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Financial Shock
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Product Description

From the Back Cover

The subprime financial crisis is the decade's #1 financial story. What happened? How did it occur? And how can we prevent similar crises from happening again? Dr. Mark Zandi answers all these critical questions - systematically, carefully, and in plain English. Zandi begins with a fast-paced "history" of the crisis: where it started, how it spread, and where the fallout has landed. Next, he illuminates its deepest causes, ranging from the psychology of homeownership to Alan Greenspan's missteps. You'll watch the "flippers" at work and the real estate agents who cheered them on. You'll learn how Internet technology and access to global capital transformed mortgage lending, helping irresponsible lenders "drive out" good ones. Zandi demystifies the complex financial engineering that enabled lenders to hide growing risks and shows how global investors eagerly bought in, despite key warning signs. You'll discover how homebuilders contributed to the crisis, and how flummoxed regulators and policymakers failed to prevent it. Zandi offers indispensable advice for investors who must recognize emerging bubbles, policymakers who must improve oversight and citizens who must reduce their risks, so they can survive whatever comes next.

Customer Reviews:

  • Get this book to understand out current financial problems !!
    This book is quite the eye opener !

    It almost holds your hand--as it takes you step by step thru the maze of our current financial problems.

    Perfectly laying out for the readers easy understanding--it shows you the whys..the hows...and some of the whos --that enabeled and/or caused the meltdown in stocks..bonds..sub prime loans and others types of loans and gaurantees as well.

    I chose this book because I want to better understand what is really happening to our country right now and more importantly WHY !!!!!!!! This book has explained it to me clearly --in languge that I can understand --and most likely a high schooler...maybe even a smart Jr. High Schooler can understand. For this reason --I give this book a high mark.

    If your looking to get a deeper understanding of whats going on in todays financial world...get this book !! You will not be disappointed !! .....and you will understand everything once you've read it through !!...more info
  • Lame Explanation from a Barney Frank Democrat
    I read this book because it got a plug from a columnist I respect in a free market publication, but after I took a look a the cover & saw a "thumbs up" from no less a Democrat VIP as Barney Frank, I began to wonder why I was bothering.

    The book has many good explanations on why there was so much cheap money circulating in the US during the 2000 to 2008 period, but makes almost no mention at all on the critical role that Democratic Party influence in the US had on the creation of the sub-prime market, via the CRA and its off balance sheet twin monsters of Fannie Mae & Freddie Mac.

    Zandi also doesn't go into any depth explaining why his employer, the rating agency Moody's, gave Lehman Bros, Bear Stearns, Fan/Fred, et. al., AAA ratings right up to the day they went broke. Bandi has some 'splainin to do but, in his world, it's all due to the GOP and its anti-regulatory zeal. The Democrats were doing everything humanly possible to avoid all of this, if only they were allowed by the feckless Republicans.
    Zandi is just a Democrat shill and I wouldn't waste your time reading his screed....more info
  • Evenhanded, Extensive Review of the W Bubble
    Probably really a 4-1/2 star effort in my view...

    This is a pretty extensive autopsy of the bursting of the Greenspan/W bubble economy of the 2000's. It pulls together most of the threads, which range into all areas of the global economy (as the magnitude of the continuing collapse indicates). This work is objective to a fault (hence a few lines relay some pretty colossal gaffes by those in charge without any editorial comment).

    I haven't read any other book length treatments so far, so don't have other comparisons on the subject matter, but this book is certainly very readable and strikes a good balance of detail and pedagogy.

    Essentially non-partisan in nature, it provides a well-rounded overview of what happened with the latest economic bubble, though one may then want to look a little deeper into the flawed practices and philosophies that grew unabated until (to paraphrase) they just about took this whole sucker down. There's blame to go around just about everywhere, but the author (perhaps wisely in this broad an overview) takes care not to dwell on that aspect.

    There are a lot of reviews here that go into fairly great depth on the specific content and conclusions of this book. One can't argue with the facts or the methodical presentation. There are some useful insights and a few carefully chosen charts that provide compelling dimension to the analysis. The author also does excellent yeoman's work in explicating the finer points of the financial practices and the terminology behind the issues, which is important since it all seemed to get so arcane and opaque that those who should have been regulating those practices lost track of them and/or lost the ability, or resources (or maybe just the will) to regulate them.

    Another good place to get somewhat of an inside view of this (in an entirely different and fast paced format) is the radio show: "The Global Pool of Money" from This American Life, which can be found (for a nominal price) in their archive.

    We can hope we (and more particularly our leaders) finally learn from this, but there has been an unending chain of deregulation followed by disaster, and of bubble economies. Some things actually have to be regulated and managed, unless we want to ride the booms and busts perpetually. We can probably fix what happened to allow this (at great cost after the fact), but without some fundamental changes and a forward looking approach we will just be moved on to the next one. Similarly we're not going to get the solution to moving beyond this situation right without some philosophical changes in the shape of the immediate solution. Stabilizing home values will stop it, but that requires dealing effectively with the millions of individuals impacted, which so far is just not in the consciousness of those in charge.


    ...more info
  • Capitivating book on our current crisis
    I highly recommend this book that explains the causes of our current financial crisis. It is written in layman's terms so those without a finance degree can easily understand it....more info
  • The Story of 2008
    This book simply lays out how we got to where we are. It is written for the non-accountant, non-economist types (like me) who follow the markets out of interest.

    It is timely (to some degree) and explains recent history. I would recommend it to anyone who has an interest in finances or anyone wondering how we got here.

    It is mostly about the mortgage crisis, and not the recent credit crisis developments. He looks at all players, including banks, the Government, investors, home buyers, and many more.

    The only issue I have with this book is that there needs to be a sequel to explain what has devloped since its publication!...more info
  • Fantstic read
    Mark Zandi does a terrific job of explaining the subprime mess that helped propel this financial crisis to near doomsday. The book is a detail and thorough analysis and is a good read for those who enjoy the world of finances and how interest rates and such work.

    However, as with most financial crisis, it is always easier to tell how it all happened after it happens. Good information, and a good read. Give it a read. ...more info
  • Outstanding!!
    This book is very well written. Zandi writes in an easy to read style that is informative and interesting. I really enjoyed this book. It is simple enough for the laymen, but still extremely interesting and informative for someone with extensive financial and economic knowledge....more info
  • Good Introduction
    This is a very timely look at the current subprime lending implosion.
    I believe this book would be a good introduction and one work to consider reading if you are interested in understanding the economic crisis we are in.

    It provides a good background for people unfamiliar with the basics of what has been occurring in the real estate market and credit markets. Essentially this book provides a tour of the crisis going back several years.

    One explanation of the current crisis is the decoupling of loan origination decision making from the ultimate holder of the loan. Financial Shock makes the case that lenders were essentially lending without a careful analysis of repayment risk. They simply did not care. They did not care, because the mortgages were simply originated by them and resold into the credit markets. So the more loans they originated, the more profits they made - even if the lendee was a bad credit risk and thus led to eventual non-repayment (known as non-performing loans). These lenders did not hold the loans. They sold them. It was not just normal banks and thrifts that were in the mortgage lending business. Others such as private mortgage lenders, real estate investment trusts, and eventually even newly formed subsidiaries of large investment banks got into the action.

    The book also details how former Chairman of the Federal Reserve Alan Greenspan believed the housing markets were dissimilar to most other asset markets in that they were less subject to bubbles and "irrational exuberance." If the author's case is correct (which he cites Greenspan's speeches), after the Internet bubble burst, global central bankers were concerned more with disinflation than inflation and the US Federal Reserve stimulating the housing market by lower interest rates. Both the US and many global central banks lowered interest rates to unprecedented levels. Asset markets were then awash with cash and liquidity and much of this global liquidity found its way into US securities backed by mortgages.

    This is just part of the story. The book also provides a good introduction to some basic aspects of global capital flows based on trade flows (and thus trade deficits); and for people who haven't studied much economics, I believe this book will be good in providing some basic economics and some basic understanding of securitization and the shifting of risks that the securitization of mortgages resulted in.

    Sometimes when risks are shifted, the economic actor that is best to evaluate such risks and mitigate them or minimize them - such as a local lender - abdicates responsibility, because they have no need to properly evaluate the risk. Thus, this dislocation can cause and apparently has caused a serious economic and financial problem that we are no dealing with.
    When the housing market's bubble burst, liquidity drained out of the credit markets. Most structured credit products based on collateralized debt obligations and other securities based on mortgages cannot be priced now. Many mortgages are no longer truly secured by the underlying collateral as housing prices declined and buyers have evaporated out of the market - i.e., properties cannot be sold. Many people have walked away from their mortgages.

    These are some of the issues that this book deals with and it does provide a good introduction to some of the basic concepts in the current crisis. If you are interested in learning more about the current crisis and a obtaining a good background in order to understand some of the issues in the current crisis (as well as a little about past crises) or future crises - although all such crises are different from each other, certain aspects do recur - I highly recommend this book as a good starting point in gaining an understanding.


    ...more info
  • Educational & Sometimes Shocking
    Billed as "A 360 degree Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis", Mark Zandi's "Financial Shock" looks way beyond subprime mortgages, as well it should, to underlying problems of the credit markets, financial engineering of mortgage backed securities and derivatives, home builders, etc. and ultimately to a world-wide debt binge that led to over-leveraging and the collective failure of investors of all stripes to adequately hedge or otherwise protect themselves against the risk of adverse events like the collapse of the housing bubble.

    Many readers will know enough to breeze through the chapter on subprime mortgages and those with humdrum titles like "Everyone Should Own a Home" and "Home Builders Run Aground". But this reader found Zandi's explanation of global participation in the US credit markets fascinating. For example did you know that "foreigners" held approximately $7 trillion in U.S. "credit market instruments" and nearly a third of all U.S. mortgages

    Also interesting is the chapter on financial engineering, which explains the alphabet soup of residential mortgage backed securities (RMBS), collateralized debt obligations (CDOs) and structured investment vehicles (SIVs) and their respective roles in offloading the risk of home mortgages from the originating lenders onto the "shadow banking system." In this chapter Zandi cites the following statistic: "By the second quarter of 2007, ... the shadow banking system provided an astounding $6 trillion in credit ..." , almost as much as traditional banks.

    Zandi ignores the role of his own employer (Moody's) in providing optimistic credit ratings for mortgage-backed securities by stating in the introduction, "To avoid any appearance of conflict of interest, I have no choice but to leave discussion of that facet of the subprime shock to others."

    "Boom, Bubble, Bust and Crash" will be a tough chapter to read if you ignored the early warning signs of a real bubble bursting. Zandi cites July 30, 2007 when two of Bear Stearns' hedge funds collapsed as the start of the crash. If you connected those dots with the ensuing credit crunch that destroyed the stock market in the second half of 2008, you're going to feel pretty smart after reading this and the ensuing chapter, "Credit Crunch." The rest of you (self included) will feel pretty sheepish. Or maybe you'll ask, "Why didn't my financial advisor or broker warn me?"

    One quibble is that Zandi uses the Price-to-rent Ratio to track relative home values rather than the more meaningful price-to-median income, a measure of affordability. And by failing to adjust for declining cost of capital (mortgage rates) since the 1980s, Zandi overstates the relative increase in home valuations in the mid 2000s. I expected more from Moody's chief economist.

    The "Credit Crunch" chapter explains how the problem was much, much bigger than subprime mortgages. Zandi states, "It is difficult to see how mortgages could have been the catalyst for such a wrenching financial crisis" because "mortgage loan losses were less than 5% of the $11 trillion ... U.S. mortgage loans outstanding" and less than ? % of the "$140 trillion in loans and debt securities ... around the world." Makes Hank Paulson's $750 million rescue package sound kind of small, doesn't it? Zandi goes on to explain how and why the larger credit crunch developed full force in 2008, although it reads a bit more like a textbook than a forensic study.

    The next two chapters, "Timid Policymakers Turn Bold" and "Economic Fallout", pretty much complete the "360 degree Look". As with many books, Zandi's policy recommendations in the final chapter ("Back to the Future") are not exactly startling for their perspicacity. In particular, he punts on the issue of financial regulation by endorsing the Treasury Department's "Blueprint for Financial Regulatory Reform" thereby avoiding all-important specifics.

    Taken together with Paul Krugman's latest book, "The Return of Depression Economics and the Crisis of 2008", "Financial Shock" is a good layman's introduction to what just happened. But you will have to look elsewhere for a deep analysis backed up by facts and figures or for answers about what the future holds.
    ...more info
  • Simple, Clear Explanation of The Financial Meltdown
    I am a twenty year Financial Consultant, Real Estate Agent, Insurance Agent. Although I am in the broader industry where these events have and still are occuring, there are many facets of the meltdown of which I was not familar. I found Mark Zandi to be very knowledgable, and to have an insight into the inner workings of the investment world that many of us working in it do not have.
    Mr. Zandi has provided a good background, then explained each area that played a part in the Financial Crisis, and finally gave some excellent apraisals of the various players and their culpability. He summarizes with excellent suggestions for making the regulatory and policy changes that he feels will protect our markets and economy from future crisis.
    This book is very well written and provides an understanding for readers at all levels. It would make a good educational tool for students....more info
  • Cogent Explanation
    This was a cogent explanation of the various factors that went into the ongoing subprime debacle. It struck a midpoint between a facile explication of the causes and more rigorous analytics for the quant-jocks.
    I would have prefered more detail... but then again, I'm a bit of a quant jock....more info
  • Timely
    I enjoyed reading this book. The information is timely and although it appears the information will fly over a novice's head, Zandi does a good job of keeping it simple. Simple enough that even the average person with no economic understanding can pick up this book and read it and have a total understanding of the subprime mortgage crisis.

    Zandi details how the housing market boomed between the years of 2004 to 2006 and when the boom busted and why it burst.

    Zandi used numerous charts and graphs that I don't think are necessary for how many times he attempts to show the reader the levels of the crisis. The information written tells a more compelling story of this implosion.

    In Chapter 14, Zandi outlines policies he thinks need to be enacted to spear any future major financial crisis. Some of the policies are common sense policies that would probably would have been enacted if deregulation wasn't so predominate. ...more info
  • Too early
    This books goes over every detail of the financial crisis. It is very well explained, and I can see this as a first rate text book for schools, or for the casual reader who would like to understand more on how the current crisis started.

    It unfortunately was released too early and a second edition should come out. The book for example does not describe the events that have occurred since September '08.

    Regardless of the early release, this book is an easy quick read that gives very good back ground information on how everything started going downhill.

    Before buying I would check to see if a next edition comes out hopefully with the Lehman story and the trillion dollar bailout effort.
    ...more info
  • Outstanding Read
    I've been voraciously reading economic and financial books over the last few months, as many other have. We all want to know what went wrong, when it went wrong, how we're going to get through it and when it will end.

    Financial Shock does a great job explaining the how, why, who and where. How did the subprime collapse implode our entire financial system? In an interesting and easy to read format, Zandi explains the recurrent system of financial panics that occur every ten years or so. He explains that the fix to this one will be with heavy government debt.

    This is a riveting book, and is a must-read. Everyone needs to know what happened so we can learn not to repeat this series of mistakes again.

    Other great books I recommend include:

    Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas Woods - which has similar background information, but gives another fascinating look at where we are and where we need to go. Riveting read.

    How to Sell Your Home in Any Market: 6 Reasons Why Your Home Isn't Selling... and What You Can Do to Fix Them by Loren Keim is the one book that outlines more than just home marketing and staging to get rid of your property in this housing collapse, but explains the process of short sales and steps you through negotiating with the bank if necessary. Great stories in this book....more info
  • Kindle price for this book is too high
    I know this is not a review, but I don't know where else to say this: Why does this book cost 14.99 for the Kindle edition? I hope that this will not be a trend in kindle prices, now that I have one....more info
  • The Perfect financial storm explained
    "The severity of the housing crash was without parallel,save perhaps for the Great Depression". Page 215

    If you are looking for a book to explain to you what has happened in our financial markets, this is the book for you. The author Mark Zandi has written an easy to read and understand book on exactly what has happened, why it happened, and what the government can do to stabilize the situation and avoiding a repeat.

    The situation started with low interest rates and the dream of home ownership for all Americans. As the housing market got heated up buyers and speculators were bidding up prices. The competition to write mortgages really heated up and to compete lenders lowered their standards and started loaning "sub prime" mortgages to buyers with shaky credit histories who were risky. ARMs (adjustable rate mortgages) were also employed to keep the markets going, after 2 years these loans would adjust higher with rising interest rates, but initially would make bigger homes more affordable. However the refinancing of these loans could not take place after the 2 years were up because of inadequate equity due to falling home prices during the downturn in home sales. By bundling mortgages into bonds and selling them as securities to hedge funds and investment banks the party continued with even lower borrowing standards. In all bubbles eventually you run out of buyers and prices crash, in the end millions of foreclosures caused millions of people to walk away from their homes and let the banks have them back. This lead to a change reaction that caused over 40 mortgage companies to go bankrupt, along with bail outs or take overs of AIG, Bear Stearns, Lehman Brothers, Country Wide Home Loans, Washington Mutual, Fannie Mae, Freddie Mac, Wachovia, Merrill Lynch, to name a few. The liquidity of our financial markets are locked up in the hundreds of millions of dollars locked up in empty houses setting around the country after foreclosures. Along with the dollar weakening and energy prices soaring we are truly in the middle of the perfect economic storm. We have just begun down this road, is this the second great depression? The book is excellent and will give you a full understanding of the situation....more info
  • Better to Have Read Before the Crisis
    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....more info
  • Outstanding Read
    I've been voraciously reading economic and financial books over the last few months, as many other have. We all want to know what went wrong, when it went wrong, how we're going to get through it and when it will end.

    Financial Shock does a great job explaining the how, why, who and where. How did the subprime collapse implode our entire financial system? In an interesting and easy to read format, Zandi explains the recurrent system of financial panics that occur every ten years or so. He explains that the fix to this one will be with heavy government debt.

    This is a riveting book, and is a must-read. Everyone needs to know what happened so we can learn not to repeat this series of mistakes again.

    Other great books I recommend include:

    Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas Woods - which has similar background information, but gives another fascinating look at where we are and where we need to go. Riveting read.

    How to Sell Your Home in Any Market: 6 Reasons Why Your Home Isn't Selling... and What You Can Do to Fix Them by Loren Keim is the one book that outlines more than just home marketing and staging to get rid of your property in this housing collapse, but explains the process of short sales and steps you through negotiating with the bank if necessary. Great stories in this book....more info
  • Permanent shift in our financial markets
    The first printing of this book was in July 2008. Just a couple of months prior to the aftershocks of sub-prime mortgage implosion sending the stock market to its largest point drop in a single day and the congress passing a historic $700 billion bail out bill.

    This book is very timely and goes into great detail to explain the many different factors that played a part in bringing the world financial markets to near total collapse. It may have been even better had it been published a few months later so we would have the benefit of an explanation behind the rescue of AGI and the take over of WAMU.

    This book tells the story without emotion. It is straight-forward, presented in easy to understand language and gives good supporting stories for what happened. If there is a fault it would be with digging deeper into why things happened. While there are reasons given, I am not sure Zandi explored this in as much depth as most would like. It is possible that the deeper explanations might need to come with a better time perspective.

    There is no doubt that a lot of different "planets" had to align properly for this to happen. There are two common themes in the explanation. One of course is greed. While most people blame Wall Street for the debacle, there are plenty of others who were more concerned with their own self-interest. The list is quite long, starting with the builders, the mortgage brokers, the appraisers, the regulators, the "flippers" and of course the low income segment that wanted to achieve the American dream of owing their own home.

    Clearly no one was taking responsibility for proper underwriting. The race was on for each person to get their share of the real estate boom. Too many houses were built, there was little verification of a person's ability to service the debt and no one was watching the process.

    While the story is still being written on the final chapter of this saga, it seems clear that we are/have entered into a new financial era. The consumer boom that fueled the economy for so long is finally over. There will be so readjustments and a new way of doing business will emerge. We can no longer tolerate the loose way of doing business that lead to this near disaster.

    If you want a much better understanding of what happened, I suggest you read this book. If you read what Zandi implies, things have forever changes and the adjustment will be a little bumpy.

    He makes a compelling case that as institutions and as individuals we are not capable of discipling ourselves. We must have more discipline in the financial markets. We need to curb the greed and the only way to do that is to create safeguards to prevent it.
    ...more info
  • Excellent, very readable primer to mortage backed securities and the mess they created; not enough for those previously educated
    This is a well written, very clear description of the house of cards that goes by the name of mortgage backed securities. As pretty much everyone now knows, it is the collapse of this market that precipitated the current stock market collapse. In this book, the author leads you by the hand and describes how the entire mess was created, specifically how the credit-worthiness of the borrower became disconnected from the market valuation of securities derived from that borrowing.

    To anyone who has watched recent financial events unfold and asked "how did this happen?" this book is VERY highly recommended.

    That said, I am more reserved with my praise if you are the type of person already familiar with things like derivatives and "liar loans," and who regularly reads, e.g. The Wall Street Journal. I am in that category, and while I still found this book interesting, I found myself more often saying "yes, obviously" than "wow, I didn't know that until now."

    One other shortcoming of this book is that it really doesn't offer much meat to gnaw on with respect to 'how do we get ourselves out of the current mess?' That's not surprising, really as this book was written before the current melt down (although the timing of the release could not have been better) and because the answer to that question is one to which a consensus answer has not appeared even among the world's brightest and more learned minds.

    Nonetheless, I would VERY strongly recommend this book to financial neophytes and those who simply weren't paying that much attention to the mortgage mess as it was unfolding. ...more info
  • Fair assessment of the problems of all things related to mortgages and more
    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....more info
  • Absolutely the best book on the sub-prime crisis
    I have been reading a number of books on the sub-prime crisis. Some of them are quite good. The Trillion-Dollar Meltdown, for example, is an excellent introduction to the high-level hocus-pocus that Wall Street was engaging in to bring on the crisis. Chain of Blame gives a good journalistic description of the history of the major players in the sub-prime industry. Greenpan's Bubbles gives an excellent summation of the prosecution's opening argument in People v. Alan Greenspan, making the case that it was all the fault of the Fed.

    This book, however, is absolutely, unequivocally the best book on the subject. It is everything that you want such a book to be. First, and foremost, Zandi knows the subject. He has in-depth knowledge of both economic theory and of the details of what actually happened in the market. His depth of knowledge is astonishing

    Second, he covers every aspect of the subject. Most of the books written on this subject cover only part of it. Zandi covers the waterfront. He understands the issues, in detail, from the policy decisions of the Federal Reserve Board to the cyclic nature of the housing industry. In a relatively short book, he covers literally every aspect of the subject.

    Finally, he makes balanced judgments without being judgmental or moralzing. His tone is very detached. He actually wants to understand what happened, not find the bad guys to pillory. On the Fed, for example, he gives a very clear explanation of what Greenspan was thinking, what he was trying to do, how it worked in some ways and was a disaster in other ways.

    He has the expected final chapter on how to fix things. It was short, but very good. I thought some of his ideas were kind of screwy -- why would it help to have national uniformity in foreclosure laws, for example? -- but, by and large, his ideas were practical and judicious. I think that every sane observer of the situation agrees that better regulation of the out of control mortgage and mortage-backed security industry is needed, and Zandi gives a good idea of how to do that, without overdoing it....more info
  • Excellent overview of how we got where we are
    Written so even someone as financially ignorant as myself gets a perspective on what happened in the global market. Talks about the incentives that led to the subprime crisis, the unregulated markets that allowed the derivatives trading that amplified the problem. Very timely and intriguing read....more info
  • Thorough Analysis of the Subprime Shock
    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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  • Simple & effective: definitely you should read it
    I enjoyed reading this book. It's a quick easy read and I liked the format and clear writing style. I also thought it was effective in getting across what has brought about our current economic crisis. Be warned, however, if you are picking up this book with very little knowledge of the market this isn't so basic where things such as Stocks, Bonds, Derivatives, or Hedge Funds are explained; at least not in simple terms. You'll need to have some fundamental investment knowledge to get the most out of this book.

    Overall I give it 5 stars, but at times I felt the information was a bit repetitive (mainly toward the end of the book). What I found interesting was when the author notes "...the worse of the crisis appears to be over" (pg 229). I bet he'll be revising that, as this book was clearly written before the 700 billion dollar economic bailout came into play.
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  • A compelling read, but stops short of exposing the ful crisis.
    I started reading this book in September 2008, so when the markets began to implode for read that month this book had provided enough understanding to realize that this was no ordinary market correction.

    Financial Shock gives a very thorough explanation of the sub-prime lending crisis, how low Fed interest rates, coupled with liberal lending regulations fueled an housing market bubble that resulted in the latest market implosion, starting with toxic mortgages and foreclosures, but is now evaporating credit liquidity, given evidence to the lack of stability in U.S. markets, and tipped the world into a recession.

    The book however stops short of discussing how all this will play out; indeed the author suggested in summer of 2008 that the worst was already over. The book also offers little in the way of solid advice besides to be a better student of finance and to watch for bubbles.

    Nevertheless, Financial Shock is a valuable post-mortem of how the sub-prime mortgage crisis evolved and came down, focusing on this aspect. The composition of all these data in a handy format is a valuable inclusion in one's financial library....more info
  • Great Background But Isn't Complete
    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. ...more info
  • Timely and Prescient
    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....more info
  • Outstanding!!
    This book is very well written. Zandi writes in an easy to read style that is informative and interesting. I really enjoyed this book. It is simple enough for the laymen, but still extremely interesting and informative for someone with extensive financial and economic knowledge....more info
  • Simply Helful: Thorough, But Easy to Read Look Back & Forward
    Financial Shock is a timely read in in light of today's economic crisis. It has served me well in educating me as to the behind-the-scenes causes of the financial shock that we are all feeling. Dr. Mark Zandi, chief economist and cofounder of Moody's economy.com, gives simple and helpful advice on how to avoid/mitigate the damages of the next bursting bubbles. He ably identified time and time again that "Americans aren't as smart about money as we should be. Financial illiteracy was a fundamental cause of the subprime financial shock" (p. 236). This book, which is imminently readable, will go far to help educate any member of the public who spends the time to read it.

    He begins the book with a very simply yet insightful summary of the recent history that led to the perfect storm. The remaining chapters go into detail on each one of the players. The book is full of helpful charts that convey simply pertinent information without confusion. Zandi is a master at making the complex understandable, at defining terms, and writing for the layperson (but I have no doubt that this would be helpful for the well-versed as well).

    Finally, although he misjudged the state of the market writing, "the worst of the crisis appears to be over," (published in July '08), he does give 10 "policy steps" based on all that he's written to help us fix this problem and to avoid or mitigate the damamges of bubble bursts in the future. This list will help you get a flavor for what he writes about in the previous chapters (don't worry if you don't understand the terminology - I didn't either - but if you read the book you will):

    1. Adopt a voluntary mortgage write-down policy
    2. Establish clear mortgage lending rules
    3. License mortgage brokers
    4. Expand data collection
    5. Reform the fractured foreclosure process
    6. Invest in financial literacy
    7. Modify mark-to-market accounting
    8. Raise financial transparency and accountability
    9. Overhaul financial regulation
    10. Pay attention to asset bubbles.

    If I could summarize this book it would be: Simply Helpful. It is simple, but not simplistic. And although it is writing about a scandal, it is not scandalous. History is used more to help us learn lessons than to point fingers. I have learned much from this book. It has given me the basis to digest most of what I'm reading in the paper and hearing on the news. ...more info
  • As topical at today's headline...
    I found numerous parallels between this book and Thomas Ricks' excellent summation of events involving Iraq, entitled "Fiasco." In fact, that title would be fully appropriate for this book if it had not already been taken. Ricks provided a comprehensive narrative of recent events that most of us lived through. It is a systematic review of these events, ordering and prioritizing the daily noise we received from the media; this greatly improves our understanding of what happened, and that is the central value of the book. Mark Zandi's book is an essential primer on recent financial events surrounding the housing boom and bust for the non-specialist.

    Zandi's prose is crisp, and his style is no nonsense. In the first couple of chapters he does a solid job of summarizing the dizzy pace of change in the mortgage business, from the days of "5-9-2" (though he does not use that expression, the days when Savings & Loans gave 5% interest to depositors on their passbook savings account, loaned it out in mortgages at 9%, and since this was so simple, they were on the golf course at 2 in the afternoon) to the days of complex ARM's (adjustable rate mortgages) and negative amortization (yes, mortgages in which the debt continues to increase). In the next couple of chapters he describes the underlying political background and assumptions which created this latest "bubble." The logically correct assumption that homeownership improves the sense of responsibility in a community (thus, "everyone should own a home) to the rather bizarre thinking of former Federal Reserve Chairman, and until recently, highly praised, Alan Greenspan, that Housing could not become a "bubble" due to the transaction costs in sales as well as the claim that no one can spot a bubble while it is happening, only after it breaks can you say there was a bubble, and then your job is to mitigate the damage (surely you don't even need Economics 101 to know that nothing grows at 10% a year forever)

    In the next few chapters Zandi then discusses the impact of globalization on America's mortgage market - the billions of dollars racing around the globe in search of higher returns, much of this coming from China and the oil producers. "Gresham's Law" was once again affirmed as bad lending practices drove out good ones ("not enough time to verify income" or the other guy will grant the mortgage) to the incredible complexity of the financial engineering of the "finest minds" who invented such concepts as CDO's (collateralized debt obligation), then "sliced and diced" them into tranches (French for "slices"), and even had CDO's that were "cubed," (p119) so that absolutely no one, certainly not even there creators, understood them. Zandi could have stressed the irony that while home ownership might make individuals more responsible for their community, the complexity of the newly invented mortgage system stripped any sense of responsibility from the participants in the loan making process. Instead of multimillion dollar CEO bonuses, it makes one nostalgic for the days when the principal "perk" was the golf course at 2.

    In additional chapters Zandi deftly describes the business, as well as psychological outlook of home builders; the weakening of the regulatory function, principally through the ideology that all government is bad; and how certain areas of the country become prone to the worst excesses of this latest mania. Mainly though, he clearly shows how the complexity of all this "financial engineering" has let one problem - overextension in the market for subprime mortgages threatened the entire global economic system. The reason: the required trust in financial transactions is gone.

    Zandi clearly knows his material, and has the ability to explain it clearly, but I could only give the book a 3 star. Perhaps of "necessity" the book was raced to market, but it would have benefited from a more methodical approach. Certainly the editing could have been improved substantially. For his lean style, the book is loaded with redundancies, as though each chapter was written anew - how many times do we need to be told what being "underwater" in terms of a loan means, or that the price of all physical assets... from Chinese bonds to... was soaring? As other reviewers have indicted, some of the graphs and charts are useful, but it seems clear they were in color in the original, printed in black and white in the book, rendering a number of them unreadable. But if he had waited a bit longer, he would not have made his most egregious mistake, at the beginning of the final chapter he states: "... the worst of the crisis appears to be over." He then goes on to outline 10 Policy actions that could remediate the current problems, and prevent future ones. To me, these seem totally inadequate. None of them address almost certainly the "next bubble," the radical increase in federal debt, now approaching 10 trillion dollars, and the "reliance on strangers" (read, Chinese, Japanese and the Arabs) to continue to fund our profligate ways. Greater "transparency" does nothing to address the issue of living within our means. Living within our means could actually INCREASE our standard of living, and the quality of it. Imagine if more food was prepared at home, and fast food restaurants eschewed. Why, or why should we accept one of Zandi's last assertions, that "Social Security and Medicare benefits will almost certainly be cut for most of us." If Policy decisions are made that truly reward productive economic behavior, and the virtues of thrift, and penalize the "casino mentality," whether it be literally on the Indian Reservations of New Mexico, the Gulf Coast, or Wall Street, then we will continue to have adequate resources for "the good life" as well as the ability to care for the elderly, including ourselves when we arrive at that destination.
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  • Educational & Sometimes Shocking
    Billed as "A 360 degree Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis", Mark Zandi's "Financial Shock" looks way beyond subprime mortgages, as well it should, to underlying problems of the credit markets, financial engineering of mortgage backed securities and derivatives, home builders, etc. and ultimately to a world-wide debt binge that led to over-leveraging and the collective failure of investors of all stripes to adequately hedge or otherwise protect themselves against the risk of adverse events like the collapse of the housing bubble.

    Many readers will know enough to breeze through the chapter on subprime mortgages and those with humdrum titles like "Everyone Should Own a Home" and "Home Builders Run Aground". But this reader found Zandi's explanation of global participation in the US credit markets fascinating. For example did you know that "foreigners" held approximately $7 trillion in U.S. "credit market instruments" and nearly a third of all U.S. mortgages

    Also interesting is the chapter on financial engineering, which explains the alphabet soup of residential mortgage backed securities (RMBS), collateralized debt obligations (CDOs) and structured investment vehicles (SIVs) and their respective roles in offloading the risk of home mortgages from the originating lenders onto the "shadow banking system." In this chapter Zandi cites the following statistic: "By the second quarter of 2007, ... the shadow banking system provided an astounding $6 trillion in credit ..." , almost as much as traditional banks.

    Zandi ignores the role of his own employer (Moody's) in providing optimistic credit ratings for mortgage-backed securities by stating in the introduction, "To avoid any appearance of conflict of interest, I have no choice but to leave discussion of that facet of the subprime shock to others."

    "Boom, Bubble, Bust and Crash" will be a tough chapter to read if you ignored the early warning signs of a real bubble bursting. Zandi cites July 30, 2007 when two of Bear Stearns' hedge funds collapsed as the start of the crash. If you connected those dots with the ensuing credit crunch that destroyed the stock market in the second half of 2008, you're going to feel pretty smart after reading this and the ensuing chapter, "Credit Crunch." The rest of you (self included) will feel pretty sheepish. Or maybe you'll ask, "Why didn't my financial advisor or broker warn me?"

    One quibble is that Zandi uses the Price-to-rent Ratio to track relative home values rather than the more meaningful price-to-median income, a measure of affordability. And by failing to adjust for declining cost of capital (mortgage rates) since the 1980s, Zandi overstates the relative increase in home valuations in the mid 2000s. I expected more from Moody's chief economist.

    The "Credit Crunch" chapter explains how the problem was much, much bigger than subprime mortgages. Zandi states, "It is difficult to see how mortgages could have been the catalyst for such a wrenching financial crisis" because "mortgage loan losses were less than 5% of the $11 trillion ... U.S. mortgage loans outstanding" and less than ? % of the "$140 trillion in loans and debt securities ... around the world." Makes Hank Paulson's $750 million rescue package sound kind of small, doesn't it? Zandi goes on to explain how and why the larger credit crunch developed full force in 2008, although it reads a bit more like a textbook than a forensic study.

    The next two chapters, "Timid Policymakers Turn Bold" and "Economic Fallout", pretty much complete the "360 degree Look". As with many books, Zandi's policy recommendations in the final chapter ("Back to the Future") are not exactly startling for their perspicacity. In particular, he punts on the issue of financial regulation by endorsing the Treasury Department's "Blueprint for Financial Regulatory Reform" thereby avoiding all-important specifics.

    Taken together with Paul Krugman's latest book, "The Return of Depression Economics and the Crisis of 2008", "Financial Shock" is a good layman's introduction to what just happened. But you will have to look elsewhere for a deep analysis backed up by facts and figures or for answers about what the future holds.
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