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

Morris's idiosyncratic excursion into the ups and downs of the business cycle is a series of appetizers rather than a meal. He takes the professional's-eye view that market crashes reveal systemic defects rather than moral failings of economic movers and shakers: greed is good as long as it is properly channeled and controlled. Crashes occur, Morris (Computer Wars, etc.) persuasively argues, when financial innovations are too successful and prod the market to expand too fast. While he discusses the American crises of the 1830s, 1870s and 1890s, as well as the 1980s, he barely touches on the crash of 1929 and ignores entirely the Cotton Panic of 1837, probably the worst financial crisis in American history. With a stoical dispassion unlikely to soothe those whose nest eggs are currently nestled in NASDAQ, he sees crashes as necessary, if painful and unfortunate, corrections to excess. The most penetrating question, he suggests, is not about why a market crashes but rather how prices were allowed to get so high in the first place. Most chapters will be easily understood by anyone who has ever played Monopoly, but the ""Options"" appendix assumes the reader recognizes, for example, the cumulative Gaussian distribution function. This well-written book can be enjoyed as a brief lesson in financial history or as a warning of a correction to come. (Aug.)