The Trillion Dollar Meltdown

The Trillion Dollar Meltdown
Author: Charles R Morris 2008 169 pp
My rating: 4*
Started December 18 2008, Finished December 22 2008.

A concise and convincing explanation of the credit crisis that precipitated our current economic woes and a good primer on things like CMOs and CDOs. This book which blames the crisis on deregulation and prolonged easy credit gets points for prescience as it was written in November of 2007, well before the shocks of September 2008 when the extent of the financial rot became apparent to most of us. Note on the severity of the crisis: the author has written a new edition scheduled to be published in February of 2009; that edition is going to be entitled The Two Trillion Dollar Meltdown.

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“ … relative values funds ‘eat like chickens, shit like elephants.” (50)

“The relentless deregulation drive that started during the Reagan administration steadily shifted lending activities to the purview of nonregulated entities, until by 2006, only about a quarter of all lending occurred in regulated sectors, down from about 80 percent twenty years before.” (54)

William McChesney Martin, Chairman of the Federal Reserve for eighteen years from Truman through Nixon, “The function of the Federal Reserve is to take away the punch bowl just as the party is getting good.” (62)

“Refis jumped from $14 billion in 1995 to nearly a quarter-trillion in 2005, the great majority of them resulting in higher loan amounts. (67)

Suprime lending jumped from an annual volume of $145 billion in 2001 to $624 billion in 2005, more than 20 percent of total issuances. More than a third of subprime loans were for 100 percent of the home value -- even more when the fees were added in. (69)

The notional value of credit default swaps -- that is the size of portfolios covered by credit default agreements -- grew from $1 trillion in 2001 to $45 trillion by mid-2007. (75)

Almost all the top one-tenth’s share gains, in other words went to the top 1 percent, or the top ‘centile’ who doubled their share of the national cash income from 9 percent to 19 percent. (140)

It is the transparency and integrity of American financial markets that has made them such a magnet for foreign investment … (161)