Book Review: Panic Edited By Michael Lewis

A Collection of Articles on the Story of Modern Financial Insanity

Mar 3, 2009

Michael Lewis, best-selling author of Liar's Poker, has picked a collection of articles by various authors on modern financial crises starting with Black Monday in 1987.

The author states "There's a simple idea behind this anthology: to re-create the more recent financial panics, in an attempt to show how financial markets now operate." The book is structured into four parts with each part containing a selection of original articles by various authors focused on a financial crisis. Those authors include some famous names such as Robert Shiller, Paul Krugman and Joseph Stiglitz. The selection also includes some articles by the author as well as his introduction to each section.

Modern Financial Crises

Modern Financial Insanity

The Stock Market crash of 1987 is discussed in various articles that probe the reasons for the crash such as automated trading systems and includes part of the Brady Commission Report. Whilst various parties are blamed for the crash it depended on who was asked as to who was blamed, in short no conclusive and undisputed explanation was offered for the crash. What was clear was that the financial crisis had limited impact on the wider global economy.

A second set of articles review the Asian crisis started with the actions by Thailand's government who were responding to market events and in particular the currency speculators. The events in the region have a domino effect and other Asian nations are impacted in very real economic terms. The IMF lent funds in return for economic reform, eliminating or at least reducing crony capitalism and maintaining high interest rates to support their currencies. The result for most of the region was economically dire. The surprise event for the markets was the Russian default and subsequent collapse of Long Term Credit.

Articles chart the rise of the technology bubble with rising stars like Netscape and their IPO [Initial Public Offering of shares]. The crowd madness of bidding up shares of Books-A-Million because of an improved web site or the approach to securing Wall Street funding by Healtheon. The articles go on to explore the spending excesses. The turning point of the bubble is credited to a Barron's article that described how quickly current internet companies would burn through their cash Burning Up.

The final set of articles describes the subprime crisis and the excesses in places like Florida by charting the rise of the real estate bubble and lax lending standards. In the process the role of securitised debt is also discussed along with complementary elements such as rating agencies and firms like Bear Stearns.

Panic

Whist the articles are interesting and varied they inevitably feel disjointed and the author makes no significant attempt to synthesise the various insights or the lessons learnt. Consequently, if you wish to read a selection of contemporary articles along with sometimes later analysis then this is a nice anthology. If you wish to see a modern investigation, analysis and review with lessons learnt then the book has more limited appeal.

Panic: The Story of Modern Financial Insanity edited by Michael Lewis. Penguin Books 2008. ISBN: 978-0-141-04231-2

The copyright of the article Book Review: Panic Edited By Michael Lewis in Business Books is owned by Roger Lever. Permission to republish Book Review: Panic Edited By Michael Lewis in print or online must be granted by the author in writing.