BOOK BITS FOR SATURDAY: 11.13.2010

All the Devils Are Here: The Hidden History of the Financial Crisis
By Bethany McLean and Joe Nocera
Review via Canadian Press
At its core, the story was about an intoxicating and uniquely American dream of home ownership, according to McLean and Nocera. The narrative let Federal Reserve Chairman Alan Greenspan recommend with a straight face against regulating mortgage securities and other derivatives because that would limit home ownership…Government-sponsored businesses such as Fannie Mae, Ginnie Mae and Freddie Mac could expand beyond any previous understanding of what was sustainable as long as they talked about middle-class borrowers — even if the only people who ultimately benefited were wealthy and institutional investors.


The New Lombard Street: How the Fed Became the Dealer of Last Resort
By Perry Mehrling
Excerpt via Princeton University Press
“Lender of last resort” is the classic prescription for financial crisis. “Lend freely but at a high rate” is the mantra of all central bankers, ever since the publication of Walter Bagehot’s magisterial Lombard Street: A Description of the Money Market (1873). That is what the Fed did during the first stages of the crisis, as it sold off its holdings of Treasury securities and lent out the proceeds through various extensions of its discount facility.
But then, after the collapse of Lehman Brothers and AIG, and the consequent freeze-up of money markets both domestically and internationally, the Fed did even more, shifting much of the wholesale money market onto its own balance sheet, more than doubling its size in a matter of weeks. In retrospect this move can be seen as the beginning of a new role for the Fed that I call “dealer of last resort.”
And then, once it became apparent that the emergency measures had stopped the free fall, the Fed moved to replace its temporary loans to various elements of the financial sector with permanent holdings of mortgage-backed securities, essentially loans to households. This is something completely new, not Bagehot at all—an extension of “dealer of last resort” to the private capital market.
Fed Up!: Our Fight to Save America from Washington
By Rick Perry
Review via NPR
Texas Gov. Rick Perry has just been elected to an unprecedented third term in office. And in his new book Fed Up! Perry broadcasts his belief that states should have more freedom from the federal government…Another issue Perry takes aim at is health care. Instead of forcing people to buy health insurance from a “Washington-devised program,” he says, states should be allowed to compete in creating the best programs.
As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything
By Karl Gerth
Review via Washington Monthly
As China Goes, So Goes the World has two underlying arguments. The first is that what’s happening in China today isn’t inevitable, but rather the result of specific government policies…The second major theme is that China won’t ever be just like America. Traditional Chinese thriftiness paired with the imperative most Chinese families feel to save for future and unpredictable health care costs (China’s social safety net has many gaping holes) makes it unlikely that China’s household savings rate, of up to 50 percent of earnings, will anytime soon approach the American standard, an average rate of just 1 percent in 2010.
When the Luck of the Irish Ran Out: The World’s Most Resilient Country and Its Struggle to Rise Again
By David Lynch
Review via Irish Times
David Lynch, a senior writer for Bloomberg news agency, has composed his postmortem for the Celtic Tiger with affection and the detachment that comes from a distance of five generations.
By a twist of fortune or misfortune, Lynch’s book, When the Luck of the Irish Ran Out: The World’s Most Resilient Country and Its Struggle to Rise Again , was published here this week, as US newspapers reported extensively on sinking Irish bonds and the danger of recourse to an EU bailout. The mood was so gloomy that a participant at the Global Irish Network meeting in New York suggested privately there was nothing left to do but to send food parcels.