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Debt Spiral: How Credit Failed Capitalism Paperback – October 15, 2009

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Editorial Reviews

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Few thought it would ever happen again, but it has: a financial crisis so large and deep that it nearly brought the world economy to its knees. Since late 2007, the U.S. and global economies have suffered their largest downturns since the Great Depression, with bleak prospects for a rapid recovery.

How could something like this have happened? Wasn t our financial system supposed to be the most sophisticated in the world? Weren t we told that our banks were as well capitalized as they had been in a long time? Weren t the various automatic stabilizers and shock absorbers introduced since the Depression deposit insurance, social security, unemployment insurance, Medicare and Medicaid supposed to keep our economy from ever free-falling again?

Yes, yes, and yes but none of these facts were able to prevent the financial crisis and Great Recession of 2007-09. By now, if course, it is widely recognized that the rapid development and growth of the subprime mortgage market, and the widespread expectation of ever-rising residential real estate prices which it fueled, provided the spark for a major financial explosion when real estate prices in fact quit rising in late 2006. But the financial conflagration that followed would not have been possible without an extraordinary increase in credit, and thus leverage, throughout the financial system. As a result, when losses from securities backed by subprime debt began to mount, too many financial institutions banks included had too little capital to absorb the pain. National firefighters throughout the developed world, central banks, had to step in with unprecedented amounts of financial water cash to keep the financial firestorm from consuming the world economy.

If we are to have any chance of avoiding something like what has just happened from repeating, then we must first understand why why the subprime mortgage got out of control and why Americans and their financial institutions became too highly leveraged.

Martin Lowy comes to the task of providing answers with impressive credentials and much experience. For over 40 years he has studied and written about the nation s financial system, while providing legal counsel to many financial institutions. He has seen too many financial failures up close and personal. He never wants the nation to have to go through what it has experienced in these past few years.

He has brought this passion and experience to you, readers who want answers to the questions I have briefly posed here, and to many others he raises in these pages.

Many of Mr. Lowy s conclusions are controversial (even though they are neither far left nor far right) and I do not agree with all of them. But he is right to focus on countercyclical solutions and on creating competitive markets. He also is right to closely examine government subsidies for banks and housing to determine whether they are warranted.

But regardless of whether you will agree with Mr. Lowy s conclusions, his presentation of the history of this crisis should be read by anyone who wants to understand what happened. He writes clearly, with humor, and in a manner that ordinarily intelligent readers can understand and enjoy. He focuses on and explains the main points about what happened: (1) the changes in the mortgage market and the rise of the originate to sell model, (2) the pivotal role played by the rating agencies, and (3) the importance of the leverage in the banking system and financial system more generally in transforming a mortgage market event into a worldwide systemic crisis.

The financial world is a complicated place, even after the meltdown just experienced. It helps to have a guiding hand explain it to us. Martin Lowy is an excellent guide, and this is his and your guidebook. Robert E. Litan

Kauffman Foundation

Brookings Institution --Preface to Debt Spiral

About the Author

Martin Lowy, author of Debt Spiral and High Rollers, the acclaimed book on the S&L debacle, has worked in the banking field for over 40 years, as an adviser to banks, bank directors and regulators, as a senior bank officer, as a bank director, and as a commentator. Debt Spiral is his fifth book. His other books include Corporate Governance for Public Company Directors and the Practical Handbook for Bank Directors.

Mr. Lowy practiced corporate, securities and banking law in international law firms for twenty years before becoming a banker, economic commentator, and entrepreneur. He has served as Vice Chairman of a regional bank and as CEO of a high-tech startup.

Mr. Lowy not only knows the technical side of the banking and legal issues; he also has the practical experience of running private companies. He is an innovator and an independent thinker, and those characteristics make Debt Spiral the best book on the financial crisis.

Mr. Lowy is a graduate of Amherst College and Yale Law School, where he was Managing Editor of The Yale Law Journal.

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Product Details

  • Paperback: 353 pages
  • Publisher: Public Policy Press; First edition (October 15, 2009)
  • Language: English
  • ISBN-10: 0615319122
  • ISBN-13: 978-0615319124
  • Product Dimensions: 6 x 0.9 x 9 inches
  • Shipping Weight: 1.2 pounds
  • Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
  • Amazon Best Sellers Rank: #7,385,321 in Books (See Top 100 in Books)

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By S. Kealhofer on January 23, 2010
Format: Hardcover
If you have been looking at books about the recent financial crisis, much of what you need to know about them can be deduced by the category of authors to which they belong. There are three main categories: professional journalists, academic economists and, lastly, all manner of political theorists. The first category has the advantage of having the most readable style, but unfortunately suffers from fairly superficial analysis and a "gotcha" mentality; the latter two, to the extent that they focus on the facts at all, focuses on them selectively and in the service of the authors' already established world views, some of which are pretty far out.

So, if you are looking for entertainment, or for something that supports your own views, these may do just fine. If you are looking for someone who is actually making an honest attempt to understand what is going on, you may be interested in Marty Lowy's book, Debt Spiral. Mr. Lowy is a lawyer, formerly involved in financial regulation, work that brought him into close familiarity with the S&L debacle, about which he wrote a well-reviewed book, High Rollers. However, from my perspective what makes him stand out is that he has a good practical understanding of much of what went wrong in this financial crisis, and that he has no axe to grind, either or for or against the financial system.

His overall conclusion: "The boom and subsequent bust were products of institutionalized fraud and collusion....A high percentage of the loans ... were bad from the start." How that came to pass is the subject of the book.

Mr. Lowy divides the book into three parts. His first part does two things.
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