The best books about financial crises

A classic account of an extraordinary 18th-century British financial and political scandal. The South Sea Bubble centred on the joint-stock South Sea Company, which was founded in 1711. The South Sea Bubble was an ambitious scheme to simultaneously pay off the British government's enormous debts while simultaneously getting rich in London's newly created stock market. The company was given a monopoly of trade with South America but had little prospect of success. The Bubble was an early Ponzi scheme that promised vast returns to early and well-connected investors.

Its collapse in 1720 ruined thousands of shareholders from all walks of life, many of whom had bought their shares on credit, and caused huge problems to banks and goldsmiths unable to collect the loans they had made to speculators to purchase stock. A public uproar ensued and the subsequent investigation revealed widespread fraud by insiders and corruption in the Cabinet.

In an accessible language and with multiple real-life examples, Madrick systematically critically engages every humdrum idea of principle attributed to the presumed success of capitalism. Following to a great extent Karl Marx’s lead on the self-destruction of the economic system we call capitalism, Madrick updates the critique to the 21st century and shows, time and again, why capitalism is not only prone to recessions and depressions but will bring about its own demise.

An apropos warning about the inevitable collapse of all empires that live beyond their means.

Wrought with historical references to past collapsed empires including the Roman and British, understand how the US is going down the same destructive path as the previous empires.

This book also explains how the high standard of living in the US and other Western economies is sponsored by the poorer, harder-working Asian countries that make something of value.

Issuing massive amounts of debt and printing money to pay for it isn’t a sustainable way to run an economy.

I could really choose any book by Slavoj Žižek as the starting for a psychoanalytic critique of capitalism, but this one is very accessible for someone who has never read him. It also gets into the current dilemmas that are rocking capitalist society. In this book, Žižek shows how psychoanalysis (combined with Hegel’s philosophy) can provide a corrective to the traditional Marxist critique of capitalism. We see here how the attempt to construct an ethical capitalism inevitably fails and obscures a new barbarism. 

The Big Short (yes, the book, not the movie): If you want to understand the financial system, and how it’s rigged against individual investors, this is the best book I’ve found.

It exposes the underlying systems that drive the development of the financial products and services we are all sold, providing a level of understanding that can help us all make better financial decisions. Plus, it’s an incredible read.

There is a reason that Michael Lewis’ books (Moneyball, Liar’s Poker, Flash Boys) are made into movies—they read like fascinating screenplays and make you feel like you are there, in the room, with these eccentric characters who are deciding the fate of the entire U.S. financial system over the course of a single weekend.

Focusing on the financial crisis of 2008 Adam Tooze’s book shows the transition from a geopolitical to a geo-economic world order in which the political destiny of old nation states is determined by the needs of international financial industry – including the rearrangement of global governance and the erosion of democracies.

I admire the way in which Adam Tooze demonstrates the entanglement between financial capitalism, crises, and the rise of populist and right-wing movements in Europe and the US.

As an academic, I was at first skeptical about reading a comic version of Marx’s masterpiece, but Smith and Evans brilliantly manage to be both entertaining and enlightening, hilariously funny as well as dead serious. Even if you’re not familiar with any of the key concepts, you’ll get a lot out of the way they combine simple descriptions with the illustrations, and the updated edition really resonates with the financial crises we’ve experienced in the last couple of decades. 

Klein’s first chapter tells the disturbing story of Dr. Ewan Cameron, the eminent psychiatrist who ran the Allan Memorial Institute associated with McGill University, and whose experimental treatment, partly funded by the CIA, incorporated ECT, sensory deprivation, LSD into a research program designed to erase patients’ memories.

Especially intriguing for the way it links this story to a bold account of how efforts to reprogram people at a deep level were linked to the spread of new forms of capitalism in the late 20th century. This is history as told by an activist, in ways that academic historians are not always comfortable with.

Out of all my recommendations, this book is the most dense in terms of detailed descriptions of the history of debt. The author needs to be specific since he’s challenging the economic establishment’s false claims.

The most telling example is that there’s no evidence that barter led to exchanging goods in a marketplace. Debt, not barter, was the original economic system for trade in a village. 

War became the catalyst for the creation of currency since soldiers couldn’t afford to wait till after the war concluded for the government to pay its debts.

If you’re curious about the real history of money and debt, this is the book for you.

From the first scene of The Darlings, Christina Alger plunges you into the lives of the fabulously wealthy. The daughter of a Wall Street financier, Alger grew up in this world, and her experience and insight make the book sing. The Darlings is fast-paced and compulsively readable, and the characters are well-drawn and authentic. This novel includes everything I love: financial crimes, shocking scandals, lots of details, and terrific storytelling. 

Co-author Ken Rogoff taught my PhD course in Global Economics while he was a visiting professor at NYU (from Princeton). We used Foundations of International Macroeconomics as our textbook; Ken was writing the book with Maurice Obstfeld. When I turned in a handful of pages to him with editorial corrections, he hired me to edit the rest of the book and a research paper for him! It caused quite a stir among my peers when Ken thanked me by name when the article was published (JEL, June 1996). This book traces eight hundred years of financial crises to demonstrate that they are, in fact, predictable. Economists and policymakers are taken by surprise only because they do not learn the lessons from one crisis to the next.

Levinson is a rare thing among economists: he is willing to admit what we don’t understand.

This book argues that global productivity declined in the 1970s compared to the 30 years after World War II, and no one knows why. It seems that, under capitalism, economic growth is normally just very slow, and the fast postwar growth was the aberration. But what really matters is how political leaders responded, making a series of bad decisions to try to appease people’s over-inflated expectations of growth. And this happened all over the world, from the U.S. to Germany to Japan to Latin America. This is the book that let me understand every aspect of modern life in the last 50 years—from stagnant wages to the roller-coaster casino economy to political dysfunction to gig companies.

Professor Perino’s book explains how Ferdinand Pecora, counsel to the Senate Banking Committee, ran the explosive hearings that virtually guaranteed Glass-Steagall’s enactment. I particularly enjoyed reading about Pecora because he and the subject of my book, Carter Glass, were allies in the battle for financial reform. While Perino is a distinguished professor of law, he writes in a non-legalistic and gripping style.

How can we make sense of the Covid-19 pandemic? Adam Tooze gives us a clear answer: it is the first crisis of the new era of environmental crisis. My work now focuses on the increasingly destabilizing effects that the crisis will bring into the future and how future leaders can be better ready to carry on the struggle under worsening conditions. The responses of current leaders to the pandemic – some good, many poor – are a key resource to learn from. This book is a first bash at learning the lessons from the pandemic. Into the future, more than anything we need leaders and governments who are capable of freeing us from the freezing embrace of fear in face of seemingly insurmountable odds. 

Sometimes the obvious pick is still the right pick, and anyone interested in the history of financial shenanigans – outright frauds or merely weapons-grade idiocy – has to read Kindleberger.

There’s a reason why it remains a stone-cold classic that bears reading (and re-reading) almost half a century after it was first published. 

King was the head of the Bank of England during the financial crisis of 2008. He declared full deposit insurance for the entire United Kingdom private banking system, with no deposit premiums required. This ended the run on the banks that spilled over into the streets of the UK during the crisis, when the Bank of England at first decided not to take care of Northern Rock, a private retail bank that was headed towards insolvency.

King provides a whimsical and sharp review of the private and central bank system before and after the crisis that builds very much on Charles Goodhart and Walter Bagehot. King laudably faults economists and the Economics profession for thinking that establishing negative real interest rates worldwide is the answer to central bank crises (in his newly added Introduction to the paperback edition of his 2016 hardback by the same name). Yet King sides with… show more.

A gripping portrait of a Dickensian financial scandal that led to the last English bank run before the run on Northern Rock in 2007. Founded in 1800 and controlled by Quakers, the firm that was to become Overend and Gurney grew to become London’s leading discount house, specialising in the safe business of discounting bills of exchange. In the 1850s, it became more aggressive and was eventually investing depositors’ funds in highly speculative ventures that promised spectacular profits that never materialised. When market conditions became adverse, Overend and Gurney found itself in dire straits. The Bank of England refused to bail it out and Overend and Gurney was run out of business in 1866. Its failure led to a major financial crisis, the ruin of many investors, and the directors being put on trial in the Old Bailey for fraud.

This book is a welcome antidote to the defeatism that results from a crisis-prone view of the world which is so easy to fall into today.

Grable argues that we should recognize that the rigid models that define a narrow “correct” path to progress are inadequate. Instead, she puts forward the value of what she calls “unscripted” innovations and reminds the reader of the value of “muddling through” and incremental change.

Grable shines a well-deserved light on earlier work by Hirschman and Lindblom. She combines an appreciation of the importance of ideas and the necessity of a high tolerance for complexity and incoherence. This book makes the case for the importance of remaining calm and carrying on, while still keeping an eye out for opportunity.  

This book follows a year in the lives of the occupants of a London street and the people who work for them. The guaranteed wealth of those who are lucky enough to own houses in the street – where property prices have soared – is contrasted with the struggles of those who keep the lives of the homeowners on track: the Polish builder, the Hungarian nanny, the Kamal family who run the shop at the end of the road. This is a moral fable about money, but it’s also a witty, perceptive story that gallops along and is hard to put down.

This is, for want of a better word, financial porn.

It won’t explain the underlying issues or even proximate triggers for the global financial crisis of 2008, but no one has ever written a financial book as titillating as Too Big to Fail. Sorkin really brings you into the rooms of power and conveys the sweaty panic that gripped the financial system as it careened over the edge.