business and government incompetence. The former over-emphasized mergers to smooth earnings, instead of increasing market share and lowering cost structures to reduce vulnerability to foreign competition; the latter was led by LBJs "guns AND butter," and Nixon's floating the dollar away from gold, providing impetus for a rapid oil price rise, price controls, and double-digit inflation after their removal. LBOs of the 1980s helped improve productivity through unwinding these conglomerates.
The current surge in venture investing has its roots in a 1973 law requiring companies to set aside money to fund pension promises and the 1979 easing of regulations that limited where they were used - not the 1978 cut in the capital gains tax (were exempt anyway). Morris also believes that OPECs collapse in the 1980s was not due to Reagan's ending price controls on oil, as some claim - rather, Arabs pouring money into Iraq (vs. Iran) and seven years of world energy improvements.
Clinton's deficit-cutting tax increase had little impact on long-term interest rates (and resulting business investment); the real economic impact came from a "riotous" stock market and an associated upsurge in taxes. Business also improved, adopting Japanese management practices and distributed contributing. As for LTCM, the real scandal was that a small group was able to borrow so much ($100 billion) on so little capital ($1 billion) for such poorly understood purposes. Taxpayer monies were not used for the bailout - instead banks that had profited from its trading were called upon by the Federal Reserve.
Contributors to the Mortgage Meltdown Mess: Fragmentation of the loan industry (national sources, selling off groups of mortgages and tuition loans) have broken down the role of trust in local relationships and encouraged pushing high-priced deals. Investors, in turn, were "insured" by others with "fail-safe" insurance policies based on historic patterns that failed to incorporate hidden risks associated with inter-correlations. At the same time, banks had plenty of access to "free" money post 9/11 - the Fed charged rates less than the rate of inflation. Finally, housing prices are strongly influenced by interest rates (highly leveraged), ARMs were sold on the anticipation of even lower interest rates, processes were sped up through computer scoring and reduced documentation requirements, purchases of second-homes received even less scrutiny, and hedge funds (100:1) leverage became big buyers of repackaged loans.
Then the loans were artfully (and easily) partitioned according to risk tranches, decreasing the importance of loan quality for investors and opening the doors for including the sub-prime market.
Similar strategies have been employed in corporate lending and municipals.
Unfortunately, the subsequent meltdown in housing prices is much more correlated to consumer spending than declines in the stock market. Consumer spending rose from 67% of GDP in the 1990s to 72% in 2007, largely financed by rising housing values. It now must decline.
Finally, Morris is also concerned with rising financial inequality (top 1% share of national cash income went from 9 to 19% between 1980 and 2005; the top one-hundredth of 1% went from .95 to 3.6%.) Rising health care costs, deteriorating infrastructure, and Federal Reserve encouraged moral risk (bailing out large financial institutions) are also briefly covered.
 Interesting Book But Too Pessimistic March 27, 2008
18 out of 47 found this review helpful
I enjoyed this book. It's a quick read and does a good job of explaining some of the blowups of the past, CMOs, market crash of 1987, LTCM etc. but the author takes a doom and gloom view that sub-prime and derivative losses are likely to be twice what others are projecting. He also seems a bit self absorbed with a "I told you so" attitude when in reality neither he nor anyone else knew of the size of the day present collapse and still don't. It's a decent book. Not great.
Funny, the author used to think quite differently.... March 25, 2008
16 out of 46 found this review helpful
In one of his previous books, "The Coming Global Boom," Mr. Morris led the "everybody's gonna get rich" charge. That charge led to the stampede of people lining their pockets and has brought us directly to the crisis he discusses here. I'm simplifying, of course, but really, Mr. Morris: don't say "I told you so" when you were saying "c'mon, everybody!" not too long ago.
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