The author paints a very broad picture in leading us into the main focus of the book, which is the credit crunch resulting largely from the subprime mortgage mess. The sketches of previous bubbles leading up to this bubble give helpful background and strengthen the notion that this debacle is part of an ongoing trend dating back to the 80s. There is precedent for the current troubles in the 1987 market crash, the LTCM hedge fund failure, and the demise of GE's Kidder Peabody in 1994.

A number of ingredients have gone into the mix of these ever arising bubbles. Since the advent of computer trading, investment banks and hedge funds have been able to develop more and more complex financial instruments that have made them more and more enthusiastic about taking on risk. They are aided by the fact that they can essentially work in dark corners behind the scenes with no regulators poking around. Success leads to the prospect that even fatter returns are within reach if they keep leveraging their positions. The fuel that keeps the fires burning is easy money and burgeoning asset values; and it all works well until home prices stop going up or the Fed decides to raise interest rates. Then we have a crash.

The book gives the reader a glimpse into what goes on in the dealmaking recesses of the investment banking world. We learn, for instance, that a Credit Default Swap is a credit derivative that is supposed to hedge against mortgage defaulting and that synthetic CDOs are arrays of Credit Default Swaps with different tranches divided according to risk; and that SIVs are a means the banks use to hide the stuff from their books.

The macroeconomic viewpoint of this book is far too sketchy to enable anything but a scattershot casting of blame. The author would have done better to have maintained more of a focus on the excesses of unregulated finance and the problems of remedy. The recent fallout, which has so far included the government rescue of Bear Stearns - an abandonment of free market principles, leads to the obvious conclusion that sensible regulation is necessary. Nevertheless, there seem to be many in influential positions who prefer to look the other way and parrot that any regulation is bad regulation.

The book provides an excellent analysis of the current US inspired credit crisis that is threatening the financial system. The problem boils down to an unwinding of an enormous credit bubble, built up over the last twenty five years, and a corrupt, overly leveraged, wall street establishment that is able the pocket gains and socialize losses. The problem is not necessarily one with the free market (in the real sense), but rather one with the current neo-corporatist model (aka Chicago school monetarism, or soft fascism) where in effect the most powerful and wealthy interests in a country gain control of the state regulatory and legislative agencies and use them as a battering ram to further their own private interests at public expense. Of course the public is usually too distracted and dumbed down to ever figure out what is going on until after their bank accounts are empty, they're hopelessly in debt, and their children are being packed off to fight the latest war for "freedom and democracy".

It seems that this same neo-corporatist model is to some extent also at work in the pharmaceutical, media, and military industrial complexes as well. It creates a type of "tapeworm economy", or ponzi scheme, that eventually caves in on itself.

I was very much impressed by Charles R. Morris's "The Coming Global Boom" in the early 1990's, so this book was quite a disappointment. "The Trillion Dollar Meltdown" is an example of the phase Charles Kindleberger describes in his "Panics, Manias, and Crashes" as "looking for the scapegoats." Here the principal scapegoats are Milton Friedman and Alan Greenspan. Morris both decries and predicts the demise of Friedman's free market "ideology" and Reagan's idea that government is part of the problem and not the solution.

Morris sets up his argument by describing how liberalism and fiscal Keynesianism lost credibility by the end of the 1970's with what has been described as stagflation. Fiscal stimulus no longer stimulated an economy mired in so much debt. Morris then describes how Paul Volker implemented Friedman's Monetarism policy , but according to Morris, it worked because Volker didn't believe in the ideology. Volker just wanted to demonstrate to the world he was serious about inflation.

While I think Morris brilliantly critiqued the Liberalism of the 1970's, I disagree with his argument that it went away. Reagan promised to abolish the Energy and Education Departments and that went nowhere. Republicans talked about "government as the problem" but then expanded most government programs. The liberal interest groups that proliferated in the 1970's turned their attention to the Federal Courts and achieved many of their goals there. Interest group Liberalism didn't go away in the 1980's. It's agenda was still advanced merely by changing venues.

My point is that big government never died, Morris's claims notwithstanding. Nor did financial regulation end with the repeal of Glass-Steagall Act. In the aftermath of the Dot.com boom-bust, the Sarbanes Oxley Act---which Morris doesn't mention---put heavy restrictions on new stock issuances. So, the money went where the regulations aren't. As it usually does.

I would also say that in dealing with the current crisis, Fed Chairman Bernacke is not using the Milton Friedman approach of letting the "fire burn itself out." Instead, Bernacke is using the Walter Bagehot strategy of finding the lender of last resort to bail out the ailing institutions.

Now, I agree with Morris that many of these `investments" he describes are scams.
I think variable rate mortgages are a bad idea because most people who agree to one have no idea that they are placing a bet on what the Fed will do over the life of the loan. They are signing up for what could be a rather bumpy ride.

I also agree with Morris's criticisms of Sallie Mae and the student loan mess, but I would point out that the colleges themselves are considerably to blame for these problems. Many colleges have accumulated vast trust funds while doing little to help their students. It sometimes seems to me that a college education has become like home ownership: having one is better than not having one but too many bucks have been chasing too little bang for some time now.

I think the institution that is most profoundly in need of reform in America is the United States Congress. When the Republicans forgot what they had been elected to do, they were turned out of office. But, when the Democrats returned to power, I saw that many faces of the Committee Chairs were the same as those who were turned out of power in 1994. Do you think they learned anything in the interim? I don't.

I was very much impressed by Charles R. Morris's "The Coming Global Boom" in the early 1990's, so this book was quite a disappointment. "The Trillion Dollar Meltdown" is an example of the phase Charles Kindleberger describes in his "Panics, Manias, and Crashes" as "looking for the scapegoats." Here the principal scapegoats are Milton Friedman and Alan Greenspan. Morris both decries and predicts the demise of Friedman's free market "ideology" and Reagan's idea that government is part of the problem and not the solution.

Morris sets up his argument by describing how liberalism and fiscal Keynesianism lost credibility by the end of the 1970's with what has been described as stagflation. Fiscal stimulus no longer stimulated an economy mired in so much debt. Morris then describes how Paul Volker implemented Friedman's Monetarism policy , but according to Morris, it worked because Volker didn't believe in the ideology. Volker just wanted to demonstrate to the world he was serious about inflation.

While I think Morris brilliantly critiqued the Liberalism of the 1970's, I disagree with his argument that it went away. Reagan promised to abolish the Energy and Education Department and that went nowhere. Republicans talked about "government as the problem" but then expanded most government programs. The liberal interest groups that proliferated in the 1970's turned their attention to the Federal Courts and achieved many of their goals there. Interest group Liberalism didn't go away in the 1980's. It's agenda was merely delayed and slightly discounted.

Then, Morris describes a trip to California in which he drives down Route 1 along the ocean rather than US 101 and writes this on pg 159:

"...I had never driven it before and was amazed by its beauty---the unspoiled dunes, the long beaches, the gorgeous mix of turquoises and earth tones. Then as the scene rolled on, mile after mile, I had cognitive dissonance. `What's going on?! Where are the Arby's, the motels, the condos, the strip malls?" Then it dawned on me "Oh, there used to be a government here."

"California, in fact, for the first couple of decades after WWII, under both Republican and Democratic leadership---Earl Warren, Goodwin Knight, and Edmund "Pat" Brown---set a new standard for high-quality local government....."

I would propose a counter California image to this idyllic picture. In 1994, the Santa Monica Freeway collapsed during the Northridge earthquake in a vital section between Crenshaw Blvd and Overland Avenue. The failure to restore quickly this vital highway in the middle of Los Angeles would have profoundly bad economic consequences. Yet, only one portion of one artery in the state master plan for highways in the Los Angeles area had been built since 1970. All the rest were tied up in courts with NIMBY suits, enviromental suits, affirmative action suits--- by all of the usual liberal interest groups---using the courts to block these efforts. The legislature had to pass emergency legislation to block any court action against the project and for the first time in memory, a highway project was done on time and under budget.

My point is that big government never died contrary to what Morris claims. I would further predict that any "rebirth" of big government would be short lived. Americans don't need Milton Friedman's writings to despise government. Whenever they renew their driver's license, board a plane, get called for jury duty, and so on, they have to deal with the fecklessness, incompetence, and plain old sassing of government employees.

I would also say that in dealing with the current crisis, Fed Chairman Bernacke is not using the Milton Friedman approach of letting the "fire burn itself out." Instead, Bernacke is using Walter Bagehot strategy of finding the lender of last resort to bail out the ailing institutions.

One note on the student loan mess he mentions. The problem not only lies with the laws but with the private colleges that are charging their students astronomical tuition fees while sitting on multi billion dollar endowments. This, for an education in many fields that is not up to the standards of a generation ago.

Now, I agree that many of these `investments" described by Morris amount to casino gambling and should be treated accordingly. I would also agree that more regulation of financial institutions is in order. Adjustable rate mortgages should not be permitted and credit card issuance rules should be tightened. But remember, the institution that is most profoundly in need of reform in America is the United States Congress. When the Democrats returned to power, I saw many of the same faces as Committee Chairs as were turned out of power in 1994. Do you think they learned anything in the interim? I don't.

I was impressed with the volume of information in the book. But as someone not well-versed in study of economics, I found the book difficult to read at time (Morris doesn't like to explain economic terms or explain basic economic concepts). Also, his arrogant, "I told you attitude" detracted from the book... as if he knew all along that the meltdown would happen when it's apparent to me that he speaks with the benefit of hindsight. And I get it, I get it... Volcker is a saint and Greenspan is the devil. That's really what I got out of the book.

The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash is an incredible read for those who know little about the current international situation. It's a great book for those who know little about the great credit crisis yet can be quite challenging if you haven't taken a course in finance; sounds like an oxymoron. The jargon in the book is sophisticated, advanced, and not meant for the unenlightened reader. Charles R. Morris provides an informative, in depth explanation of the current situation, nationally as well as internationally. The Trillion Dollar Meltdown is broken down into rough sections, which explain how the International economy slowly fell into this credit mess, and explains how investment instruments are used as well as mistreated. The Trillion Dollar Meltdown provides a simple yet in depth overview of the complex and elaborate bond between the major players in this trillion (and rising) dollar credit market involving insurers, traders, credit rating agencies, banks, and housing agencies. A fascinating part of this story involves credit baron Morris describing likely scenarios of how this great credit crisis might unwind. After reading this story, its seems somewhat unrealistic to get out of this mess the credit industry has dug is in so deeply. Morris also discusses the dire market situations in the 80's and 90's and calls for more lucidity and honor in our current market and makes a several strong arguments for a shift in our social priorities to better address issues of education and health care. In the six months or so since the book was written the credit crisis has slowly dug it self deeper and deeper into a hole that our economy cannot even comprehend its final depth. When this book was written, the credit industry had lost a mere one trillion. Today, professionals predict we are close to three. This book is well worth the read and I would defiantly recommend it to anyone studying finance or in business school. If not, don't forget to bring a dictionary along.

The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash

This is a very timely book, written in simple, direct and easy to understand language about the Credit Crisis that now threatens the financial stability of this country and the world. Morris shows that a worst-case consequence of revised risk assessment could result in write-downs totaling one trillion dollars.

Leverage in the Financial World means working with borrowed money. In the case of 4:1 leverage, you would put up $100 of your own money, borrow $400, and buy $500 of something: stocks, bonds, soybean futures, etc. When the market goes up, you earn a profit 5 times as fast as if you only played with your own money. When the market goes down, your $400 debt is still there. The lender may require you to sell some of your stuff to raise your own money enough to maintain the 4:1 ratio. If everybody's selling, the price you can get for your stuff goes down and you have to sell more.

In the stock market, it's called margin. The 1929 crash was caused by reckless margins, which are now carefully regulated to prevent a recurrence. Since then, other financial instruments and practices have grown up which are NOT regulated, and which may result in leverages as high as 100:1. Couple that with loose and predatory lending practices and you get a crisis. The subprime crunch is only the tip of the ice berg.

In simple and readable language, Charles Morris walks you through the complexities of derivatives, hedge funds, investment banks, commercial banks, insuring and rating agencies and bundled securities like CDO's. He shows how practices that began as wise and good led to escalating risks as higher profits were pursued. Computer manipulation of new mathematical formulas led to bundling of securities in a way that was intended to minimize risk, but in fact made them very vulnerable to leverage. The bundling also made it very difficult for the rating agencies like Moody's and S&P to assess their risk.

The marketplace now seems to assess many of these securities as riskier than the agencies do. Loss of confidence in Bear Stearns led to the equivalent of "a run on the bank". When Bear tried to sell some of the securities they owned in order to raise the "your money" piece of their holdings, they found no one wanted to buy them. A rescue by the Federal Government and a big bank stopped the panic from spreading to other investment bankers. The rating agencies are now reassessing these new type of securities, and have lowered some ratings from AAA to Junk. Morris shows that a worst-case consequence of revised risk assessment could result in write-downs totaling one trillion dollars.

There are three books that shed light on today's worldwide financial crisis. Second and third are Morris and Soros (2008), the first and most basic is the one that I reviewed last year: Eichengreen's `Globalizing Capital'. The review can be found on the econophysics web page or on amazon.de.

Eichengreen presents the history of the Dollar from the gold standard until convertibility was cancelled in 1971, and from then from the early years of deregulation through 1995. Specific details of recent financial history under deregulation, which we date from 1971, are also usefully provided in Lewis' `Liars Poker' and Dunbar's `Inventing Money'. We can date the use of the Dollar as international default reserve currency since 1945, while the inflation of the worldwide credit bubble dates exactly from 1971. Morris discusses the necessary background history in summarized form, with appropriate emphasis on the onset of deregulation (1971) to the present era of worldwide financial instability.

Morris begins with the Reagan era of easy credit, lowered taxes for the wealthy, and big budget busting, and the systematic deletion of financial rules that had been set up under FDR as a result of the depression (Eichengreen correctly presents the Great Depression as a liquidity crisis that could have been avoided, we've had no depression since that time because central banks have provided adequate liquidity in financial crises--this will not likely be possible in the future due to the enormity of unregulated 'shadow banking'). Morris notes that the exercise of judgment in policy making was dropped when politicians shared the illusion of academic economists that, under the marriage of (neo-classical) economics with high-powered math, economics had become a science. Lucas' famous laissez faire policy critique represents the epitome of that illusion. The Chicago School of Economic ideology is rightly blamed by Morris for the present unstable fruits of deregulation and the corresponding loss of manufacturing capacity in the U.S.

Morris descusses various synthetic option products for the reader, especially collateralized mortgage obligations (CMOs), created in 1983 in era of the collapse of savings & loans in the U.S. as a result of splitting mortgages into derivatives (see also Lewis). CDOs, credit default swaps, and other derivatives that were useful in expanding the bubble are also described. One is the SIV (structured investment vehicle), which has been extremely useful in getting credit created by mortgages off the balance sheets of banks. The money supply is discussed by neither Morris nor Soros, but the Dollar M2 is roughly $7 trillion, M3 is about twice that. M2 describes all money (credit is counted as money) under the control of the U.S. Federal Reserve Bank. M3 includes `Eurodollars', money outside the U.S. that's used to create credit in, say, China, under the multiplier rules of Chinese banks. M3 includes all 'on balance sheet' Dollars in the world. To understand where we stand, the reader must know about 'shadow banking', also mentioned by Morris with SIVs as the prime vehicle for that form of uncontrolled money creation. Shadow banking, so far as I've managed to understand it, includes credit that is at least triple the amount of M3. This means that the U.S. is in a worse position financially than in the 19th century before the Federal Government outlawed currency printing by commercial banks. In a word, and as Morris argues convincingly, financial regulations are absolutely necessary, the free market/free trade binge is over, the Dollar cannot be salvaged under current economic and political policy. I read on the web that total Dollar mortgages are on the order of magnitude of M2-M3, meaning that mortgages are largely an unregulated form of money creation today (due to derivatives and shadow banking). The world was quite different before the Reagan-Thatcher-Friedman ideology took hold only a short 27 years ago.

While I think Kevin Phillips BAD MONEY is a very important book and well worth reading, Morris' THE TRILLION DOLLAR MELTDOW is, in some important respects, even better. Both are well qualified observers. Phillips as a brilliant, fiercely independent "tell it like it is" author of popular political and economics texts, and Morris, internationally respected ex-banker and financial analyst

The thesis of MELTDOWN is simple. The same "free market" philosophy that effected the economic recovery and expansion of the U.S. in the 1980s and early 1990's, has now brought the U.S. economy and American society almost to ruin. In other words, the economic pendulum has swung too far in one (free market) direction and there now needs to be a return to the other direction to bring things back into balance.

The "socialization of risk", in which big money was made by the sale and trading of bogus investment instruments that had to inevitably crash, at which point the "risk" or huge losses were simply handed off to taxpayers.

U.S. health care, once the envy of the world, under "free market medicine" remains the most expensive medical care in the world while one of the lowest ranked in safety and efficacy, and a single improvement that would improve the quality of U.S. medical care, and which is already in place in nearly every other industrial society, - computerization of medical records - has not been started here.

Morris talks about the free marketers' campaign to abolish social security by false and misleading information about what is really a very small actuarial problem that can be solved quite easily. (Phillips, to his credit, describes in detail how Greenspan and company quietly replaced the pre-1990 CPI, on which social security COLAs are based, with a bogus CPI that understates the true inflation rate by half. Wait until America's millions of retirees realize that they have been short changed billions of dollars!)

While both Phillips and Morris correctly point out how the student loan program has enriched lenders while impoverishing students, neither also identifies the role of the colleges and universities in "pimping" for this program. As Marty Nemko, careers columnist and author of the original, COOL CAREERS FOR DUMMIES, says "The problem is that the colleges and their lobbyists manipulate legislators into increasing govt-funded financial aid, which merely allows the colleges to raise their prices more i.e. the taxpayers are lining the colleges' pockets while providing the student borrowers with a TERRIBLE education."

Both Phillips and Morris however, agree with Warren Buffett (whom both frequently quote), that we are now in the early stage of a long and severe economic downturn and interestingly, although both theses books were published in late 2007, each contains a forecast of things to come (Morris' forecast is much more detailed) that when read today is not only nearly 100% accurate but which, when it is not, it is because they have actually understated the severity of the problem. For example, his "worst scenario" for housing is a 30% decline, which has already been passed by, and with no "bottom" in sight for the collapse of housing prices.

Anyone who has a serious interest in both the future of the American economy, and the improvement of American society, will enjoy this book and the crisp often witty manner in which it describes the rise and fall of "free market economics" in the U.S. over the past 25 years.

This is a good read.

His short economic history of where we got to where we are now is really good. Even his descriptions of certain items in passing, such as his description of 'monetarism' are among the best and most readable I've had.

the problem with economics and financial books is that they are not written well, and bury simple truths in jargon. Well, Charles R. Morris is an outstanding writer who takes pains to explain things, and make them understandable. I am a bit of a specialist in this area, and I still found it highly enjoyable and a good read because it reminded me of so many things I already knew, but put them in an overall 'construct' in a way that I recognized and found both plausible and rewarding.

I may not agree with all the forecasts and predictions, but he's right on and does it in a thorough and readable book that is not all disparate facts, gloom and doom.

The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash is serious reading as it describes the history and complexity of the issues involved. Charles R. Morris is an expert in the banking and legal field and his book is written for the generally informed reader. If this is new ground for you, as it was for me, it is not an easy read. It is a complex subject and any prior exposure to financial systems will be beneficial. It is a wake-up call on what has happened and how dependent all the parts are to each other. How very delicate the foundation to our entire financial system truely rests. Like a house built on the side of a cliff, Morris, describes the pending weather.

This is a well written, informative book that someone without a lot of finance in their background can understand. It does a great job of discussing the events that have lead to the current financial credit crisis and makes good arguments against the continued practice of government bailouts of misbehaving financial engineers.

At times, it can be quite scary to realize the rocky foundations on which comtemporary global finance is based and how easily it all could implode.

This is an excellent explanation of the last four decades' financial events. Although, I am disappointed to the fact that even though he explains the economic effects of shifting demographics, such is the case with the baby boomer's down trend effect on wages in the 70's, due to the high percentage of untrained eighteen to twenty four year olds entering the job market and an expensive capital which in turn reduced investment. It fails to take into account, that in the 90's United States had one of the biggest waves of legal immigration of the century. On average one million immigrants were coming to US every year and most of them in their early twenties. A Combination of cheap labor and capital along with the financial scenario described in this book, created the perfect financial storm. In the 90's, legal immigrants were a major factor in real estate appreciation, due to high demand. In fact, this scenario was remarkable similar in all countries with high real estate appreciation; USA, UK, Spain, France.

In this decade the sub prime boom and the lowering of loan requirements created the opportunity for mortgage brokers and credit cards companies to target a highly profitable new market; the undocumented immigrants. The collapse of the mortgage hedge funds in mid 2007 was expanded by the failure of passing an immigration reform a month earlier. This post it is not about an immigration reform, I just want to point out that free markets as well as democracy works better if all players involved have as much information as possible.

Allowing a free hand to the financial sector based in the free market theory and not creating checks and balances for it, was a major failure of the Federal Reserve System. However, another failure was to neglect an economic factor due to a myopic hypothesis that unskilled individuals have only a down trend effect in the economy.

The author brings into focus that the current economic malaise is not only the fault of an inflated housing market and subprime problem, and estimates that writedowns and defaults of residential and commercial mortgages, junk bonds, bad loans and complex securitized bonds could reach US one trillion dollars...citing possible scenarios which could double or triple this amount once a widespread global panic occur. Morris expounds on Keynesian liberalism that gave government a role in achieving low inflation and unemployment but fast economic growth and then the change and the rise of the Chicago School free-market capitalism (Nobel laureate Milton Friedman). Morris then explores the three trends that conspired to create the great credit bubble, and then citing Alan Greenspan, the former Fed chairman as the final culprit. In clear, concise language, he then explains why the US economy is now in a long term decline and what to do about it. Even if you don't agree with the author, you can still benefit from his insights. It's a great and timely read!

An easy read. Morris provides an informative, layman's explanation of what we're dealing with in the American and global credit market crisis. The book brings into focus a picture of how we got into this credit mess, what the various derivative, debt obligation and structured investment instruments are and how they're used and abused. The book provides a simple yet reasonable overview of the complex and intricate relationship between and function of the primary players in this multi-trillion dollar surreal credit game involving traders, banks, insurers, credit rating agencies, investment houses, the central bank and the economic and political environment in which this derivative game is played. Morris discusses how various economic schools of thought of the past 50-years have helped or hindered economic progress. Morris describes likely scenarios of how this crisis might unwind. While recognizing the merits of the market driven approach in the 80's and 90's he asserts it is time to implement some form of regulatory oversight. He calls for more transparency and integrity in the credit process and makes a case for a shift in our social priorities to better address issues of education and health care. In the six months or so since the book was written the credit crisis unwind has inched forward narrowly averting one disaster after another. After finishing the book I have wondered what the author would say today about the Fed's open discount window policies and seemingly unbridled willingness to swap US Treasuries for toxic derivative waste. This book is well worth the read.

Interesting reading: the facts and figures are well explained and help to understand the workings of this nebulous part of the Financial markets. However, later in the book, the author drifts into politica. One does not necessarilty join him in all his conclusions and predictions. There is a lack of balance there. Too bad, as it detracts from the value of the book.

Khalil

As a lawyer and former investment banker, Charles Morris can appreciate the power of free-market capitalism to drive economic growth and financial innovation. Now, however, he believes the era of market fundamentalism has come to an end, just as Keynesian interventionism came to an end in the 1970s. He estimates conservatively that the recent writedowns and defaults of residential mortgages, corporate debt, credit card debt, and bonds will be about $1 trillion. But this book was written before even more recent revelations such as the Bear Sterns insolvency. It is now estimated that the bill could be 3 or 4 times as high.

Morris gives a brief but excellent history of events that led up to the current credit crunch that is paralyzing global financial markets. Disasters have many fathers, but Morris lays much of the blame on bond rating agencies, financial insurance companies and the Federal Reserve under Alan Greenspan. After 9/11 the Federal Reserve lowered the interest rates below the rate of inflation, essentially giving banks free money. Banks then lent money for fees up front and then repackaged the loans - turned them into securitized debt - and sold them to investors. It was basically cost free and risk free, so they lent money as if there was no tomorrow.

These securitized debts or CDOs (collaterilized debt obligations) were sold and resold throughout the global financial system and no longer did anyone know how to measure their value or their risk.

Add to this the fact that homeowners were using the rising equity of their homes as atms and pumping another $4 trillion into the economy.

Also add to the mix $700 billion annual trade deficit that indicates that much more consumption over production. The party was really in full swing.

But the party couldn't last forever. The bubble started to deflate last summer when housing prices began to fall and homeowners began to default on their mortgages. The government initially thought it was just a typical market adjustment, but with the imminent collapse of Bear Stearns they finally took decisive action. Bear Stearns was holding $46 billion worth of securitized mortgages with an estimated value of 30 cents on the dollar.

As the crisis has been unfolding, it has been estimated that the federal government has authorized about $1 trillion in new lending through agencies such as Fannie Mae, Freddie Mac, Federal Housing Finance Board, and the Federal Reserve. This was done solely to keep the economy afloat. But no one knows yet where this will end. Massive infusions of money will lead to a weaker dollar, as we have already seen. A weaker dollar against the background of rising oil and food prices tells us the crisis is far from over.

Morris does not tell us exactly how we will get out of this mess, but he is sure that in the end a new system of financial regulation will be in place.

If you have been following the press reports on the subprime crisis, and want to gain indepth knowledge on how it happened, you are probably not going to feel very satisfied after reading the book. It does highlight several major causes of the subprime crisis, such as the emergence of serious agency problems when the mortgage industry started to divide up into specialty businesses, so that the one who signed the mortgage contract with the home buyer is not the one who will own the mortgage and so on. It does provide some details on the financial instruments that were used to magnify the potential gains and actual losses of the subprime mortgages, such as an explanation of how Collaterized Mortgage Obligations were built and used (Chapter 4), and why hedge funds traded in credit default swaps. But that's about it. The book spent nearly half of its pages on historical events going back to the 1970s to describe the present and past macroeconomic environment, and then the last pages to propose policy measures to improve the national health care system.

I did not get to read about how attractive the business of securitizing and selling off mortgages was to commercial banks (e.g. was it like, since the capital is locked up for only one years instead of 20 years, the commercial banks were happy to securitize and sell off mortgages as long as the profit from each transaction is more than 1/20 of the profit from simple mortgage business?)Nor did I find out how investment banks could make profit from selling the CDO bonds to investors, when the creation of CDO bonds was said to have saved home buyers million dollars in mortgage interests, and when investment banks had to buy some of the toxic portions of a CDO. In other words, I was expecting to get a lot of details, but the book only delivered some.

This book is a great insight into the potential issues we are going to have and why. I wish I felt as if I could do something about the problems that it brings up but it does not seem there is much any of us can do. This book explains everything that the Media or our Leaders try to hide from us. I recommend this book as important reading for the times.

The chapter on the tsunami of dollars and the "financial instruments", although not really new information, is very important and should make us ponder. His historical "cavalcade" of the last 20 years is for the most part irrelevant. Some of his statements on why the economy did this or that are dogmatic and again irrelevant to the main topics. His discussion of the various economic schools is also irrelevant and superficial. The discussion on health care is again irrelevant to the main topics, superficial, dogmatic and extremely poor. Some phrases as reported by other reviewers are obscure, his moral judgement on the economics of society is again irrelevant to the main topics, whether you agree or not. Overall this book is helpful in the sense that it helps us understand the magnitude and the danger of the current situation, but it is written with the typical dogmatic, arrogant and, at times, superficial style of modern intellectuals

The book was well written and easy to understand. It read like a long article as opposed to some dense and boring book. The author did right by keeping his views and opinions to the last two chapters. The reader can go along making his/her own assumptions up until the end where you can either agree or disagree with the author. Ultimate point of current crisis undermining the trust the international community placed on the American financial system.

First 3/4 of book was basic on target, about CMO melt down, but author then turns last 1/4 of the book into general liberal rant. Author just plows though middle of the book. I think the author should have spent more effort developing the details of the hows and means of CMO melt down; along with the international impact on credit of nation.
Its not that I disagree with most of the author conclusion in last 25% of book but author have should have a developed a 2nd book for conclusions or should have frame this book as a overall indictment of pure free market ideology

A well written concise perceptive and up to date account of the last 40 years of the history of the US financial sector. What is most interesting is the capacity for self delusion that has been so rampant so repeatedly. This is not a sector with much data rationality evident. And there is enormous self serving asymmetry between the rewards for upside performance and someone else paying for downside defaults. The widespread economic ignorance of the whole population makes it ripe for this type of exploitation and the sense that they too can get rich; though the probabilities are against them. I fear that the phenomena described by this book will massively weaken America. In a way extreme free market conservatism has proved itself to be massively imprudent and is now as descredited as socialism in the eyes of anyone who looks at the numbers. Indeed it is interesting that the hybrid economies that are more like America 1945-70 are outperforming it and increasingly own it. It would be amazing to any American in 1970 that this would have been allowed to happen. The need for a new paradigm is both obvious and yet there is no sign of one in any of the Presidential Candidates (not just the three left in the race) who don't seem to get it. The world and America's place in it has changed profoundly and this book is a good map of how it happened.It provides no easy answers as to how to get out of this mess, probably because there aren't any. As the Irish countryman said when asked the way to Dublin: 'I wouldn't start from here'.The solutions will be tough, and need consistent discipline that there is little sign of. Japanese style covering up of the problems rather than exposing and fixing them is far more likely.

Morris does a very good job of explaining our nation's complex credit mess. Taking a complex topic and making it understandable is the first step towards figuring out a solution. Yet, solutions are where Morris falls short. He advocates a return to regulation by the federal government and rails against "Chicago School" market economics that he believes allowed the credit crisis.

Can you imagine, really and for real, the federal government having the competence to regulate CDOs, swaps and over-the-counter derivatives? Why is such bizarre faith placed in the federal government every time our society confronts a really serious problem? Isn't the evidence of federal incompetence so overwhelming that it is axiomatic that the feds are the least qualified to solve such problems? I can't name one single problem the federal government has permanently solved.

As an alternative to political meddling and inevitable heavy-handed regulation, why not just let the greedy entities that engage in such risky behavior take the losses? Morris seems to believe that there would be no return from a financial meltdown so the feds must get involved. Oh, please! Our country has endured panics, depressions and meltdowns before.

In concluding the book, Morris does offer one very good suggestion: He suggests that many credit instruments be traded like futures contracts where contracts are settled at the end of every trading day and where the exchange is the ultimate guarantor of the contract. Such a measure, if implemented, would ensure that losses could not be concealed indefinitely and would not accrue to threaten the entire financial system.

A Caveat on the Kindle Edition:
The very importand tables are virtually (pun intended) unreadable. They're wide spreadsheet type tables turned sideways on the Kindle and reduced to single frame. The type therefore is very pixelated and tiny, so making out what it says is dicey even if you've got some clues from the main text.

I bought hardcopies for some relatives, and copied the tables before I sent them on.

In General: Morris uses abbreviations for things like SIV (and other jargon) pages before he defines them or spells them out completely. Even though I've been following the mess(es) that are the subject of this book and have picked up much of the jargon, I ended up doing searches on a number of abbreviations and terms to locate them later in the book or in some cases in back issues of the Wall Street Journal (I have a WSJ subscription on Kindle), or even on Wikipedia or Google (thank god for the Kindle web browser, clunky as it is).

"Trillion Dollar Melt Down" is about the 2007 sub-prime credit crisis. The huge problem, though, is that the book mostly proclaimed that the sky was falling in 2007 when it was written, but now - (mid 2008) when the book has finally reached the market - the sky still hasn't fallen, no recession has started, and unemployment is still very low. The book, then, seems like a short (194 pages), obsolete gimmick, raced to market, to capitalize on old fears about something that never happened.
Moreover, the book really wasn't about the, now irrelevant, 2007 financial markets anyway. It was mostly a rambling, disorganized tour of 20th Century economics and finance, with little coherency, that doesn't really demonstrate an understanding of those huge subjects. The most obvious proof of this comes at the end when, at long last, solutions are offered. They take all of four pages?, and unbelievably, two of the pages are about health care which is not remotely mentioned at any point in the book. The two short pages devoted to the financial markets call for more regulations to avoid the behavior that led to the so called "crisis" that, so far anyway, has not materialized. To make matters even worse the "new" regulations are designed to stop behavior that free markets stopped long ago. Is anyone still lining up to buy sub-prime mortgages or their derivative securities? Of course not! To add even further insult to injury the book goes on to proclaim that the so called "crisis" demonstrates that Milton Friedman and free markets are mistaken when the reality is that free markets corrected the problem long before bureaucrat regulators ever knew to even think about a problem. Liberal socialist regulators must always follow well behind innovative capitalists - sweeping up their crumbs- because they don't realize that the future will be different and far better than the past they know. Indeed, this is why freedom and capitalism has proved superior to socialist regulation. "Trillion Dollar Melt Down" misses this point completely, and many other lesser points too.

This is a fair book that could have been an excellent book. First the good news. Morris has done an excellent job in the first 6 chapters of explaining the mortgage mess, CDO's, CDS's, the shortcomings of leverage and a myriad of other sometimes difficult and esoteric concepts. He should be applauded for having done this in a very readable and understandable manner. However, starting in Chapter 7, Winners and Losers, Morris just can't seem to resist indicting capitalism in general and financial services in particular.

Take for example, the following statement on page 145 "The national average income of stockbrokers, for example, was $250,000 for 2005. (This despite the fact their economic contribution may be negative, based on the mean performance of managed equity funds compared to unmanaged index funds.)

Perhaps Mr. Morris didn't get the memo, but it is not the job of stockbrokers to manage equity funds. That is the province of the fund manager of the equity fund. The job of a good stockbroker is to review the many funds that are available and recommend to his client(s) the fund(s) that best serve the clients needs.

More claptrap shows up on page 146 when the author states "The self-congratulatory tone would be easier to take if our aesthetically enlightened elite were a bit nicer to the good low-income people who will never make it no matter how hard they try." Talk about a cynical elitist view of life.

I know of many many individuals who were "low-income" who were able to put their lives together, work hard and succeed. Howard Shultz who chairs Starbucks grew up in a NYC tenement. Shultz would certainly qualify as one of those low-income people when he was growing up. Fortunately Schultz and thousands like him didn't read the last chapters of this book or others like it. They worked hard and in fact succeeded in spite of The Charles Morris' of the world who claim it can't be done.

The balance of the chapter is filled with sections titled "Class Warfare", and "The Inordinate Privileges of Financial Services". Virtually none of Chapter 7 has to do with the so called Trillion Dollar Meltdown which was supposed to be the subject of the book. It does seem to have a lot to do with a certain point of view that capitalism is not "fair."

Mr. Morris would have done well had he stopped at Chapter 6. Instead all his hard work is dissipated by his ill conceived subsequent chapters. Leave people to draw their own conclusions as to how best to prevent such events from happening again. Just provide them the facts and they will almost always come to the right decision.

In preparing for a talk about the sub-prime mortgage mess and what it means to individual investors I found this book to be invaluable especially the history. I never realized how much leverage was being used by both hedge funds and investment banks. By using Morris' recommendations for restoring balance we could go along way to restoring confidence in our financial markets. If we don't investors will pull out and there will be more crashes. Morris uses clear and concise language that helped me understand this reckless financial environment.

In this excellent, highly readable book, Charles R. Morris combines legal and financial experience with literary craft. No ideologue, no partisan and certainly no salesman, Morris traces the roots of the 2007-2008 mortgage securities crisis to its distant origins in the 1970s. He argues that policy missteps under the Nixon, Ford and Carter administrations, when Arthur Burns chaired the Federal Reserve, led to dollar debasement. He contends that the decline of America's currency and its business sector at that time led in turn to the Reagan administration's zeal for deregulation and Chicago-school economics. He details his belief that Alan Greenspan's policies took America from a relatively healthy financial status to a position perhaps as dire as in the late 1970s. Morris also reveals the privileges enjoyed by an out-of-control financial services system. getAbstract found this to be a trenchant and provocative read.

Not long ago stocks, bonds, loans, and mortgages together approximated global GNP. Now they total about 4X GDP, and financial derivatives exceed 10X GDP.

Subprime is just the first of an avalanche of asset write-downs that 2008 will bring - corporate debt, commercial mortgages, and credit card debacles will follow. Even municipal bonds may be at risk. Morris attributes our current free-market cycle's birth to the Reagan years.

Restoring credibility requires purging absurd valuations, phony trip-A ratings, inflated balance sheets and hidden liabilities via increased regulation. (By 2006 only about 25% of lending occurred in regulated sectors, vs. 80% 20 years prior. Failure to do so may exceed the forthcoming $1 trillion+ in writedowns.

Morris sees the 1960s as bringing forth a rise in business and government incompetence. The former over-emphasized mergers to smooth earnings, instead of increasing market share and lowering cost structures to reduce vulnerability to foreign competition; the latter was led by LBJs "guns AND butter," and Nixon's floating the dollar away from gold, providing impetus for a rapid oil price rise, price controls, and double-digit inflation after their removal. LBOs of the 1980s helped improve productivity through unwinding these conglomerates.

The current surge in venture investing has its roots in a 1973 law requiring companies to set aside money to fund pension promises and the 1979 easing of regulations that limited where they were used - not the 1978 cut in the capital gains tax (were exempt anyway). Morris also believes that OPECs collapse in the 1980s was not due to Reagan's ending price controls on oil, as some claim - rather, Arabs pouring money into Iraq (vs. Iran) and seven years of world energy improvements.

Clinton's deficit-cutting tax increase had little impact on long-term interest rates (and resulting business investment); the real economic impact came from a "riotous" stock market and an associated upsurge in taxes. Business also improved, adopting Japanese management practices and distributed contributing. As for LTCM, the real scandal was that a small group was able to borrow so much ($100 billion) on so little capital ($1 billion) for such poorly understood purposes. Taxpayer monies were not used for the bailout - instead banks that had profited from its trading were called upon by the Federal Reserve.

Contributors to the Mortgage Meltdown Mess: Fragmentation of the loan industry (national sources, selling off groups of mortgages and tuition loans) have broken down the role of trust in local relationships and encouraged pushing high-priced deals. Investors, in turn, were "insured" by others with "fail-safe" insurance policies based on historic patterns that failed to incorporate hidden risks associated with inter-correlations. At the same time, banks had plenty of access to "free" money post 9/11 - the Fed charged rates less than the rate of inflation. Finally, housing prices are strongly influenced by interest rates (highly leveraged), ARMs were sold on the anticipation of even lower interest rates, processes were sped up through computer scoring and reduced documentation requirements, purchases of second-homes received even less scrutiny, and hedge funds (100:1) leverage became big buyers of repackaged loans.

Then the loans were artfully (and easily) partitioned according to risk tranches, decreasing the importance of loan quality for investors and opening the doors for including the sub-prime market.

Similar strategies have been employed in corporate lending and municipals.

Unfortunately, the subsequent meltdown in housing prices is much more correlated to consumer spending than declines in the stock market. Consumer spending rose from 67% of GDP in the 1990s to 72% in 2007, largely financed by rising housing values. It now must decline.

Finally, Morris is also concerned with rising financial inequality (top 1% share of national cash income went from 9 to 19% between 1980 and 2005; the top one-hundredth of 1% went from .95 to 3.6%.) Rising health care costs, deteriorating infrastructure, and Federal Reserve encouraged moral risk (bailing out large financial institutions) are also briefly covered.

This is a great read for anyone who wants to understand the details behind the real estate and banking crisis, since the media refuses to report the details. Unlike some reviewers who feel the author is too pessimistic, I feel he is right on. And we should salute a member of academia for speaking the truth instead of masking things, as most economists seem to do.

When will people wake up? After two bubbles in just a few years, Wall Street and Washington continue to hide things until it's too late. We should be thankful to any authors who report the realities because they are far and few.

The one thing I would say is that it is much easier to report on things when they happen. It is of much higher value to predict them, such as the case with another great book, "America's Financial Apocalypse: How to Profit from the Next Great Depression." I like the Condensed Edition for its succinctness. This book takes things much further and addresses every major issue faced by America.

America's Financial Apocalypse: How to Profit from the Next Great Depression (Condensed Edition)

I was impressed with all the information in the book . . . many times bordering on amazement. "Synthetic CDOs" . . . OMG! But I don't understand what the author is stating on page 105, "Over the next year or so there will be no soothing fountains of new dollars coming out of Washington." Am I wrong, or was the Bear Stearns/JP Morgan and UBS bailout not equivalent to a "fountain of cash"? And if so . . . does that change "the mother of all crashes" into the mother of all inflation? I really enjoyed Morris' work, but I wish the author would clarify what he meant by "effectively taking the Fed off the Board" on page 105.

If anybody has an answer, please contact me at totallyjunkmail@hotmail.com

Morris has done an excellent job in this book in explaining to the average citizen why allowing banks to make loans to speculators to leverage their debt positions in the financial markets ,or if banks themselves engage in speculative behavior, will eventually lead to some sort of economic downturn.Morris provides a modern history of the last 40 years detailing how the regulatory apparatus set up to deal with the speculative causes of the Great Depression(balloon payment financing of real estate in the mid to late 1920's and margin account financing of stock market purchases in the same period),haphazardly based on the ancient wisdom of John Maynard Keynes(General Theory,1936,chapter 12;pp.321-327,338-353;371-377) and Adam Smith(The Wealth of Nations,1776,pp.280-340,especially Smith's summary on pp.339-340 demonstrating that no loans are ever to be provided by commercial banks to speculators(projectors),prodigals,and imprudent risk takers) has been systematically dismantled since 1979 by the Carter,Reagan,Bush I,Clinton,and Bush II administrations.Morris himself is only vaguely aware of this ancient wisdom, as he himself was a promoter-supporter of Reagan-Bush I policy changes that led to the speculative excesses of the 1980's resulting in the recession of 1990-91.Similarly,the speculation of the 1993-1999 years lead to the recession of 2000-2001.We are currently witnessing the speculation of the 2003-2006 period leading to the recession of 2008-?.

Morris's book is worth buying.It may wake Americans up to the possibility that the switch from guaranteed pensions to IRA accounts based on stock market portfolios may be just a giant Ponzi scheme.

This is the best explanation of the credit crunch that I have seen to date. Most writers on this subject try to "simplify" their descriptions of CDOs, SIVs etc. in the mistaken belief that they are helping the reader. Instead all that happens is that the average reader never gets to understand what's really going on.

Morris explains the nitty gritty of these financial instruments in good, clear English and that in itself makes the book worth the price.

I would have given this book 5 stars, but for the last chapter. I was hoping for Morris' input on how (and when) this crisis will pan out, and what businees model banks will adopt now that the present one is so broken. Unfortunately Morris gets diverted into a diatribe on health care and other interesting but irrelevant matters, and we never really find out much about his vision of the new world post 2008. That's a shame - but read the book anyway if you want to really understand what's going on in the world of finance today.

I enjoyed this book. It's a quick read and does a good job of explaining some of the blowups of the past, CMOs, market crash of 1987, LTCM etc. but the author takes a doom and gloom view that sub-prime and derivative losses are likely to be twice what others are projecting. He also seems a bit self absorbed with a "I told you so" attitude when in reality neither he nor anyone else knew of the size of the day present collapse and still don't. It's a decent book. Not great.

I want to clarify the previous poster's statement, which is misleading: "Mr. Morris: don't say "'I told you so' when you were saying 'c'mon, everybody!' not too long ago."

In fact, Morris wrote that book in 1991, 17 years ago. That is "not too long ago"? And in fact, Morris was correct at that time as well. If you had entered the stock market then time you would be very well off indeed, as what he wrote turned out to be extremely accurate. Especially if you had taken the advice of his current book and gotten out of the market during the time when he was writing this book.

1991-1992 was a period of recession by the way. Real estate was dropping like a stone. The market looked risky and over-valued. I took my mother out of the market at that time and boy was I surprised when the market took off, for exactly the reasons Morris spelled out (I hadn't read his book). Morris may have changed his tune in the past 17 years, but times have changed too. He has called the tune correctly, then and now.

In one of his previous books, "The Coming Global Boom," Mr. Morris led the "everybody's gonna get rich" charge. That charge led to the stampede of people lining their pockets and has brought us directly to the crisis he discusses here. I'm simplifying, of course, but really, Mr. Morris: don't say "I told you so" when you were saying "c'mon, everybody!" not too long ago.

This is a great book for those of you like me who are not in the financial services industry but who want to understand why our economy is melting down as we speak. It will also help you understand why this upcoming election is so important: The author describes the seismic ideological shifts over the last 40 years, from the Liberal/Keynsian era that imploded in the late 70s, to the current dying embers of the Chicago-School free market ideology that has held sway from Reagan up to the present moment. The author believes it is time once again for the pendulum to swing in the direction of more activist, socially conscious government intervention. He is not a liberal ideologue but a former banker who comes to his conclusions based on objectivity, knowledge, and lucid thought. The integrity of his thinking shines through every page. This is not always an easy book to read; due to the subject matter it is rife with all sorts of financial industry acronyms and terms like "tranch" and "quant" and "put", but don't let that throw you. Just keep reading with the big picture in mind and it will all come together in the end. It's well worth the effort!

I am learning a lot reading this, even though I've followed the economy for years. The preface summarizes the situation and outlines the book, but is maybe slightly dense and technical for the average person. But the first chapter is great for giving perspective on how the US economy has evolved, especially the troubles of the stagflation period and what caused that. The book goes up to November 2007, with a clear understanding that the credit bubble was going to have to unwind, and it was either going to cost $1 trillion, or, if the government tried to paper it over, a lot more.

I rated this book 4 stars for its timeliness.

In my opinion, most people do not even begin to understand what is going on in the credit market and those who could are either in self-denial or lying to the public. This book is an excellent primer on the subject.

I expect that by the time more in-depth books are written the problem will be evident for all to see.

The last chapter, although well intentioned, is highly opinionated. However, the rest of the book is objective.

I wanted to see how prophetic the author was re: the current credit crisis and how much further we have to go.