AFTERSHOCK: Protect Yourself and Profit in the Next Global Financial Meltdown
by David Wiedemer, Robert A. Wiedemer and Cindy Spitzer

Back in 2006, David Wiedemer, Robert Wiedemer and Cindy Spitzer were among the few analysts to correctly predict the collapse of the housing market and the resulting financial crisis in their book America's Bubble Economy. It was a commendable bit of foresight and certainly deserving of recognition. And in their latest book, the authors have no intention of letting us forget it.

First, however, let's give credit where credit is due. Aftershock is a compelling book that makes a strong, logical argument that America's financial future is going to worsen before it gets better. The authors contend that U.S. prosperity in recent years has been based on wealth created by an economy made up of multiple bubbles. These bubbles have been inflated not by tangible productivity improvements but by rampant financial speculation and the assumption that certain assets will always increase in value. 

The first four of these bubbles-real estate, stock market, private debt and discretionary spending-have already popped, creating our current predicament. The authors predict that the next two bubbles-the dollar and government debt-will be the next to go in what they refer to as a "bubblequake," leading to an "aftershock" of double-digit unemployment, inflation and interest rates and fostering a dramatic shift in American life as we know it. What happens next will seem for many like economic Armageddon. The authors are more hopeful, however, characterizing this new era as a painful but necessary economic evolution that will hopefully lead to a more stable financial future. 

To its credit, Aftershock does not come off like the work of a trio of crackpot Chicken Littles. Rather than engage in unrealistic economic cheerleading, the authors describe a very plausible, albeit frightening, scenario. The book is marred, however, by their insistence on constantly patting themselves on the back for the success of their previous predictions. While a victory lap may be justified, taking the entire book to do it is a little excessive. Throughout the book, the authors refer to their "unmatched track record" as justification for why the reader should heed their advice. Essentially, they continually sell the book to the end, forgetting that the reader has already bought it. 

After a while, these frequent self-aggrandizing asides start sounding desperate and begin to border on the delusional. The authors devote an entire chapter near the end to debunking what they think will be criticism of the book even though these arguments, at least for the moment, only exist in their heads. They even go so far as to equate Aftershock to classic works like Uncle Tom's Cabin and Silent Spring for its willingness to expose unpopular issues and challenge the status quo. 

Unfortunately, all this hyperbole only serves to undermine the authors' message by making it seem like even they do not have enough confidence in what they are saying to allow it to stand on its own merit. Either that or they really do think that highly of themselves. It is a shame because otherwise, Aftershock is a good read that delves into some vitally important topics.

What the authors fail to realize is that while it is perfectly acceptable to be the smartest person in the room, constantly telling everyone that you are a genius only tends to annoy and alienate the very people you are trying to impress. It is hard to respect the message when you are constantly reminded that maybe you should be questioning the messenger.
   -Morgan O'Rourke

THE SELLOUT: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System
by Charles Gasparino

Of all the books documenting the financial crisis-and there are many-The Sellout tells it better than most. Filled with very little of the boring, complex financial jargon that comprises many books of the genre, this tome makes for a surprisingly entertaining and easy read. 

Where author Charles Gasparino excels and others fail is in his ability to make what some people see as a bland history of the U.S. financial markets into a fascinating tale of how money, power, greed, risk and egos have led the market to its extreme highs and its lowest of lows. 

Through the Russian debt crisis of 1998 and the dot-com bubble burst of 2000 to the fall of Lehman Brothers and the entire market in 2008, much can be blamed on the foolish risk taking within the derivatives and bond market and political motives that lacked foresight. "The derivatives market became a huge casino...Wall Street embraced risk as its business model and slowly pushed traditional advisory services into the background." Risk taking became more important than any other facet of business-it was supported, rewarded and encouraged. The risk takers on the trading floor found themselves pressured to take on more risk than the next firm.

Throughout the book, Gasparino builds a laundry list of characters-individuals described so well, it is as if Gasparino himself is a veteran fiction writer instead of a Wall Street reporter. The character he focuses on most is the pot-smoking former CEO of Bear Stears, Jimmy Cayne. To read about Cayne's rise from college dropout to full-time bridge player to CEO of one of the largest investment banks in the world is mind-boggling and fascinating.

But The Sellout is more than just a story of drama-filled trading floors, booze n' babes in the conference rooms and cocaine in the corner office. It is a detailed history of every major event leading up to the collapse of Wall Street. This book makes the financial crisis seem like what everyone wished it was-a novel of dramatic fiction.
   -Emily Holbrook

LEARNING FROM CATASTROPHES: Strategies for Reaction and Response
by Howard Kunreuther and Michael Useem

Nassim Taleb's "black swan theory" details how society has been shaped time and time again by incredibly rare events of extreme impact. Historic events from the assassination of Franz Ferdinand to September 11 and the rise of the internet to the fall of the Berlin Wall all fit the bill. But more than just being rare and transformative, the qualification that truly makes something a "black swan" is that is was entirely unpredictable. No one could see it coming. And while it is certainly a forgivable offense for society to fail to see something that was, by definition, unforeseeable, it is not forgivable for us to fail to learn from it.

This is the underlying message of the aptly titled Learning from Catastrophes, a collection of studies in risk management edited by Howard Kunreuther and Michael Useem, both of whom are professors at The Wharton School at the University of Pennsylvania. The book is a good blend of traditional risk management lessons and anecdotal evidence to reinforce these classic tenants. Scholarly enough for coursework but interesting enough for casual skimming, the work focuses on the disasters of the past decade and can be considered the first "history" of the catastrophes that dominated the globe in the past decade. 

Throughout, the message is that unpreparedness remains dangerously high and that the entire world must strive to increase its ability to deal with disaster. Ultimately, I think even Kunreuther and Useem would admit that certain black swans will always catch the world by surprise. 

But what about the other events? If we study the past, we should be able to see them coming. "If we know that we will predictably underpredict-and thus underanticipate the next catastrophe-we can do something about it in advance. Now is the time for all of us to appreciate the importance of recognizing risks and preparing for them before they result in another Katrina or credit tsunami. Above all, leaders need to remember that a low risk is not a no risk."
   -Jared Wade

Morgan O'Rourke is editor in chief of Risk Management. Jared Wade is editor of Risk Management. Emily Holbrook is associate editor of Risk Management.