Anatomy of a Wall Street collapse

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Wall Street: America's Dream Palace By Steve Fraser. 200 pages. Yale University Press.

The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash By Charles R. Morris. 194 pages. PublicAffairs.

It was 1792, and Wall Street was enduring its first crash. A speculation in government bonds had gone horribly wrong, and a formerly wealthy and influential man named William Duer was being chased through the streets of New York City.

In the end, he was lucky that the sheriff got him rather than the mob. As a result of his machinations, Steve Fraser reports in "Wall Street: America's Dream Palace," "real estate prices collapsed, credit dried up, house building stopped." The decline spread from businessmen to shopkeepers, widows and orphans.

Does that sound familiar?

With the American financial system apparently threatened by paralysis after an era of easy credit that now seems ridiculous and venal at the same time, Wall Street may be about to endure another of its periodic brushes with public scorn and reprisal.

...

One of the most important aspects of the financial architecture that is now collapsing was the way it allowed investors to believe they could make perfectly safe investments when they financed very risky loans. Or, as Morris puts it, "Highly rated bonds magically materialize out of a witches' soup of very smoky stuff." He adds, "Very big, very complex, very opaque structures built on extremely rickety foundations are a recipe for collapse."

IHT (Book Review)

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1. william DUer. nt