The Return of Depression Economics and the Crisis of 2008
by Paul Krugman
Paul Krugman, winner of the 2008 Nobel Prize in Economics, traces the history of financial crises throughout the world starting from the 1980s. He goes through each crisis and discusses what led up to the crisis, what governments tried to do to manage the crisis, and discusses why those actions did or did not work. The last several chapters discuss the evolution of our current economic system, what caused the current financial crisis, and he thinks needs to be done.
Chapters 1-4 of the book are essential a history lesson of financial crises. Krugman begins with a discussion about the collapse of socialism, both as an ideology and specifically in regards to the collapse of Soviet Union. Krugman then discusses the various financial crises that plagued Latin America, South America, and Asia. To help explain each of these crises, Krugman uses the model of a baby-sitting co-op to explain complicated financial and economic concepts in a way the average person can understand.
The real meat of the book, to me, begins in Chapter 5 where Krugman begins to discuss how our modern financial system came about. Starting here, Krugman discusses topics such as the gold standard, the International Monetary Fund, hedge funds, Alan Greenspan and the Federal Reserve, economic bubbles, regulation and de-regulation, and what he calls the shadow banking system. This shadow banking system, according to Krugman, is where the heart of the financial crisis lies - institutions that, in many ways, act like banks but are beyond the regulatory reach of the Federal Reserve.
This book can be a bit overwhelming at times, just in terms of information overload. There were many sections that I needed to go back and re-read to make sure that I grasped all the details, given the complexity of ideas that are being discussed. But this book is definitely worth a read, as there is arguably no more relevant topic at this point in time.