Rashed's View

Last week’s New Yorker magazine had an article on the financial crisis. There were two themes in the article. One was a comparison of 20th Century finance to 20th Century art – Stravinsky’s The Rite of Spring to Fischer Black and Myron Scholes’s paper on “The Pricing of Options and Corporate Liabilities“. The other theme was a review of a series of pre-emptive books on the 2008 Financial Crisis. The books reviewed are:

1. Fooling Some of the People All of the Time: A Long Short Story by David Einhorn
2. Manias, Panics, and Crashes: A History of Financial Crises by Charles Kindleberger
3. The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash by Charles R. Morris
4. The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do about It by Robert Shiller

My favorite part of the article is a quote from Charles Morris:

We are accustomed to thinking of bubbles and crashes in terms of specific markets – like junk bonds, commercial real estate, and tech stocks. Overpriced assets are like poison mushrooms. You eat them, you get sick, you learn to avoid them. A credit bubble is different. Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.