What to Read on the Financial CrisisBy Timothy TaylorNovember 25, 2009In July 2007, the U.S. economy looked fairly healthy. There had not been a recession in more than five years, and the unemployment rate was under five percent. Housing prices had been rising at an unsustainably rapid rate, but this was generally seen as a containable problem. Then, almost out of the blue, came what will probably turn out to be the longest and deepest U.S. recession since the Great Depression. As with the Depression, the causes and lessons of this crash will be studied for decades and spur new understandings of the interactions of government, private markets, and financial institutions. The works below constitute a first draft of the history of what happened and what it meant.The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown. By James R. Barth. John Wiley, 2009.Purchase at B&N.com | Purchase at Amazon.comEveryone knows that the financial crisis stemmed from risky subprime-mortgage lending. But this book details exactly how the housing and financial markets veered wildly off track. James Barth begins by discussing how mortgage markets had traditionally worked and then explains the rise of subprime mortgages and how the financial pain reverberated through the financial sector. The culprits include greed, misguided regulation, overenthusiastic encouragement of homeownership, poor leverage and accounting practices, complicit ratings agencies, and runaway financial innovation."The Origins of the Financial Crisis." By Martin Neil Baily, Robert E. Litan, and Matthew S. Johnson. Initiative on Business and Public Policy at Brookings, Fixing Finance Series, Paper 3, November 2008.ReadThis report focuses on the origins of the financial crisis: how the inflation of housing prices fed into the growth of the subprime market. The paper does an especially nice job explaining how the bubble was financed -- namely, through the issue of complex financial securities, many of which received AAA ratings and were held by banks. When the bubble burst, these financial securities lost value, spreading the crisis throughout the financialsector and eventually the economy at large.In Fed We Trust: Ben Bernanke's War on the Great Panic: How the Federal Reserve Became the Fourth Branch of Government. By David Wessel. Crown Business, 2009.Purchase on B&N.com | Purchase on Amazon.comAs the financial crisis began in late 2007 and continued into 2008 and 2009, the major policy response did not come from President George W. Bush, President Barack Obama, or Congress, but from the unelected economists and bankers at the Federal Reserve. For starters, the Fed rapidly cut interest rates to near-zero. In the past, the Federal Reserve had made loans primarily to commercial banks with high-level collateral such as Treasury bills. But during this crisis, the Fed began lending to all sorts of entities -- investment banks, insurance companies, broker-dealers -- and accepting all kinds of collateral. Fed leaders have been involved at every critical policy juncture, including the failures of Bear Stearns and Lehman Brothers and the request to Congress for $700 billion in TARP (Troubled Asset Relief Program) funds to recapitalize banks. Ben Bernanke took over