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Financial Fiasco: How America's Infatuation with Home Ownership and Easy Money Created the Economic Crisis
Financial Fiasco digs deep into the foundation of the economic meltdown, revealing how it was the product of conscious actions by decision makers in companies, government agencies, political institutions, and consumers. An easily accessible work written for general readers, Financial Fiasco tells the compelling story of how rate cutting by the Federal Reserve inflated the real estate market and fueled increased risk-taking in the financial markets; how new government policies to promote home ownership blasted air into the credit bubble; how new financial instruments, credit-rating requirements, and accounting rules intended to prevent cheating backfired; and much more. Financial Fiasco guides readers through a world of irresponsible behavior, warns that many of the solutions being implemented are repeating the mistakes that caused the crisis, and offers guidance on how to move forward.
208 pages, Hardcover
First published March 30, 2009
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Displaying 1 - 15 of 15 reviews
September 22, 2012
A must-read to understand the 2007 financial crisis
Financial Fiasco recounts the story of the Financial crisis of 2007. Much more than the story of just the crisis, actually. It recounts all the steps that led to the crisis: from the interventionism of the State, to the reckless and irresponsible run for short term profits of bankers, to the blind race for universal home ownership. Norberg's book reads like a novel, with twists and turns. Better yet, it reads like you would look a horror movie: did you ever scream to yourself "why is she going upstairs to escape her attacker instead of running out of the house?" Each of the steps described by Norberg calls for the question "Why? Were they crazy?!"
It is a very good book on the causes of the crisis, and a must-read for anyone willing to understand beyond the media reports and leftist attacks against capitalism. For if anything was missing during the crisis, it was indeed free, unregulated markets.
Norberg also makes a good job writing a book that is free of jargon and easily and quickly read. He takes the time to explain any financial terminology when necessary without going into too much detail.
A very interesting read.
Financial Fiasco recounts the story of the Financial crisis of 2007. Much more than the story of just the crisis, actually. It recounts all the steps that led to the crisis: from the interventionism of the State, to the reckless and irresponsible run for short term profits of bankers, to the blind race for universal home ownership. Norberg's book reads like a novel, with twists and turns. Better yet, it reads like you would look a horror movie: did you ever scream to yourself "why is she going upstairs to escape her attacker instead of running out of the house?" Each of the steps described by Norberg calls for the question "Why? Were they crazy?!"
It is a very good book on the causes of the crisis, and a must-read for anyone willing to understand beyond the media reports and leftist attacks against capitalism. For if anything was missing during the crisis, it was indeed free, unregulated markets.
Norberg also makes a good job writing a book that is free of jargon and easily and quickly read. He takes the time to explain any financial terminology when necessary without going into too much detail.
A very interesting read.
July 25, 2013
Interesting Quote:
"On Monday, September 29, the House of Representatives voted down the Paulson [Bank Bailout] Plan by a small margin...The House got a second chance on Friday, October 3...[and] they did not [vote it down again]. The difference was that this time the package had been sweetened with an additional $110 billion of targeted tax breaks, including for...narrow business sectors that just happened to be important where skeptical members had their voters--Hollywood studios, owners of race courses, and producers of wooden arrows for children."
-Johan Norberg, Financial Fiasco
"On Monday, September 29, the House of Representatives voted down the Paulson [Bank Bailout] Plan by a small margin...The House got a second chance on Friday, October 3...[and] they did not [vote it down again]. The difference was that this time the package had been sweetened with an additional $110 billion of targeted tax breaks, including for...narrow business sectors that just happened to be important where skeptical members had their voters--Hollywood studios, owners of race courses, and producers of wooden arrows for children."
-Johan Norberg, Financial Fiasco
March 5, 2010
A must read! Explains how the infrastructure of government regulations and policies (and their incentives for private actors to act poorly) lead in unintended ways to the economic crisis.
March 28, 2019
A good overview of the subprime mortgage crisis. But it failed to keep me hooked, hence the two stars.
January 9, 2025
If you are at all curious about the cause and results of the bursting of the Housing Bubble and the resultant "Great Recession, I can think of no better source that this book.
My non-economic brain really needs to read it a second time and probably sooner rather than later. I think I comprehend the securitization of mortgages, the perils of "easy money" provided by the federal reserve, the government's obsession with getting people into their own homes (even when they were an execrable credit risk). I understand the privatizing of gain and the socialization of loss by having "Government Sponsored Enterprises" by them up by the trillions with us taxpayers as the fall guys.
I understand how loan originators took inordinate risks. My question would be, would they have done so without various departments of various administrations egging them on with promises of those GSE's buying them up as securities and threats if they don't?
I looked up the definition of "credit default swaps" and could not for the life of me understand the definition itself.
Ah well, more to learn.
My non-economic brain really needs to read it a second time and probably sooner rather than later. I think I comprehend the securitization of mortgages, the perils of "easy money" provided by the federal reserve, the government's obsession with getting people into their own homes (even when they were an execrable credit risk). I understand the privatizing of gain and the socialization of loss by having "Government Sponsored Enterprises" by them up by the trillions with us taxpayers as the fall guys.
I understand how loan originators took inordinate risks. My question would be, would they have done so without various departments of various administrations egging them on with promises of those GSE's buying them up as securities and threats if they don't?
I looked up the definition of "credit default swaps" and could not for the life of me understand the definition itself.
Ah well, more to learn.
May 5, 2012
The Financial Crisis of 2007-2008 is manifestly not over, and so it may seem premature to start writing the history of it now. What’s more, although the publication date of this book is October 2009, I judge from the date of the Preface that it was actually completed in February of this year. For heaven’s sake, the outrages of the Obama “stimulus” legislation and the unlawfully rigged bankruptcy and Federal takeovers of the auto companies hadn’t even happened yet! Let alone healthcare!
But if, as the cliché goes, journalism is a first draft of history, then this brief volume can be chalked up as an early second draft. Most of the citations within it are in fact from contemporaneous accounts in the mainstream and business press. And, as 2009 draws to a close, the week by week fumbling of Paulson, Benanke and Geitner in the fall of 2008 does in a way seem like a long time ago.
This is a breezy, often witty, retelling of the forces leading up to the 2008 meltdown, and the highlight must be the chapters (titled “Hurricane Season” and “Madly in All Directions”, respectively) that detail the collapse itself and the clumsy, haphazard government reactions. Reading it got my blood boiling all over again, and it became clear to me that the sheer pace of innovation in policy stupidity, illegality and destructiveness that we’ve endured over the past eighteen months has had a numbing effect. When faced daily with the prospects of a government takeover of the entire healthcare industry, the sinister dishonesty of the Paulson TARP legislation can easily slip from memory (was it really only 13 months ago?).
So no, it is not too early to document these events and this book is a welcome contribution to what I can only hope will be a vast literature of conscientious objection.
The first three chapters trot out the usual suspects to the crime. First, the easy money policy of the Federal Reserve in the wake of 9/11 and the dot com collapse which undoubtedly fueled the speculative boom in residential and commercial real estate. Second, the longstanding and bi-partisan government fetish with encouraging homeownership among people lacking the financial wherewithal, which resulted in the uncontrolled growth of the Federal mortgage monsters Freddie and Fannie. And third, in keeping with the narrative so familiar to us all, the proliferation of the “financial weapons of mass destruction” otherwise known as securitized mortgages in all their various mutations.
It is with this third chapter that I have the most difficulty. Although Norberg is pretty clear throughout the rest of the book that the blame for the financial fiasco rests with government, the stories about the “greed” and “short-termism” of Wall St. and the incompetence of regulators and credit rating agencies are too easily interpreted in exactly the wrong way: that what the financial sector needed was stronger, more active and insightful regulation. Although a careful reader would see that many of the excesses were unintended results of regulation (e.g., the capital standards that encouraged banks to push assets “off-balance sheet” via exotic securitization techniques, the credit rating cartel created by the SEC, etc.), this type of focus inevitably leads to calls for more and “better” regulation.
The mundane fact of course is that bankers (in fact, all businessmen, and probably the vast majority of the human race) seek to make money, and are frequently motivated with a short-term outlook – all the time, not just during speculative bubbles. Rating agencies simply are incompetent a lot of the time (financial economists have long known this – see, for instance, the extensive literature on how bond markets capture and price in credit quality long in advance of rating agencies). None of this is news in good times. And it wouldn’t be news in bad times either but for the much abused notion of “systemic risk” and the dreaded corollary “too big to fail.” There are no third party effects to worry about as long as risk, profit and loss are borne by the parties to the transaction. The outrages of the current financial crisis all stem from third party effects created by government, whether in the form of implicit (and ultimately explicit) Federal guarantees of Fan and Fred, ludicrously high levels of Federal deposit insurance for banks (now extended to money market mutual funds), or the pernicious bailouts of “too big to fail” institutions. All of these practices to a greater or lesser degree create the clear appearance of a game rigged by insiders for the benefit of insiders. Alas, the appearance in this case is not deceiving – taxpayers are on the hook for private errors on a mind-boggling scale. But again, this is not the fault of the private actors; it is a direct and clearly foreseeable consequence of a government and regulatory apparatus that allows, even encourages, private gain with socialized risk. There is a strong case for less not better regulation – starting with abolition of the moral hazard inducing “too big to fail” doctrine itself.
Norberg concludes his book with a chapter (“Tomorrow Capitalism?”) devoted to pointing out some sensible approaches to undoing the current mess and avoiding future ones. Unfortunately, from where we sit today it all seems rather like wishful thinking. Not only are we still in the depths of the crisis, with a zero percent Fed funds rate, an engorged Fed balance that will almost certainly lead to a monetary disaster down the road, double-digit unemployment, and staggeringly large government deficits (state and Federal) that threaten to turn America into a banana republic. We are also governed by a legislature and administration that are profoundly ignorant of and antagonistic toward freedom and enterprise.
But the battle of ideas must be joined, and this early contribution to the policy mistakes and consequences of our current crisis is a helpful start.
But if, as the cliché goes, journalism is a first draft of history, then this brief volume can be chalked up as an early second draft. Most of the citations within it are in fact from contemporaneous accounts in the mainstream and business press. And, as 2009 draws to a close, the week by week fumbling of Paulson, Benanke and Geitner in the fall of 2008 does in a way seem like a long time ago.
This is a breezy, often witty, retelling of the forces leading up to the 2008 meltdown, and the highlight must be the chapters (titled “Hurricane Season” and “Madly in All Directions”, respectively) that detail the collapse itself and the clumsy, haphazard government reactions. Reading it got my blood boiling all over again, and it became clear to me that the sheer pace of innovation in policy stupidity, illegality and destructiveness that we’ve endured over the past eighteen months has had a numbing effect. When faced daily with the prospects of a government takeover of the entire healthcare industry, the sinister dishonesty of the Paulson TARP legislation can easily slip from memory (was it really only 13 months ago?).
So no, it is not too early to document these events and this book is a welcome contribution to what I can only hope will be a vast literature of conscientious objection.
The first three chapters trot out the usual suspects to the crime. First, the easy money policy of the Federal Reserve in the wake of 9/11 and the dot com collapse which undoubtedly fueled the speculative boom in residential and commercial real estate. Second, the longstanding and bi-partisan government fetish with encouraging homeownership among people lacking the financial wherewithal, which resulted in the uncontrolled growth of the Federal mortgage monsters Freddie and Fannie. And third, in keeping with the narrative so familiar to us all, the proliferation of the “financial weapons of mass destruction” otherwise known as securitized mortgages in all their various mutations.
It is with this third chapter that I have the most difficulty. Although Norberg is pretty clear throughout the rest of the book that the blame for the financial fiasco rests with government, the stories about the “greed” and “short-termism” of Wall St. and the incompetence of regulators and credit rating agencies are too easily interpreted in exactly the wrong way: that what the financial sector needed was stronger, more active and insightful regulation. Although a careful reader would see that many of the excesses were unintended results of regulation (e.g., the capital standards that encouraged banks to push assets “off-balance sheet” via exotic securitization techniques, the credit rating cartel created by the SEC, etc.), this type of focus inevitably leads to calls for more and “better” regulation.
The mundane fact of course is that bankers (in fact, all businessmen, and probably the vast majority of the human race) seek to make money, and are frequently motivated with a short-term outlook – all the time, not just during speculative bubbles. Rating agencies simply are incompetent a lot of the time (financial economists have long known this – see, for instance, the extensive literature on how bond markets capture and price in credit quality long in advance of rating agencies). None of this is news in good times. And it wouldn’t be news in bad times either but for the much abused notion of “systemic risk” and the dreaded corollary “too big to fail.” There are no third party effects to worry about as long as risk, profit and loss are borne by the parties to the transaction. The outrages of the current financial crisis all stem from third party effects created by government, whether in the form of implicit (and ultimately explicit) Federal guarantees of Fan and Fred, ludicrously high levels of Federal deposit insurance for banks (now extended to money market mutual funds), or the pernicious bailouts of “too big to fail” institutions. All of these practices to a greater or lesser degree create the clear appearance of a game rigged by insiders for the benefit of insiders. Alas, the appearance in this case is not deceiving – taxpayers are on the hook for private errors on a mind-boggling scale. But again, this is not the fault of the private actors; it is a direct and clearly foreseeable consequence of a government and regulatory apparatus that allows, even encourages, private gain with socialized risk. There is a strong case for less not better regulation – starting with abolition of the moral hazard inducing “too big to fail” doctrine itself.
Norberg concludes his book with a chapter (“Tomorrow Capitalism?”) devoted to pointing out some sensible approaches to undoing the current mess and avoiding future ones. Unfortunately, from where we sit today it all seems rather like wishful thinking. Not only are we still in the depths of the crisis, with a zero percent Fed funds rate, an engorged Fed balance that will almost certainly lead to a monetary disaster down the road, double-digit unemployment, and staggeringly large government deficits (state and Federal) that threaten to turn America into a banana republic. We are also governed by a legislature and administration that are profoundly ignorant of and antagonistic toward freedom and enterprise.
But the battle of ideas must be joined, and this early contribution to the policy mistakes and consequences of our current crisis is a helpful start.
May 6, 2025
Low four stars. As a short and broad introduction to the financial crisis, it still works. A bit friendly for beginners, too. Puts a disproportionate blame on one side, but it still works. Reading gets too ideological around the last third of the book, starting with a bit of revisionism on the Great Depression and ending with a claim that "the problem is still with too much regulation," the proof being of course number of regulatory "pages" and employees without any mention of complexity. Lumps together international bodies which are merely guidance providers with national bodies which do have enforcement power, check. (Sure, others are "blamed" too but you can see by the number of words dedicated as to "who really is to blame.") I can still chalk all of that up to personal preference, though, so I don't think removing the fourth star is warranted. Still, there are a lot better financial crisis books out there.
December 12, 2018
Less government intervention, more individual rights, creativity, and responsibility. The U.S. Government not any government can be a good helicopter parent. When you artificially create a lot capital and then put up fences then you have to find other places like the shadow banking. People will find ways to be creative and make money no matter how many fences you build or regulations created. Privatization and liberalization is Johan Norbergs emphasis to avoid such terrible recessions.
May 16, 2017
Si el tema de la crisis financiera del 2008 te interesa y has visto muchas películas al respecto es obligado leer este libro. A pesar de que toca un tema bastante técnico esta redactado en clave literaria lo que lo hace de una fácil entendimiento. Un libro que todo el mundo puede disfrutar.
July 26, 2024
See my review for FEE https://fee.org/articles/financial-fi...
June 12, 2011
Get to a local library and read this short book. von Mises' Human Action, in action, basically. I don't ever want to hear that "laissez-faire" economics created the housing crisis ever again.
Norberg does an excellent job of calmly reporting how the disaster unfolded and waits until the last chapter to criticize the policies that lead to the mess. Short sighted government policies (since politicians need to be reelected, their view is always short sighted) lead to booms in the short term that can lead to great disasters in the long. Cheap credit creates good times now, but a disaster in the long run, in particular if government intervention funnels all of that money into a particular sector (say, housing). But then, anyone who read von Mises' books from the first half of the 20th century knew that already.
A very dire warning concerning the future. Cheap credit and government spending got us into this mess, and the government's proposal for saving us now is...cheap credit and massive deficit spending. Hmm, I feel like I've seen this one before.
Norberg does an excellent job of calmly reporting how the disaster unfolded and waits until the last chapter to criticize the policies that lead to the mess. Short sighted government policies (since politicians need to be reelected, their view is always short sighted) lead to booms in the short term that can lead to great disasters in the long. Cheap credit creates good times now, but a disaster in the long run, in particular if government intervention funnels all of that money into a particular sector (say, housing). But then, anyone who read von Mises' books from the first half of the 20th century knew that already.
A very dire warning concerning the future. Cheap credit and government spending got us into this mess, and the government's proposal for saving us now is...cheap credit and massive deficit spending. Hmm, I feel like I've seen this one before.
Currently reading
February 17, 2010So far so good. Does a fair job of explaining the very complex banking and housing policy initiatives and financial vehicles that contributed to our current mess and the insolvency of Fannie Mae, Freddie Mac et al. The author spreads the blame around pretty evenly, and shows that this crisis is a bit like the Murder on the Orient Express: in the end, everyone is guilty; the banks, the borrowers, the Fed, and both political parties. Published by the Cato Institute and has a definite libertarian angle--keep that in mind.
August 13, 2010
In-depth analysis of how the government contributed to the financial crisis, mainly by propping up assets, particularly home prices, and by engaging in bail-outs. The author explains his points in terms simple enough that a layman can understand it. Also, he isn't overly ideological, and lays blame on both political parties for the problems. A must-read for anyone interested in our recent economic problems.
October 20, 2015
Intressant bok om hur bolånebubblan uppstod och sprack i USA 2007-2008. Om hur staten och FED såg till att bubblan blåstes upp ännu mera, istället för att försöka dämpa den. Och om hur finansministeriet blåste skattebetalarna på 700 miljarder dollar. Norberg menar att när media pratar om krav på mera statsinblandning och -reglering, är det istället mindre som behövs, eftersom statliga åtgärder och regleringar ofta slagit fel och förvärrat situationen.
August 4, 2013
I highly recommend this book! Not only does it contain a detailed historical step-by-step explanation of the financial crises of 2007/08. But also interesting perspectives to the crises in the 1930's. all in all an insightful read regardless of your prior economical knowledge.
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