Money, Greed, and Risk: Why Financial Crises and Crashes Happen

Article excerpt

Money, Greed, and Risk: Why Financial Crises and Crashes Happen

by Charles R. Morris

Times Books 1999 224 pages $25.00

The reader of Money, Greed, and Risk is informed that the book's author, Charles R. Morris, has been a partner in a consulting firm, an executive with Chase Manhattan Bank, the secretary of health and human services for the state of Washington, and assistant budget director for New York City. In short, Morris has considerable experience as a manager and a bureaucrat. He is, in particular, seemingly well versed in the technical workings of various financial markets and financial instruments such as index futures, collateralized mortgage obligations, synthetic put options, and so forth. As long as Morris restricts himself to the operational details of "exotic" financial assets, the reader is likely to benefit. Unfortunately, most of the issues addressed by this book-the causes of financial crises-call for someone with an understanding of economic theory, economic history, and, especially, the perverse effects wrought by government regulation. In those areas, Morris is sadly deficient, and his book fails to enlighten.

The book is divided roughly into thirds. One part presents a survey, albeit brief, of American economic history from the early nineteenth century through the Great Depression. The emphasis is on finance, money, and banking, and it features the usual cast of characters: Nicholas Biddle, Andrew Jackson, Jay Gould, J. P. Morgan, John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and the British firm Baring Brothers. According to Morris, this span of time was characterized by the "fleecing" of first British investors and then the American middle class. Greed was the motive force, and fraud was rampant.

Morris's presentation is weakened, however, by two interrelated flaws. First, he relies almost entirely on a 1957 book by Bray Hammond, which, although reissued in 1991, fails fully to reflect recent scholarship on certain key banking issues. Second, Morris's understanding of money and banking is so muddled that he (a) regards Nicholas Biddle as a genius and Andrew Jackson as a man consumed by "prejudice and ignorance," and (b) insists that a central bank represents an enormous improvement over the "chaos" of free banking.

A second part of the book focuses quite closely on the financial innovations of the past 30 years and the many problems they allegedly have caused. Here the reader will be introduced to the "junk bond king" Michael Milken (in a chapter titled "Mephistopheles"); Howard Rubin, the exploiter of GNMA "strips"; notorious "inside trader" Ivan Boesky; the brain trust behind Long Term Capital Management; and "corporate raider" T. …