It did not take long for books chronicling the early phases of the financial crisis to appear. In March 2009, William Cohan’s House of Cards (Doubleday) told the story of the March 2008 collapse of Bear Stearns. In July 2009, David Wessel’s In Fed We Trust (Crown Business) engaged in a more ambitious effort, recounting the story of the full range of rescues during the financial crisis. A massive wave of financial crisis books followed in the ensuing decade, relating the events of the Great Recession or, seizing on the newfound interest in financial instability, telling the stories of historical financial crises.
Are we facing a financial crisis?/ Switching gears to 2020, will we see a second wave of financial crisis books in the coming decade? To answer that, we should consider whether the 2020 COVID-19 recession includes a financial crisis.
Unlike U.S. recessions, which are officially identified by the National Bureau of Economic Research’s lagged pronouncements of their lifecycle, there is no similar high‐profile pronouncement of the existence, beginning, or end of a U.S. financial crisis. That said, the Federal Reserve Bank of St. Louis and the Treasury Department’s Office of Financial Research do maintain financial system stress indices that pinpoint periods of financial instability. There was stress in the early months of 2020, but it waned by July. We will see if that remains the case or was only a respite.
A number of elements are considered prerequisites for a financial crisis:
- A recession that has a duration well beyond a year. Recessions in the post‐World War II period have lasted less than one year on average. During the Great Recession the economy weathered an 18‐month recession, and during the financial crisis of the 1980s the economy endured a 16‐month recession. In comparison, the initial recession at the beginning of the Great Depression lasted a staggering 43 months. We do not yet know the duration of the COVID recession or whether it will take a “double dip” form, but a financial crisis could result even if there is no lengthy economic downturn.
- The failure or near failure of a significant number of financial institutions. The Great Recession saw the outright failure of Lehman Brothers and near failure of Bear Stearns, AIG, Fannie Mae, Freddie Mac, and Citigroup, among hundreds of other, smaller institutions. Continental Illinois failed during the early 1980s along with over a thousand commercial banks and savings associations. The 1920s and early 1930s saw the failure of nearly half of the 30,000 banking institutions operating as of 1920.
Given the aggressive interventions by the Federal Reserve and Treasury Department in early 2020, only a handful of financial institutions failed in 2020, all of them tiny banks whose problems preceded the COVID-19 recession. No major banks have been seriously threatened. A Wall Street Journal article addressing the fate of banks during 2020 summarized the year nicely: “Wall Street banks have had a decent crisis so far.” We’ll see if that continues in 2021.
- Contraction in the level of credit in the economy. This indicator is usually measured as negative growth in bank net loans and leases. That happened in 1938, 1942–1943, 1991–1992, and 2009. We do not yet know if something similar is happening now; loan growth data for 2020 will be available in early 2021.
Categorizing books in the aftermath of the Great Recession/ Another way to think about future books in the wake of 2020’s financial instability is to consider what topics might be fruitful for research and what topics might have an interesting narrative that can hold readers’ interest. Here are a few possibilities:
- Journalistic stories telling of crisis interventions: Wessel’s book, mentioned above, falls into this category, but the best example is Andrew Ross Sorkin’s Too Big to Fail (Penguin, 2010). It is a readable and riveting volume that traces through the full range of Fed, Treasury, and Federal Deposit Insurance Corporation interventions during the Great Recession. Others in this category include those that focus on the collapse of a single institution, such as A Colossal Failure of Common Sense (Crown Business, 2009) by Lawrence McDonald about Lehman Brothers. The dearth of failures during 2020 gives prospective authors little raw material to replicate Sorkin’s formula in Too Big to Fail.
- Insider memoirs: Following the Great Recession, memoirs were written by each of the “big four” appointees who led financial authorities: Hank Paulson’s On the Brink (Business Plus, 2010); Sheila Bair’s Bull by the Horns (2012, Free Press); Timothy Geithner’s Stress Test (Crown, 2014); and Ben Bernanke’s The Courage to Act (Norton, 2015). During the crisis, those authors offered statements on what drove their decision‐making, but the memoirs contained juicy details that were not previously public. For me, the strongest of the books is Bair’s, as she does not completely buy into the narrative that supported the massive bank bailouts.
Who would write similar books about today? Stephen Mnuchin and Jay Powell have been the most high‐profile of the financial world insiders in the COVID era. Janet Yellen will have stories to tell if we have turbulence in 2021 and beyond. Another insider who might make a valuable contribution is Mark Calabria, former chief economist for Mike Pence and current director of the Federal Housing Finance Agency, conservator for Fannie Mae and Freddie Mac.
As with journalistic storytelling about the current situation, there may not be the same allure to these coming books because of the lack of gripping high‐profile institution failures. The back‐and‐forth of negotiating the CARES Act or developing Fed lending facilities pale in comparison.
- Historical context reviews: In the previous crisis, several books appeared that did not focus on the Great Recession, but either used it to draw attention to past crises or otherwise gave background on how the imbalances built up in the years before the crisis. Liaquat Ahamed’s Lords of Finance (Penguin 2009) and Bethany McLean and Joe Nocera’s All the Devils Are Here (Portfolio, 2010) are two examples.
I am aware of two planned books that would fall into this category. Jeanna Smialek of the New York Times is working on a historical review of the post‐Alan Greenspan Fed, with much of the focus on 2020. It is to be published by Knopf Doubleday in 2022. Federal Reserve historian Peter Conti‐Brown of Wharton and Sean Vanatta of the University of Glasgow are working on a book titled The Banker’s Thumb, telling the history of U.S. bank supervision from the Civil War to the Trump era. It is to be released by Harvard University Press this year. A topic that might be ripe for a good case study would be a historical comparison of the disruptions to the financial sector during the 1918 and 2020 pandemics.
- Other categories: This is a catch‐all for several types of books. One would be a time series and related economic and financial analysis that draws upon available data and academic research. Carmen Reinhart and Kenneth Rogoff’s This Time Is Different (Princeton University Press, 2011) and Alan Blinder’s After the Music Stopped (Penguin, 2013) would be good examples of this genre from the last crisis.
Other types of books in this category would be character‐driven, made‐for‐movie books like Michael Lewis’s The Big Short (Norton, 2010), Federal Reserve and central bank critiques like Nomi Prins’ Collusion (Bold Type Books, 2018) and Danielle DiMartino Booth’s Fed Up (Portfolio, 2017), and government reports like The Financial Crisis Inquiry Commission Report, which was developed by a congressionally created commission responsible for reporting on the causes of the Great Recession.
Unless he has retired, Lewis may be working on another book, but nothing has been announced yet. Same goes for the other authors in this category. Although a special congressional commission has not been appointed yet to probe federal policy decisions surrounding COVID, this would be advisable given the hurried (and some would say sloppy) process of putting together the 2020 CARES Act and the accompanying Fed interventions.
Conclusion/ We could still descend into a prolonged financial crisis in 2021 and that may cause prospective authors to hesitate on announcing new book projects. The coming commercial real estate bust has not fully arrived. We do not yet know the duration of the economic downturn or the final body count for failed banks and other financial institutions, as all financial crises have their own unique traits.
For me, given the dearth of interesting storylines and institution failures, indications thus far are that the events of 2020 are not as fertile ground for a bounty of financial crisis books like what we saw in the wake of the Great Recession. There is also just not the same freshness to the topic that there was a decade ago. The paucity of upcoming titles bears that out. We will see if that changes.
One of the most monstrous things the U.S. government has done concerning tobacco‐related products is to hamper Americans’ ability to get nicotine in less dangerous forms. Grier tells of snus (pronounced “snoose”), a variant of snuff that is popular in Sweden and Norway. Snus is much cleaner than chewing tobacco and has helped people in those two countries “achieve some of the world’s lowest rates of smoking and smoking‐related diseases.” The smoking rates for all ages in Sweden have fallen to less than 8% for men and 10% for women. Although the FDA allows snus to be sold in the United States, it forbids snus companies from telling customers that their product is lower risk.
Similarly, even though millions of Americans have switched from dangerous cigarettes to much safer e‐cigarettes, the FDA has hampered this new industry. Firms that want to introduce new e‐cigarettes must get FDA permission, and permission is expensive to get. Also, the FDA forbids sellers of e‐cigarettes to tell customers of their products’ reduced risk compared to cigarettes even though, according to a report by the United Kingdom’s Royal College of Physicians, the risk of long‐term vaping is no more than 5% of the risk of smoking cigarettes. As one researcher put it in 1976, “People smoke for nicotine, but they die from the tar.” E‐cigarettes have no tar.
We often hear that America is the land of the free. Grier punctures that myth. He writes, “Despite its nominally libertarian ethos, the United States is poised to become one of the most restrictive countries in the world when it comes to smoking.” We can only hope that his book will help make the United States less restrictive.