History in Real Time

The last 10 days have been exciting in the financial markets. Understanding the depth and breadth of the problems created by the sub-prime mortgage mess is something that a good book on the issue would help. As a part of the Amazon Vine program I got an advance copy of a new book called Financial Shock by Mark Zandi, who is the Chief Economist of Moody's Economy.com. The book is what you might expect.

Zandi is great at explaining background on the development of the crisis. For example, the term "subprime" is a specific reference point - the level is a FICO of 620 or below. In a number of chapters Zandi has some very good descriptions of the development of the problems. Where I have a problem with the book is Zandi's suggestions about policy prescriptions. The last couple of chapters are a mish mash of ideas that I think are quite unjustified. Xandi has a greater worry than I about the globalization of commerce and the financial system. Indeed, the number of countries that hold US debt including government debt are larger than they once were. In the 1830s the Europeans held more than 20% of the stocks in our financial markets. That was not that troubling to our markets. But that is a matter of difference in opinion and Zandi is very good on explaining the facts.

As I have watched the development of the Paulsen package, I am concerned, as members of congress have been also, about the potential for doing a pig in a poke. Ultimately, all of us need to think clearly about how this situation plays out. On the side of reason, Zandi's book has an excellent summary of the housing finance market. At the same time we need some more clear headed thinking about what should happen next. I am less sanguine about the utility of Zandi's book here.