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Roller coaster

Promising insight into financial ups and downs, 'Panic' veers off course

Foreclosure in Perris, Calif., 2007. The essays in ''Panic'' deal with the subprime mortgage disaster and other crises. Foreclosure in Perris, Calif., 2007. The essays in ''Panic'' deal with the subprime mortgage disaster and other crises. (REUTERS/Mark Avery)
By David D'Alessandro
December 21, 2008
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PANIC: The Story of Modern Financial Insanity
Edited by Michael Lewis
Norton, 391 pp., $27.95

The publisher's publicity letter for Michael Lewis's new book is a classic come-on. Too bad it's more appealing than the book itself. The note from W. W. Norton begins, "Michael Lewis's much anticipated new book 'Panic: The Story of Modern Financial Insanity' could not be more timely; this masterful account of today's money culture gets to the heart of the elements that underlie such catastrophes as the current bank crisis. When it comes to markets, the first deadly sin is greed. Michael is our jungle guide."

Wow! Lewis, of "Liar's Poker" fame, is going to explain it all. The only problem is that one of the finest business writers of our time didn't write the book. Whenever a book's cover features the author's name at more than twice the size of the title, buyer beware.

"Panic" is "edited," not written, by Lewis. The publisher's letter fails to mention that "Panic" is a loosely collected compilation of more than 50 articles written over the past 20 years by some famous and not-so-famous authors. Lewis's contributions include some scattered comments and a few previously published pieces. The writer of "Moneyball" thus left his best pitches in the bullpen.

Aside from that problem, it is virtually impossible for the reader to draw sensible conclusions about today's economic crisis from these wide-ranging and disparate stories. The only truly logical aspect of this book is that it is organized chronologically. Not unlike the way a freshman economics major might attack a term paper.

"Panic" begins with a short introduction by Lewis, but is followed by a series of pieces that would be best described as ancient history.

First, there's the 1987 crash. Steven Koepp's Time magazine story traces how the Dow Jones industrial average was 776.92 in August 1982 and tripled to a whopping 2,500 by 1987, but became volatile and crashed, rose again, crashed, etc.

Then, for the next 80 pages, we are treated to Mr. Toad's Wild Ride with a series of rehashes from the likes of The Wall Street Journal, Brady Report, The New York Times, and Technology Review of what may have happened, could have happened, or should not have happened. Was it the fault of computers, of US bombing of Iranian oil platforms, bad systems, the Chicago Mercantile Exchange, or maybe portfolio insurance? Virtually none of that tells us much about this year's crisis.

The next major section takes place beginning in 1997 and is called "Foreigners Gone Wild." It begins with a discussion about currencies like the baht, won, rupiah, and a bit on the ringgit. While there is an interesting article by Paul Krugman and an insightful interview with Jeffrey Sachs, there is also an inane piece by David Holley of the Los Angeles Times titled "A Thai Business Wonders, Will It All Crumble?" The only real question is how this relates to the publisher's promise that this book will help us understand the "heart of the current bank crisis."

Holley's story is about a Taiwanese company that switched from selling wallpaper made at home to products from Italy, the United States, and New Zealand. With the devaluation of Thailand's baht currency, the company is forced to sell South Korean wallpaper. Hardly a heart-wrenching story given the problems we're facing today.

The book then moves to "The New Panic," which is primarily about the dot-com investment boom. The section is led by Lewis's "New, New Money," excerpted from his book "The New New Thing," and is followed by some very good stories by Erick Schonfeld, Jerry Useem, Katharine Mieszkowski, and others. Together they describe the dynamics behind the high-tech investment follies. But what you really learn is something you already knew. That the craze was characterized by a "herd mentality," bolstered by a few high-profile successes and the wrong-headed belief that most old-line businesses were going to be replaced by the Internet. The bottom line is investors lost their shirts, and no one felt sorry for them because they were all too cute by half.

The last portion of "Panic" is primarily dedicated to the subprime meltdown and offers some relevant and not-so-relevant works. Roger Lowenstein's "Triple-A Failure" does a great job of exposing the rating agencies' contribution to the mortgage debacle. But then the book spends far too much space on Bear Stearns and other matters that either are beside the point or simply don't shed much light on the subject.

"Panic" falls short of the publisher's promises on any number of levels. It really fails to discuss how greed, executive incentive plans, investor pressures, consumers' expectations of returns, lack of coordinated regulation, and a host of other issues contributed to today's monumental market problems.

In tough economic times like these, here's a thought on how to economize on the book's $27.95 price. Tap into Amazon and look at "Panic" 's table of contents. Since the contents are previously published articles, most will likely be available for free on Google. Read what you like and save your money for the next book that Lewis actually writes.

David D'Alessandro is the former chief executive of John Hancock Financial Services.

PANIC: The Story of Modern Financial Insanity

Edited by Michael Lewis

Norton, 391 pp., $27.95

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