Two book recommendations for Thanksgiving 2011 are Robert Frank's The High-Beta Rich and Michael Lewis' Boomerang. These books go nicely as a pair, as the first seeks to explain the consequences of the financialization of wealth and the second follows this trend to its ultimate conclusion (world economic crisis and default). If you were planning on going crazy on Black Friday at Best Buy with your credit card, you might be wiser to download (buy?) these books and stay home reading.
Robert Frank is the wealth reporter for the WSJ, where he writes the wealth blog, and is also the author of the 2008 book Richistan. Reading The High-Beta Rich is good fun, as who doesn't like to hear about former billionaires reduced to cleaning their own toilets and shopping at Marshalls. Frank hangs The High-Beta Rich on both stories and data, and he is a good story-teller.
The underlying data story is the degree to which the income, and therefore spending, of the wealthy fluctuates. Today's rich are different from the previous wealthy class, as most of the recent big fortunes were made by way of financial manipulation as opposed to the traditional route of building a company over many years (or through inheritance). The formerly mega-wealthy that Frank profiles made their millions (or billions) by borrowing large sums of money, and as often as not investing this borrowed money in overpriced real estate development schemes. As quickly as the sub-prime bubble burst, they were forced to lay-off the armies of butlers and private chefs that they had accumulated during the financial and housing bubble. The fallout of the rapid declines in the wealth of many previous top-earners is not however limited to the yacht and mansion set, as many municipalities (read Aspen) and employees (read most of us), have grown to depend on the tax dollars and spending of the rich. Turns out, an economy based on rich people is a volatile economy indeed.
Boomerang takes the story global. What happens when entire societies decide to spend money they don't have? You end up with Greece. If you don't think that it is possible to laugh out loud about the European debt crisis then you have not read Lewis' Boomerang.
Lewis takes us on a world tour from Iceland (where the country turned itself into a giant hedge fund), to Greece, Ireland, Germany and back to the U.S. to discover what it is about national cultures that encouraged the financial insanity that delivered us where we are today. Why did the sober Germans keep loaning money to crazy and irresponsible Greeks, Irish and Americans to buy houses we'd never be able to pay for? Why did U.S. municipalities go on spending sprees and enter into contracts with public safety unions that will bankrupt future generations with un-payable pension costs? And what is it about the people of Iceland that convinced them that they should all stop fishing and go instead into investment banking? Michael Lewis has the answers.
What are you reading for Thanksgiving?