Banking Books: “Meltdown”

Banking Books: “Meltdown” by Thomas E. Woods Jr.

September 12th, 2009

The full title of Wood’s book is ‘Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse.’

If a one-sentence description were to be attached to this book review, it would be that the free market was not the cause of the financial crisis we’re now in, but the U.S. government and its monetary arm – the Federal Reserve – are.

Using the Austrian theory of the business cycle, Woods identifies the practices of the Federal Reserve which led to the economic crisis, he explains it like this in Meltdown:

“Making cheap credit available for the asking does encourage excessive leverage, speculation, and indebtedness,” adding, “Manipulating interest rates and thereby misleading investors about real economic conditions does in fact misdirect capital into unsustainable lines of production and discombobulate the market.”

In other words, it’s the interference by the Federal Reserve into the free market which causes this endless series of booms and busts, and not the market itself.

Ron Paul adds a foward to the book, giving his difficult to extract praise for Meltdown. Here’s an excerpt from Ron Paul’s Foreward in Meltdown:

“… This book actually gets things right. It correctly identifies our problems, their causes, and what we should do about them. It treats the architects of this debacle not with the undeserved reverence they receive in Washington and on television, but with the critical eye that is so conspicuously missing from our supposedly independent thinkers in academia and the media. Tom Woods reserves his admiration for those few who, unlike the quacks who would instruct us now, actually saw the crisis coming, have a theory to explain it, and can show us the way out.

“In a short span, Tom introduces the layman to a range of subjects that have been excluded from our national discussion for much too long. Topics our opinion leaders thought they’d buried forever, or never heard of in the first place, are suddenly back, and not a moment too soon. This book is an indispensable conduit of these critical ideas. Among many other things, Tom explains Austrian business cycle theory, which he correctly identifies as the single most important piece of economic knowledge for Americans to have right now. In so doing, Tom provides Americans with the most persuasive and rational account of how we got here. Only if we correctly assess the causes of the debacle can we hope to propose a path to recovery that might actually work and not simply prolong the agony.” Go here to read the entire forward in Meltdown

One important part of the book I particular liked was the dismantling of the “too big to fail” garbage which is now being adopted as part of national policy, which creates a “moral hazard,” meaning, banks will continue to participate in reckless behavior knowing the government will bail them out whenever they fail.

I agree heartily with Woods’ conclusion that we must allow these failed and poorly run banks to fail and let the banks being run responsibly to swoop in and pick up what’s good about the banks and dismiss the dross. That’s how a true free market works, and is addressed in Meltdown.

For those of you who may get discouraged from reading some books on economics because of the tortuous language used by the writers, who similar to college professors sending off writing to one another, Meltdown offers explanations in lively and easy-to-understand language.

In one chapter Woods talks about in a very understandable way, how the manipulation of the U.S. money supply is the culpirt behind the cycles, and ends the book with ways we can deal with it; so it’s not just a rant against current policies and practices, but offers concrete examples and solutions as to what we can practically do about it to build up and sustainable, long-term, healthy economy.

I highly recommend you getting Meltdown from Thomas E. Woods, as it’ll give you a great look at the source of our ongoing economic problems – and solutions – which we unfortunately never hear about from mainstream media.