Books on Finance During Trouble

These books on finance in a time of trouble pay big dividends, says Duff McDonald (courtsey The Wall Street Journal)

Mr. McDonald is the author of "Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase" (Simon & Schuster, 2009). He is a contributing editor at New York magazine.

1. The House of Morgan By Ron Chernow, Atlantic Monthly, 1990

Can a bank actually be heroic? Ron Chernow suggests as much in his exhaustive history of J.P. Morgan and its instrumental role in the development of the industrial Western economy from the late 19th century to the end of the 20th. But the clear-eyed Chernow does not ignore the less-than-heroic in this National Book Award-winning title, which is as much a social and political history as it is the story of the Morgan dynasty. Of the fallout from the Crash of 1873, Chernow writes: "Not for the last time, America turned against Wall Street with puritanical outrage and a sense of offended innocence." When World War I erupted: "Wall Street, which prided itself on its prescience, was once again caught napping by a historic event." Both tendencies remain in place today. What we do not have is a Wall Street king like John Pierpont Morgan, the man who built the banking dynasty and who had the power to intervene personally in the Panic of 1893 and save the U.S. Treasury by launching a syndicate to replenish the nation's gold supply.

2. The Go-Go Years By John Brooks, Weybright & Talley, 1973

Just as the stock market moves in cycles, even though each new generation seems to think each new high and low is happening for the first time, so, too, do market players often imagine that they're breaking new ground when most are not. Today's high-flyers are pretty much the same as those depicted by John Brooks in "The Go-Go Years," his account of how the stock market changed during the 1960s. At the very moment when stocks were truly going mainstream in America, Brooks produced one of the most enjoyable and insightful books ever written about the tribes and tactics of the stock market. Chronicling the escapades of almost-forgotten swashbucklers such as Gerald Tsai and Saul Steinberg, he produced incomparable observations about Wall Street's merry-go-round of triumph and tragedy. He describes 1968 as the year "Wall Street had become a mindless glutton methodically eating itself to paralysis and death," something that happened again in the period 2004-07. And what of our capacity to learn from our mistakes? "Reform is a frail flower that languishes in the hot glare of prosperity," he observes. Given that prosperity still looks a while off at this point in 2010, maybe reform will actually bloom.

3. The Bubble Economy By Christopher Wood, Atlantic Monthly, 1992

"What everybody knows is seldom worth knowing," begins "The Bubble Economy," an incisive, readable assessment of the Japanese real-estate boom and bust of the 1980s. Christopher Wood, the former Tokyo bureau chief for the Economist, writes with such flair that it's a shame he gave up journalism, becoming a financial analyst and the publisher of the newsletter Greed & Fear. His book has aged well; swap out names and institutions and it might have been written last year. "Isaac Newton actually arrived in Japan in 1990," Wood writes. "His presence did not prove a pretty sight in a country where too many people had concluded that the laws of gravity, when applied to their own financial markets, had somehow been suspended." Like a faded rock star, the 367-year-old Newton is back for another world tour.

4. When Genius Failed By Roger Lowenstein, Random House, 2000

A raft of books have been written—and are still being written—trying to explain the complex financial products, such as collateralized debt obligations and credit default swaps, behind the near collapse of Wall Street about 16 months ago. The last time something this complicated took the system to the brink, it was the crash in 1998 of the gigantic hedge fund Long-Term Capital Management, when its "relative value" trades went bad. Luckily Roger Lowenstein was on the case—there is no better writer for explaining the intricacies of finance in eminently understandable terms. His description of how Wall Street reached its precarious state in 1998, necessitating a rush to bail out LTCM, capturesthe birth of the "too big to fail" doctrine: "Almost imperceptibly, the Street had bought into a massive faith game, in which each bank had become knitted to its neighbor through a web of contractual obligations requiring little or no down payment." A decade later, we'd done it again. If more people had read "When Genius Failed," today's miseries might have been avoided.

5. Point of No Return By John P. Marquand, Little, Brown, 1949

While Wall Street hardly has trouble generating stories that seem straight out of a novel, there are a handful of sublime works of fiction that capture the spirit of its strivers in ways that nonfiction cannot. These novels, like Tom Wolfe's excellent "Bonfire of the Vanities," show us what the traders were thinking as well as what they were doing. Nearly four decades before "Bonfire," John P. Marquand wrote "Point of No Return," a lost masterpiece that shines a bright light on the mind-set of that species of Banker Americanus that helped to build the modern financial-services edifice and that colonized suburbia. Marquand's protagonist, Charles Gray, managed not just to survive but to thrive in the 1929 stock market crash, the Depression and its aftermath, and he has collected an enviable set of trophies: the new house in Westchester County, the wife, the two kids and the country-club membership. But "Point of No Return" is hardly a cheerful success story. Instead, it's a gripping portrayal of a man obsessed with roads not taken and of the insecurities that lie just beneath a veneer of seeming achievement. "The more you get, the more afraid you get," says Gray. "Maybe fear is what makes the world go round."