It was the year 2008. I was happily settled in an MNC NBFC, having been promoted recently and destined for more growth. Just as I was thinking that things could only get better from here, the scales tilted and everything went on a downward spiral. Within a span of 6 months, I was left searching for jobs - twice. What was looking like one of the most memorable periods of my life for all reasons good, turned out to be an unforgettably forgettable period. Reason? The conflagration that was threatening to burn down the Wild West of American economy – the Wall Street.
While wild fires are normally limited to the geographies where they started, this financial inferno was spreading far and wide, threatening to bring down the global economy, thanks to its interconnected nature and growing ambitions. Though I had an inkling of what caused the Financial Crisis of 2008, resulting in the not-so-memorable changes in my life, I was curious to learn more about it. The aptly titled ‘Firefighting’ is the first of the shortlisted books and it turned out to be a worthy prelude.
Subprime Mortgages – these two words caused all that chaos. To tell you the background in simple terms, just like me the world was highly optimistic in the years leading to 2008. Investors were willing to bet on high-risk investments that promised high returns. Banks and financial institutions were flooding the market with liquidity. People were starting to chase the dream of owning a house. As a result, there was a boom in real estate in the US and elsewhere, with real-estate prices increasing every day. Financial institutions that were lending to fuel this boom wanted to raise more funds to lend more. One of their ideas was to repackage these loans into mortgage-backed securities (MBS) and sell if off to return-craving investors, on promises of regular returns.
With the demand for MBS growing more and more, the financial institutions started giving home loans to even uncreditworthy people – people with no solid income, no credit history and no assets to guarantee the repayment. On one end, investors were pouring in money, driven by greed, and on the other, banks were throwing it all away by lending it to all and sundry, based on overconfidence bordering on arrogance. It was all based on the assumption that the real-estate demand will keep up and the prices will go on increasing.
Then came the slump in demand for housing and suddenly there were more houses than takers. Also, the subprime mortgages were starting to go sour. With defaults piling up and the investors starting to pull out their investments fearing losses, the financial institutions that were indulging in this perilous business were starting to fall like dominoes. Their collapse resulted in serious recession and unpleasant fallouts elsewhere too – in the form of job losses, negative spends, resultant decrease in demand and in turn, more job losses – including that of people like me.
This book is written by the people who were in the forefront fighting that financial hellfire – Ben S. Bernanke, Chairman of the Federal Reserve, Timothy F. Geithner, Treasury Secretary (Obama) and Henry M. Paulson, Jr., Treasury Secretary (Bush). Advantages of reading a book written by people who fought the fire is that you expect to get a front-row view of the crisis as it unfolded. The book lives up to that expectation. With their experience and wisdom, they have well explained the causes of the crisis, events during the crisis, the casualties and the cure administered. Comprehensive and unbiased, they have pointed out the pros and cons of the corrective measures taken by both administrations – by George W. Bush and his successor, Barack Obama. Having written the book by 2019, they have also shared their thoughts on how America is well and ill-equipped to handle a similar crisis at present, especially as it stood polarized under an uncouth president like Donald Trump.
One of the negatives is that they have written the book in a diplomatic manner and from too high a view to recount the pains of people at the bottom of the financial pyramid. Neither is there a recounting of greedy arrogance of the CEOs that dragged American economy to its nadir (but who received safe exits – ‘golden parachutes’ – sans compunction). Nor is the resulting global financial pandemonium spoken about in detail. But considering the authors’ positions and the fact that this book is mainly about the financial crisis in America, we understand that those topics are simply out of the scope of this book.
Clear and comprehensive, this will be one of my favorite books on the financial crisis 2008!
A.
