Book Review: The Trillion Dollar Meltdown

Keith Monroe - Virginian-Pilot

Jul 29, 2008

The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash
by Charles R. Morris

This brief book should be required reading for anyone with a dollar in savings or a vote in November. It chronicles the path that has led to the parlous state of our economy and markets. It's the scariest summer read since "Jaws."

Charles Morris is a veteran of the banking industry, an attorney and an author of previous award-winning books on finance. He is lucid, tart-tongued, pragmatic and as righteously alarmed as Jeremiah. He warns early on that we are used to thinking of bubbles based on overpriced assets as resembling poison mushrooms. "You eat them, you get sick, you learn to avoid them." But, alas, "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."

By the accounting of the author, the mess we find ourselves in will cost at least $1 trillion to clean up. It will destroy wealth, undermine our place in the world, hammer investors and the working man alike, tank our economy and take years to recover from. And that's the conservative forecast. If mishandled, it could be much worse. Already it has undermined the position of the dollar in what The Economist magazine has called "the biggest default in history."

Morris goes back 30 years to explain how we got into this state. Undoubtedly the financial industry deserves plenty of blame, but he believes the fools and poltroons among brokers and bankers were aided and abetted by a generation of anti-regulatory ideology, Chicago School hands-off economic policy and Federal Reserve laxity under Alan Greenspan. Together they took the police off the beat and let financial malefactors treat America the way the looters treated Baghdad.

In short, Morris argues - in an approach largely free of eye- glazing detail - that the financial meltdown we're in the middle of resulted from "coddling our financial industry, fertilizing it with free money, propping it up with unusual tax advantages for fund partners, and anointing it with fresh funds whenever it stumbled. ... "

His hero is Paul Volcker, the Fed chairman (1979-87) who treated a less dire emergency with much stronger medicine. His prescription is thorough regulatory reform, a return to sound-balance-sheet business practices, an end to crony capitalism and an expanded role for government in protecting the public from predation and in doing those things in the public interest that free enterprise can't adequately handle.

His fear is that instead of facing the music and enduring the painful operations required, we will succumb to the kind of denial and inaction, the tendency "to downplay and conceal," that doomed Japan to 20 years of malaise.

America can't afford to ignore the warning. Of course, Morris may not be right, but the people likely to pooh-pooh his concerns have been consistently wrong and have helped engineer the debacle. And his track record is awfully good. In 1980, he forecast a global boom that came to pass.

Now, almost 30 years later, he warns that the free market cycle that began with President Reagan has "foundered on the oily seas of gross excess." He insists that "a restoration of reasonable financial regulation is imperative."

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