Resources on the financial crisis
A lot has been written on the financial crisis, but here are my recommendations for those seeking to understand the causes of what went wrong.
The 2010 documentary, Inside Job is well made, and features interviews with very important figures in the crisis. The trailer is here:
My criticism of it is that it focuses too much on the immediate manifestation of the problem (conflicts of interest between Wall Street and Federal agencies) and not enough attention to the underlying causes that generated the easy money, relaxed lending standards, and regime uncertainty. As an anti-capitalist rant it’s effective and fun, but as an economic explanation it is overly simplistic and incomplete.*
Here is my explanation of the causes of the crisis: (and the lecture notes for this talk are here)
This is how South Park explain the problem:
And here is there insight into the discretionary judgements of policymakers during the crisis:
There has been a lot of discussion about who did or didn’t predict the financial crisis. You can read my survey of these claims, as well as my own public statements prior to the crash, here:
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“The Paradox of Prediction“, March 2016
Martin Wolf provides a sensible explanation here:
“The proximate cause of the crisis was an explosion of indebtedness, much of it associated with sharp rises in the real prices of property. A significant part of the explanation for this debt explosion was reliance on household debt for sustaining consumption, especially in the US, since the real incomes of so many were stagnating.39 Behind this were even more profound changes, including the entry of China into the world economy, the liberalization of the financial system, and undue reliance on a monetary policy that targeted only inflation. Ultimately, the financial crisis was the consequence of huge (and insufficiently understood) shifts in the world economy transmitted via a grossly undercapitalized and underregulated financial system.” (Wolf, M., 2023, The crisis of democratic capitalism, Allen Lane, p. 99)
Engaging, populist books:
- Financial Fiasco, Norberg, J., Cato Institute, 2010
- Meltdown, Woods, Thomas, A., Regnery, 2009
Policy-focused pamphlets:
- The House That Uncle Sam Built, Boettke, P.J. & Horwitz, S., Mercatus Center, December 2nd 2009
- Questions and Answers about the Financial Crisis (.pdf), Gorton, G., (Prepared for the U.S. Financial Crisis Inquiry Commission), February 20, 2010
Thorough, academic accounts:
- Verdict on the crash: causes and policy implications, Booth, P., (ed), Institute of Economic Affairs, 2009
- What caused the financial crisis, Friedman, J., (ed) University of Pennsylvania Press, 2011
- Engineering the financial crisis, Friedman, J., and Kraus, W., University of Pennsylvania Press, 2011
Entertaining and informative videos:
- ‘The crisis of credit visualised‘ Jonathan Jarvis
My own account of the UK experience is:
- 2015 “The financial crisis in the United Kingdom. Uncertainty, calculation and error” in Boettke, Peter J., and Coyne, Christopher J., (Eds) The Oxford Handbook of Austrian Economics, Oxford University Press
* Note that around the 11 minute mark, Matt Damon says: “In September 2008 the bankruptcy of US investment bank Lehman Brothers and the collapse of the world’s largest insurance company, AIG, triggered a global financial crisis”. But the graphic used to accompany the subsequent stock market crash has “bailout defeated” as first main bullet point!