This was a year in which, for good and ill, advisors struggled to keep up with events. But it was also a year in which we could start to get, in book form, some longer-term perspective on the origins and events of The Great Panic. In addition, a number of other important books appeared which can help the advisor become a better planner, a better investor, and a wiser citizen. Ten are particularly worth your attention. In no particular order:
1. Since 1970, the world has consumed twice the oil reserves that were known at that time-and today has twice the reserves it began with in that year. The advisor and his client, battered by hysteria about "peak oil," must try to understand how this could be, and what it means. The best book that has ever been written, or ever will be written, about oil is Daniel Yergin's classic The Prize: The Epic Struggle for Oil, Money and Power. Until now, its only significant drawback has been its age: It won a richly deserved Pulitzer in 1992, at which point its story stopped. Early this year, it reappeared, with an important new epilogue. It demands to be read, not just for an understanding of oil, but of the very nature of the commodity cycle itself.
2. Cornelius Vanderbilt was America's first centimillionaire: At his death in 1877, his wealth was equal to one in every $20 then in circulation, including cash and demand deposits. His career went from ferrying people and cargo in New York Harbor-he figured prominently in the Supreme Court case of Gibbons v. Ogden, which established the United States as one immense free trade zone-to the domination of railroads in the northeast. From the death of Alexander Hamilton until the post-Civil War rise of Carnegie, Rockefeller and Morgan, Vanderbilt was America's one true financial genius. This year he finally got the biography he's always deserved: T. J. Stiles' The First Tycoon: The Epic Life of Cornelius Vanderbilt. It is both rigorous scholarship and genuinely sparkling writing, and takes its place alongside Ron Chernow's Rockefeller and Jean Strouse's Morgan as one of the great American biographies.
3. The most complete, most accessible and finally most convincing account to date of the struggles of the Fed and the Treasury to comprehend and deal effectively with the recent crisis is David Wessel's In Fed We Trust: Ben Bernanke's War on the Great Panic. Wessel is particularly good on the Fed's emergence as, in effect, a fourth branch of the federal government. Like it or not, you need to understand how this happened.
4. The best book-length account I've seen so far of the development of credit and mortgage derivatives, and of the global financial crisis their abuse spawned, is Gillian Tett's Fool's Gold: How the Bold Dream of a Small Tribe at J. P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. This is a serious, if journalistic, attempt to trace credit derivatives from their well-motivated and often ingenious beginnings-they were supposed to diffuse and spread risk, not accumulate and concentrate it-to their misallocation to the single-family home mortgage area (where there were no meaningful data upon which to model them) and thence into chaos.
5. Lawrence G. McDonald never met Richard Fuld. This is both a measure of Fuld's imperial insularity-McDonald worked on the desk that turned Lehman Brothers' single most profitable trade ever, and Fuld never so much as shook their hands-and something to bear in mind when you read his book, A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. Because it tells you that, of necessity, this must be an rather than the inside story. Still, it's a crackerjack book, professionally written with the estimable Patrick Robinson, who wrote the riveting Lone Survivor with the Navy SEAL Marcus Luttrell. Mr. McDonald's personal story should be particularly interesting to personal financial advisors, inasmuch as he started out in retail himself. He is also, by temperament, a bear, always on the hunt for short sale candidates that are crumbling from within, who ultimately finds himself and the colleagues he loves and admires trapped in the largest such implosion ever. As much as I liked William Cohan's book on Bear Stearns, McDonald's is more painful in its immediacy (and therefore more effective, for me) in that it's his and his friends' personal story.
6. When you finish Erin Arvedlund's Too Good to Be True: The Rise and Fall of Bernie Madoff, you still won't know the answers to the two key questions: why, and when. This is because she doesn't know these answers, either, and at the end of her book we wonder if we ever will. Why did an immensely successful pillar of Wall Street-to all intents and purposes, the seminal actor in the advent of electronic trading, and the founder of NASDAQ-need to do what Madoff did? His 150-year prison sentence assures that we won't know unless and until he decides to tell us. What we do get from this remarkable book is our first complete look at the gothic architecture of Madoff's sociopathy: the specter of this intensely solitary man, walled up in the knowledge that he was living an immensely luxurious lifestyle by stealing from everyone who trusted and believed and even loved him, as he plunges on, year after year, to his inevitable destruction, and the ruin of everyone he touched. If we can only wonder how it took so long for him to be caught, I suspect that he must, in his crushing loneliness, always have been wondering the same thing.
7. A three-year moratorium on corporate taxes, or a two-year, 50% reduction in payroll taxes, would have cost the same as the administration's benighted, pork-laden "stimulus" bill-and would have provided orders of magnitude more genuine economic stimulus. This essential perception-that incentive-driven growth rather than government-sponsored redistribution is the key to real prosperity-is at the heart of former Pennsylvania congressman Patrick Toomey's lovely little book The Road to Prosperity:
How to Grow Our Economy and Revive the American Dream. It's a capitalist manifesto for everyman: clear, concise, down-to-earth and wonderfully compelling. A book to read and absorb, and to consider giving to clients.
8. Advisors constantly put upon by client concerns over the "trade deficit," "exporting American jobs," and other Lou Dobbs-level protectionist sludge will find strength and solace in Daniel Griswold's terrific new book Mad About Trade: Why Main Street America Should Embrace Globalization. Griswold seeks to provide a clear, accessible and mercifully brief survey of all the major trade/globalization myths and their rebuttals. He succeeds brilliantly. No book on this subject is ever going to be a fun-filled page-turner, but Mad About Trade is as close as we're likely to get. Globalization is the ultimate win-win for the greatest number of people. Advisors must believe, understand, and be prepared intelligently to defend that great truth.
9. Liaquat Ahamed's Lords of Finance: The Bankers Who Broke the World is an astonishing book of financial history from the onset of World War I through the Great Depression. Ahamed traces the finances (and thus the economies) of the U.S. and western Europe through the personalities and careers of four central bankers: Montagu Norman of the Bank of England, Benjamin Strong of the Federal Reserve, Emile Moreau of the Banque de France, and Hjalmar Schacht of Germany's Reichsbank. As they attempted to reconstruct both international finance and the economies of their countries-and to rationalize Germany's crushing war reparations and the massive war debt of Britain and France to the U.S.-these men and their governments ultimately set in motion the terrible episode of global deflation which has come down to us by the misnomer of the Great Depression. This book documents the fact that the parallels between that series of crises and the recent unpleasantness are not as compelling as are the differences. An important part of any advisor's education in economic history.
10. Finally, one for your soul. The Nazis, in addition to being the most systematic mass murderers in history, were also the most methodical art thieves the world has ever known. A year or two ago, a stunningly illustrated coffee table book by Robert M. Edsel called Rescuing da Vinci chronicled the plundering of Europe's art treasures, and the heroic efforts of Allied soldiers-mostly Americans-who worked feverishly and at great personal risk to liberate the art as the Germans were driven back. Last year came a riveting documentary film covering much the same ground from importantly different perspectives; titled The Rape of Europa, it's beautifully and movingly narrated by Joan Allen. Mr. Edsel now returns with the most complete telling of the tale we'll ever have, The Monuments Men: Allied Heroes, Nazi Thieves, and the Greatest Treasure Hunt in History. You don't have to be deeply interested in World War II-or even in art-to find this one of the great human stories. Collect all three.
© 2009 Nick Murray. All rights reserved. The books in this article, and many other importantly helpful resources, were reviewed at the time of their publication in Nick's newsletter, Nick Murray Interactive. You can download a sample issue of the newsletter at www.nickmurray.com/