Wednesday, 1 September 2010

Review of Panic! 'by' Michael Lewis

Panic! (The History of Modern Financial Insanity) is like no book I have read. This is not surprising considering it is written by ex-bond sales man Michael Lewis, a man who used to work for Saloman brothers playing the market for millions until he quit to expose the insanity of the system. That is what this book is all about.
While Lewis has written many books before such as liar's poker (that i am yet to read) this book is a general overview of the history of financial market: "the story of modern financial insanity". How ever the book is not actually 'written' by Lewis, he chooses to tell the story through many peoples perspective. The book is simply a book of articles masterfully arranged with Lewis being the narrator. One article would tell of how everything is up, the next a prediction of down fall, the next a story of what the government is doing the next a renegade traders account.

The book is split into 4 parts.
Part 1: A brand new kind of crash - the market crash of 1987
Part 2: foreigners gone wild - the asian crisis and subsequent recessions.
Part 3: The New New Panic - the internet bubble
Part 4: the peoples panic - the resent US subprime collapse

At the start of the book at Part 1 the book may seem of little economic relevance but stick with it, the information gathered on the markets and how they work is very useful to know and it gets more directly economical later when the markets start to affect the economy as a whole.

Part 2 is my favourite part, detailing the rise and fall of the asian markets, and how when they were thrown into recession it rippled across the world. There is a fantastic article by Paul Krugman from Fortune magazine, september 7, 1998 called Saving Asia that goes in-depth into different macro economic policies.
Throughout the book it tells of how again and again people make the same mistakes and how the history of markets have shaped the economic world.

“In Octorber 1987, the markets took power from people who traded with their intuition and bestowed it upon the people who traded with their forumlas. In Austust 1998, the markets took power away from the people with forumlas who hoped to remain detached from the market place and bestowed it upon the large wall street firms that oversee the market place.” –How the Eggheads cracked, Michael Lewis, the new york times, 1999. (and we know now that in 2008 it took power away from the big firms with the fall of Lehman brothers)

In summary this is a fantastic book if you want to be filled in on resent economic and market history and equally useful if you want to understand markets. How ever due to the nature of the book some parts are very difficult to read, some of articles assume knowledge of the reader. Overall if you are the persistence to get through difficult articles, this book is well worth the read.
Advanced so A level although could be useful for business students as well as economics

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