“The obvious place to start is the financial crisis and the clearest guide to it that I’ve read is Financial Shock by Mark Zandi…it is an impressively lucid guide to the big issues.” –The New York Times “In Financial Shock, Mr. Zandi provides a concise and lucid account of the economic, political and regulatory forces behind this binge.” –The Wall Street Journal “Aggressive builders, greedy lenders, optimistic home buyers: Zandi succinctly dissects the mortgage mess from start to (one hopes) finish.” –U.S. News and World Report “A more detailed look at the crisis comes from economist Mark Zandi, co-founder of Moody’s Economy.com. His “Financial Shock” delves deeply into the history of the mortgage market, the bad loans, the globalization of trashy subprime paper and how homebuilders ran amok. Zandi’s analysis is eye-opening…he paints an impressive, more nuanced picture.” –Kiplinger’s Personal Finance Magazine “If you wonder how it could be possible for a subprime mortgage loan to bring the global financial system and the U.S. economy to its knees, you should read this book. No one is better qualified to provide this insight and advice than Mark Zandi.” –Larry Kudlow, Host, CNBC’s Kudlow & Company “Every once in a while a book comes along that’s so important, it commands recognition. This is one of them. Zandi provides a rilliant blow-by-blow account of how greed, stupidity, and recklessness brought the first major economic crises of the 21st entury and the most serious since the Great Depression.” –Bernard Baumohl,Managing Director, The Economic Outlook Group and best-selling author, The Secrets of Economic Indicators “Throughout the financial crisis Mark Zandi has played two important roles. He has insightfully analyzed its causes and thoughtfully recommended steps to alleviate it. This book continues those tasks and adds a third–providing a comprehensive and comprehensible explanation of the issues that is accessible to the general public and extremely useful to those who specialize in the area.” –Barney Frank, Chairman, House Financial Services Committee The subprime crisis created a gigantic financial catastrophe. What happened? How did it happen? How can we prevent similar crises from happening again? Mark Zandi answers all these critical questions–systematically, carefully, and in plain English. Zandi begins with a fast-paced overview and then illuminates the deepest causes, from the psychology of homeownership to Alan Greenspan’s missteps. You’ll see the home “flippers” at work and the real estate agents who cheered them on. You’ll learn how Internet technology and access to global capital transformed the mortgage industry, helping irresponsible lenders drive out good ones. Zandi demystifies the complex financial engineering that enabled lenders to hide deepening risks, shows how global investors eagerly bought in, and explains how flummoxed regulators failed to prevent disaster, despite crucial warning signs. Most important, Zandi offers indispensable advice for investors who must recognize emerging bubbles, policymakers who must improve oversight, and citizens who must survive whatever comes next. *Liar’s loans, flippers, predatory lenders, delusional homebuilders How the housing market came unhinged, and the whirlwind came together*Alan Greenspan’s trillion-dollar bet Betting on the boom, ignoring the bubble*The subprime market goes global Worldwide investors get a piece of the action–and reap the results*Wall Street’s alchemists: conjuring up Frankenstein New financial instruments and their hidden contents*Back to the future: risk management for the 21st century Respecting the “animal spirits” that drive even the most sophisticated markets
User Ratings and Reviews
4 Stars Excellent overview of the Mortgage Meltdown
If only these charts and graphs were available to us all when the mortgage bubble was growing. It is very intense to view this information to see what has contributed greatly to the demise of our financial sector. The warning signs were all there and ignored. With bailouts coming, what will happen next for those who received the ‘hard money’ loans? It would be interesting to me to see a sequel to this book. It is yet timely to understand where we still are and a must read for anyone in, getting into or thinking of going into finance. Also, this is for anyone who is wanting to think responsibly and to be informed so he or she can help others help our nation avoid another crisis.
4 Stars An Early Look and a Lasting Problem
I work for a large financial services company in the mid-west and while I’m on the IT side of the business, I know for a period of time we held a mortgage company as a subsidiary and as part of our investment portfolio, we lend big money and we buy huge properties as investments. So, the topic of Mark Zandi’s Financial Shock: A 360? Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis interested me. Zandi works for Moodys (was co-founder of one of its subs, Economy.com) and Moody’s ranks pretty high in visibility where I work so again, it felt like this would be a topic I should know more about.
Other reviewers say this is a good educational perspective on the problem, and on the times and events that led to the credit problem – sub primes – lending money to people who have less than good credit. But it’s also about lending too much to people (and companies) who could never pay it all back. I’m one of those people that watched time after time, during this past decade, even in the small city where I live, new store after new store would pop up that held no long-term promise of success (in my opinion) and each time, out loud I would yell to my family as we drove past, “WHY!?! Who would put money up for that? That place will not last a year,” I told my family. And sadly, time after time, I was right. I saw huge houses filling new subdivisions near my small town where there are no where near that many top paying jobs to allow people to afford them, “so how are people doing this,” I would call out. These would require more than double incomes to afford and in many cases would require double incomes each well into the six figures if they would ever hope to pay them off. But I guess, the thought of paying them off was many times not there. It was a live now, and then dump this thing later, mentality. But dump in on who? In the end, the banks get stuck with them and take the loss. As credit (including credit cards) was so easy to get, lower and mid-income families soon learned that the nice things, really nice things like big cars and SUVs and large screen TVs and cable TV bills of $100+ or more per month, cell phone plans and Internet fees at another $100+ per month, etc., it was all within reach. I could see this too as I drove through the cities where there was no way all those people could afford what they lived in or what was parked in the garage or the toys they played with – but the credit debt piped up and up until it all caved in.
I thought the problem was small though, and not until 2008 looking back at mid-2007, did we learn that the problem was much bigger and wide spread. It was not just people in their houses and with their toys that were the problem.
This is what Zandi’s book deals with – at the global and national level and individual levels. And, with charts and history and credible commentary, the data is all there, and the way it is written does not require a PhD to understand it. “Why did this happen?” might not be as important as how do we prevent events like this from happening again? How do we watch for signs and what do we watch for? Does this really require more regulation? With today’s deteriorating social culture (my opinion), will events like this just be the “norm”?, are what I question. Mr Zandi also talks to these points.
In his last chapter, “Back to the Future,” Zandi provides a few points (recommended policies) for us as a nation and people and society to adopt, but since that all won’t happen soon… he goes further and talks to us as individually what we must prepare for and consider.
So why not 5 stars on my rating? This is a hard topic to read though if you are learning the issues and the names and the components that make up the problem at the same time. If you know much of that, then you can read this quickly and you’ll enjoy it. He makes it as easy as it can be, but you’ll want to really want to know this to make your way through the material.
4 Stars Bubble is in the eye of the beholder
Mark Zandi leads of with the main ingredient for our economic disaster, subprime shock, and from there he moves out in a methodical way to bring into focus all the other economic factors that were necessary for the bust to occur. He identifies the bubble in US housing by writing: “On July 4, 2003 the day I’ve identified as the start of the housing bubble, the price-to-rent ratio was 18.5. This compares with an average over the past quarter century of 16.5, and a low of 12.5 during the mid-1980′s.” Using only 25 years as a baseline understates the size of the bubble. In Seattle, from 1976 to 1981, I was able to buy new condominiums at an average 7.45 price-to-rent ratio (based on data contained in my book: How to Invest in Condominiums). These condos when rented yielded an immediate positive cash flow. In 1986 I purchased my last investment condo with a 14.2 price-to-rent ratio. It had a negative cash flow. The bubble had started for conservative investors. This longer term perspective suggests that the bubble is far from being fully collapsed and the bottom of the real estate market is nowhere insight yet despite trillion dollar stimulus efforts by the government.
All of Mr. Zandi’s 10 Policy Steps if implemented, you would think, should at least reduce the severity of the next inevitable crash.
5 Stars Outstanding Read
I’ve been voraciously reading economic and financial books over the last few months, as many other have. We all want to know what went wrong, when it went wrong, how we’re going to get through it and when it will end.
Financial Shock does a great job explaining the how, why, who and where. How did the subprime collapse implode our entire financial system? In an interesting and easy to read format, Zandi explains the recurrent system of financial panics that occur every ten years or so. He explains that the fix to this one will be with heavy government debt.
This is a riveting book, and is a must-read. Everyone needs to know what happened so we can learn not to repeat this series of mistakes again.
Other great books I recommend include:
Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas Woods – which has similar background information, but gives another fascinating look at where we are and where we need to go. Riveting read.
How to Sell Your Home in Any Market: 6 Reasons Why Your Home Isn’t Selling… and What You Can Do to Fix Them by Loren Keim is the one book that outlines more than just home marketing and staging to get rid of your property in this housing collapse, but explains the process of short sales and steps you through negotiating with the bank if necessary. Great stories in this book.
2 Stars Lame Explanation from a Barney Frank Democrat
I read this book because it got a plug from a columnist I respect in a free market publication, but after I took a look a the cover & saw a “thumbs up” from no less a Democrat VIP as Barney Frank, I began to wonder why I was bothering.
The book has many good explanations on why there was so much cheap money circulating in the US during the 2000 to 2008 period, but makes almost no mention at all on the critical role that Democratic Party influence in the US had on the creation of the sub-prime market, via the CRA and its off balance sheet twin monsters of Fannie Mae & Freddie Mac.
Zandi also doesn’t go into any depth explaining why his employer, the rating agency Moody’s, gave Lehman Bros, Bear Stearns, Fan/Fred, et. al., AAA ratings right up to the day they went broke. Bandi has some ‘splainin to do but, in his world, it’s all due to the GOP and its anti-regulatory zeal. The Democrats were doing everything humanly possible to avoid all of this, if only they were allowed by the feckless Republicans.
Zandi is just a Democrat shill and I wouldn’t waste your time reading his screed.
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