Financial Shock: A 360 Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis | 
| Author: Mark Zandi
Publisher: FT Press
Category: Book
List Price: $24.99
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Avg. Customer Rating:  78 reviews
Sales Rank: 7126
Media: Hardcover
Edition: 1
Number Of Items: 1
Pages: 288
Shipping Weight (lbs): 1.7
Dimensions (in): 9.1 x 6.1 x 0.9
ISBN: 0137142900
Dewey Decimal Number: 332.7220973
EAN: 9780137142903
ASIN: 0137142900
Publication Date: July 19, 2008
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Product Description
"In Financial Shock, Mr. Zandi provides a concise and lucid account of the economic, political and regulatory forces behind this binge." --The Wall Street Journal "Aggressive builders, greedy lenders, optimistic home buyers: Zandi succinctly dissects the mortgage mess from start to (one hopes) finish." --U.S. News and World Report "If you wonder how it could be possible for a subprime mortgage loan to bring the global financial system and the U.S. economy to its knees, you should read this book. No one is better qualified to provide this insight and advice than Mark Zandi." -- Larry Kudlow, Host, CNBC's Kudlow & Company "Every once in a while a book comes along that's so important, it commands recognition. This is one of them. Zandi provides a rilliant blow-by-blow account of how greed, stupidity, and recklessness brought the first major economic crises of the 21st entury and the most serious since the Great Depression." --Bernard Baumohl,Managing Director, The Economic Outlook Group and best-selling author, The Secrets of Economic Indicators "Throughout the financial crisis Mark Zandi has played two important roles.He has insightfully analyzed its causes and thoughtfully recommended steps to alleviate it. This book continues those tasks and adds a third--providing a comprehensive and comprehensible explanation of the issues that is accessible to the general public and extremely useful to those who specialize in the area." --Barney Frank, Chairman, House Financial Services Committee The subprime crisis created a gigantic financial catastrophe. What happened? How did it happen? How can we prevent similar crises from happening again? Mark Zandi answers all these critical questions--systematically, carefully, and in plain English. Zandi begins with a fast-paced overview and then illuminates the deepest causes, from the psychology of homeownership to Alan Greenspan's missteps. You'll see the home "flippers" at work and the real estate agents who cheered them on. You'll learn how Internet technology and access to global capital transformed the mortgage industry, helping irresponsible lenders drive out good ones.Zandi demystifies the complex financial engineering that enabled lenders to hide deepening risks, shows how global investors eagerly bought in, and explains how flummoxed regulators failed to prevent disaster, despite crucial warning signs. Most important, Zandi offers indispensable advice for investors who must recognize emerging bubbles, policymakers who must improve oversight, and citizens who must survive whatever comes next. *Liar's loans, flippers, predatory lenders, delusional homebuilders How the housing market came unhinged, and the whirlwind came together*Alan Greenspan's trillion-dollar bet Betting on the boom, ignoring the bubble*The subprime market goes global Worldwide investors get a piece of the action--and reap the results*Wall Street's alchemists: conjuring up Frankenstein New financial instruments and their hidden contents*Back to the future: risk management for the 21st century Respecting the "animal spirits" that drive even the most sophisticated markets
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| Customer Reviews: Read 73 more reviews...
 Timely and Prescient November 13, 2008
Could this book be any more timely? Are you wondering how we landed in our current economic predicament? Are you reeling from your last 401(k) statement? This book, written and released prior to the complete meltdown of the equity and credit markets that unfolded in September 2008 ( and continue to), will help explain what led us here, and while the author does indicate his inclination to believe the worst was over (we now know he was wrong), he is also quite prescient as he points to certain steps (by both private and public entities) that must be taken to alleviate the current pain and get us out of this mess, and to address underlying systemic factors to prevent its recurrence. His recommendations look remarkably similar to the actual action plans unfolding in Congress and the Treasury Dept in October/November 2008.
But here is the magic of this book, the author very clearly explains the direct and indirect connections between the inability of a homeowner in Anytown, USA to make his/her mortgage payments, and the subsequent meltdown of the mortgage market, and the resulting impact on the credit markets. Mark Zandi explains the intricate, overlapping role of all of the players here, the homebuyer, the banks, the mortgage brokers, the flippers and speculators, and the creative (i.e., greedy) investment bankers, but he spreads the blame around.
The best thing about this book is that the reader does not need to have a degree in economics to understand the basics of a very complicated industry and how its sophisticated (nontransparent) security manufacturing "creativity" led to a global recession. If you want to understand how big investment banks (Lehman, Bear Stearns) and several other financial institutions (Washington Mutual, Wachovia, etc.) could fail in such spectacular fashion, this book gives you the foundation. On the other hand, there is enough intelligent discussion and cogent explanation here to keep the more sophisticated reader engaged and walking away with a greater understanding of the beginning of the events in the sub-prime mortgage market that continue to unfold across the economy.
I would expect that the author is probably already at work on another chapter addressing market events in the fall of 2008, the government takeover of Freddie Mac and Fannie Mae, TARP and the bailout in general. Stay tuned for an updated edition.
Fair assessment of the problems of all things related to mortgages and more November 13, 2008
To be fair, I think the author did a fine job of describing in very easy to understand terms how mortgages exist and contributed to what is now widely accepted as a severe recession.
To anybody familiar with mortgages, mortgage back securities, credit-default swaps and other financial derivatives, this book will not teach anything new.
I do believe that a better approach to understanding the current financial crisis would be to read books regarding the Austrian school of economics. I would even go so far as to recommend Ron Paul's books, and any other books that look at the role the Federal Reserve serves in determining the overall money supply.
Better to Have Read Before the Crisis November 9, 2008
There's nothing wrong with this book except for the timing of its release. Even with that, the author and publisher actually should be commended for releasing such a timely book. However, with a topic that became so pervasive, so "front page," I think it would have been impossible to put out a book this detailed and thoughtful before the tidal wave of media coverage the sub-prime events obtained in October.
To make matters worse, there are a number of books that came out at the same time. I've been reading two, this one and The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It and attempted to read both fast enough to give a comparison/contrast of the two. Then, a third came out, Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis, and the crisis will be totally addressed if I wait to read the third :-)
There are, I'm sure, a few others out there as well at this point. So, it comes to this--if you're really set on understanding the details of how we became so cash-poor, either Financial Shock or The Suprime Solution are worthy readings. If you're looking for a financial-heavy account, choose the Mark Zandi book. If you're looking for a social view of what got us here, Shiller's book is better. However, both fill in where the other needs it, so reading both has value, especially if you missed the media blitz in October.
Both books fall short, though, where business books often do--the supposed "how to fix" or "what to do" going forward. Reading these books, even if you are Henry Paulson or someone else truly empowered to take major actions, isn't going to create any fix to this issue that the market isn't already correcting on its own. Reading these books won't make you a financial fix-it genius, but they will give you a good working feel of how we got where we are.
 Great Background But Isn't Complete November 8, 2008
Financial Shock is a good book for background on the subprime mortgage crisis. The author does a good job of explaining why "securitization" eventually led to the downfall of the mortgage industry. Unfortunately, the book does not have a decent ending, because many HUGE things have happened since it's publication. So, although you are given a narrative of the implosion of the subprime mortgage industry, you are not given a narrative for what follows. Of course, as of this date, it can't be given since the financial fallout from the subprime crisis will not be known for years I imagine. Thus, I'm not sure about the 360 subtitle. I was overall happy with the explanations in the book. Most of it is easy enough for a regular Joe like me to understand. There are a lot of abbreviations, but only a few are of importance to us, and most we have heard on the evening news recently. I do suggest reading the book, as it provides some bacis information that everyone should know. As much I blame the financial companies for the subprime mess, people also knew what they were getting into, and if they didn't, it is because they did not understand financial principles or have an attorney explain their contracts to them. If some of them had read this book first, such heartaches might have been avoided. No doubt the speculators would have went ahead trying to make a buck, and the crisis would still have transpired. But maybe everyone can learn a little about financial instruments and prevent something similar happening in the future.
 Thorough Analysis of the Subprime Shock November 7, 2008
Mark Zandi's "Financial Shock" is simply written and anyone with a rudimentary grasp of Economics 101 will have no trouble understanding the concepts presented in it. Zandi takes care to explain financial terms and concepts that might present difficulty to the layman. As for the treatment of the subject matter, Zandi is thorough in his analysis and I find his opinions on the causes of the current mortgage crisis to be sound, balanced, and for the most part, unbiased.
Zandi first gives a broad picture of the various causes that precipitated the mortgage crisis and examines each one in turn:
- Federal Reserve's deregulatory stance.
- Mortgages and consumer loans were "securitized." and made into tradable securities. With securitization, lenders could originate loans, resell them to investors, and use the proceeds to make more loans -- Global investors bought it all up.
- Lenders lack a system for assessing and managing risk.
- ARM Homeowners and subprime borrowers took on more than they realized. Most of them were lower-income people, less educated people, and members of minority groups who were less apt to understand the terms of their ARM loans.
- Lenders did not require borrowers to prove they had sufficient income or savings to meet the payments - many borrowers lied about their income. (This type of loan thus became known among mortgage-industry as "liars' loans.")
- Appraisals were based on cursory drive-by inspections and on nearby homes that had recently been sold or refinanced.
- Home builders over-estimated the demand and kept on building through summer 2006.
- Flipers bid up property prices
Terms such as "flippers", "ARM", "subprime", "securitization", and others are all explained.
The book also offers some startling facts. Here are a couple of excerpts:
"Starting in 2000, prices crossed above their trend line and just kept going up.
The spike had never happened in modern U.S. history, according to data dating back
to 1890 that Shiller painstakingly compiled for the second edition of his book
Irrational Exuberance in 2005."
"The frenzied lending hit an apex in 2006. Of the $3 trillion in loans extended to all mortgage borrowers that year, $614 billion were subprime, $475 billion were alt-A, and $395 billion were jumbo ARMs. An incredible $250 billion in the riskiest stated-income, no-down-payment subprime ARM loans were originated."
I do have a word to say about the charts and illustrations in this book. As some have noted the grayscale charts and illustrations make it very difficult to distinguish among the data elements represented.
Despite this little downside, I found the book to be highly informative, and have helped me gain insight and understanding into the factors that led to the housing crash. I think you will find this a very worthwhile read.
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