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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:  72 reviews
Sales Rank: 573
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:
 Disappointed... the credit mess is a timely topic but Morris blew it May 2, 2008
13 out of 27 found this review helpful
Morris does a very good job of explaining our nation's complex credit mess. Taking a complex topic and making it understandable is the first step towards figuring out a solution. Yet, solutions are where Morris falls short. He advocates a return to regulation by the federal government and rails against "Chicago School" market economics that he believes allowed the credit crisis.
Can you imagine, really and for real, the federal government having the competence to regulate CDOs, swaps and over-the-counter derivatives? Why is such bizarre faith placed in the federal government every time our society confronts a really serious problem? Isn't the evidence of federal incompetence so overwhelming that it is axiomatic that the feds are the least qualified to solve such problems? I can't name one single problem the federal government has permanently solved.
As an alternative to political meddling and inevitable heavy-handed regulation, why not just let the greedy entities that engage in such risky behavior take the losses? Morris seems to believe that there would be no return from a financial meltdown so the feds must get involved. Oh, please! Our country has endured panics, depressions and meltdowns before.
In concluding the book, Morris does offer one very good suggestion: He suggests that many credit instruments be traded like futures contracts where contracts are settled at the end of every trading day and where the exchange is the ultimate guarantor of the contract. Such a measure, if implemented, would ensure that losses could not be concealed indefinitely and would not accrue to threaten the entire financial system.
 "Mother of All Crashes"? April 5, 2008
12 out of 20 found this review helpful
I was impressed with all the information in the book . . . many times bordering on amazement. "Synthetic CDOs" . . . OMG! But I don't understand what the author is stating on page 105, "Over the next year or so there will be no soothing fountains of new dollars coming out of Washington." Am I wrong, or was the Bear Stearns/JP Morgan and UBS bailout not equivalent to a "fountain of cash"? And if so . . . does that change "the mother of all crashes" into the mother of all inflation? I really enjoyed Morris' work, but I wish the author would clarify what he meant by "effectively taking the Fed off the Board" on page 105.
If anybody has an answer, please contact me at totallyjunkmail@hotmail.com
 Excellent analysis of the current situation July 8, 2008
9 out of 10 found this review helpful
This is the best book on global finance I have ever read. At first, the title of the book turned me off as it seemed like a marketing driven exaggeration. But, the author defines this potential $1 trillion meltdown in well supported details. On page 130, a table outlines where this estimated trillion dollar loss comes from. About $450 billion will come from the Subprime crisis that has monopolized the headlines. But, he anticipates another $345 billion will come from corporate debt (junk bonds and leveraged loans). The remainder will come from commercial real estate MBS and credit cards securitization. He estimates only 1/3 of the meltdown will come from direct credit losses (defaults). The other 2/3 will come from drop in market values of securities because of rising credit spreads as the credit risk will have materialized in the same asset category.
The author explains with clarity the cryptic language of modern finance including its incomprehensible acronyms (in addition to CMOs, I am thinking of SIVs, ABCPs, SVs, etc...). Not only has he defined all those terms; but, he explains the purpose of those instruments and their risk ramification.
He outlines the circular cash flows of global finance. The U.S. off-shores manufacturing to China. As a result, the U.S. runs large trade deficits. China's central bank accumulates over $1.2 trillion in dollar reserves. Similar trading and $ reserve accumulation patterns occur in Japan, Russia, and Saudi Arabia. In the past, those exporting countries were happy to reinvest their $ reserves into US Treasuries. That's the savings glut that allowed the US economy to keep trucking thanks to low long term rates. But, the author thinks this party is over because those exporting nations are tired of investing their dollars in US Treasuries that steadily depreciate due to the decline of the dollar. Now, those countries are diverting their dollar reserves to Sovereign Funds that are diversifying investments into US equities including large positions in major American banks, investment banks, and private equity funds. This has material implication for the dollar, the future path of long term interest rates, US GDP growth, and the control the US financial sector. But, the author may have overlooked some positive implications as those Sovereign Fund investments should lower the cost of equity capital and boost the equity cushion within our financial system to withstand greater default losses associated with the $1 trillion meltdown.
The author explains why the whole financial system is vulnerable. He talks of an inverted pyramid when considering that total financial instruments outstanding stand now at 4 times global GDP (vs only 1 x just a few decades ago). Additionally, derivatives stand at 10 x GDP. He looks at those multiple as a form of leveraging our world economy with interconnected financial claims. The financial system relies on its ability to create tranches of securities with unprecedented level of risk (like the equity tranches in MBS that absorb most of the default). The Hedge Funds are the main buyers of those maximum risk tranches. The author explains that such tranches in essence leverage the risk sometimes up to 20 times what the risk on an overall portfolio would be. But, the hedge fund itself is leveraged 5 times resulting on a risk leverage of 100 to 1 on those tranches. In other words, he states that many hedge funds could be wiped out if an MBS portfolio could incur defaults of just 1%. And, the same is true with similar financially engineered structures with commercial real estate, corporate debt, and credit card securitization.
I hope the author has overlooked the discount or hair cut hedge funds take on their risky investments. He mentions in the book that those discounts are as high as 40%. If that is the case, the hedge funds could withstand losses of up to 3% of the overall portfolio instead of just 1%. That's a big difference. The author does mention that hedge funds do not build reserves on their balance sheet; but, hopefully he would have overlooked their potentially netting out the discount as reserves on the asset side of the balance sheet while the author was just looking at the right side where equity is. But, if the author is right (and I am wrong), we are in big trouble.
The author recalls that when Long Term Capital Management (LTCM) failed in 1998, it was resolved by its creditors. This was a $100 billion fund with a value at risk of $10 billion. The author mentions that today's value at risk within the system is 100 times that (his notorious $1 trillion meltdown), and no group of institutions is large enough to resolve such a large risk. If you want to study the related LTCM situation, I recommend the excellent When Genius Failed: The Rise and Fall of Long-Term Capital Management.
The author offers a few interesting recommendations. We should boost regulation of the financial sector. That would entail regulating hedge funds, mortgage brokers and other financial intermediaries that currently escape any safety and soundness capital requirements. He also suggests reforming health care. He does not offer a specific solution; but, he simply states that our payroll funded health care is unsustainable as it represents such a competitive disadvantage in a globalized marketplace. If you want to study similar issues but from a political science perspective, I strongly recommend The Post-American World.
It's more than a trillion... September 20, 2008
9 out of 9 found this review helpful
Couldn't have timed it better, Lehman Brothers sunk, Merill Lynch sold, AIG is on the brink of disaster - these are household names for many of us! Charles Morris offers a great primer on the current crisis, and the underlying causes. The book starts off well back, in the early 60's, and walks the reader through the economic downturns, recoveries, and their underlying causes - hinting at the fact that the current crisis is anything but a new occurrence.
The author also spends a good amount of time on the financial instruments that have been reinvented many times over in the last decade: CDOs, SIVs, etc. Instead of hiding behind a curtain of mathematical complexity, Charles Morris offers great explanations and the rationale (if you can call it that) that led us to the current crisis.
Last few chapters of the book are heavily infused with opinionated policy judgments, but other than that, this is certainly a very timely read.
Incisive, Informative, Balanced History of the Current Crisis September 27, 2008
9 out of 11 found this review helpful
Buzz Aldrin once told me that the secret to success was to be in the right place at the right time. To that advice, I would add, that one must bring the right stuff to the table. The historian of this fluid and incisive analysis fulfills both criteria. Morris states that his intention is to tell the story of how we got there, "as briefy and crisply" as he can. He succeeds, brilliantly. The book seems to be the culminating work of a lifetime of preparation for solely this task - production of an unpretentious, eminently readable, accessible, closely argued and well-documented, to the chase, history of the cycles of financial markets over the past half century which have brought us to the point of possible national bankruptcy - a history of debt capitalism in its most perilous moment.
While the mechanics of banking have never held much interest for me, I found this read gripping and highly informative - at a time when we all need to become informed about the mess engulfing us.
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