The  New York Times  bestseller "A succinct, lucid and compelling account . . . Essential reading." -Michiko Kakutani, The New York Times Renowned economist Nouriel Roubini electrified the financial community by predicting the 2008 crisis before others in his field saw it coming. This myth-shattering book reveals the methods he used to foretell the current crisis and shows how those methods can help us make sense of the present and prepare for the future. Using an unconventional blend of historical analysis with masterful knowledge of global economics, Nouriel Roubini and Stephen Mihm, a journalist and professor of economic history, present a vital and timeless book that proves calamities to be not only predictable but also preventable and, with the right medicine, curable. “A succinct, lucid and compelling account of the causes and consequences of the great meltdown of 2008… essential reading for anyone interested in getting a crisp, if opinionated, overview of how the global financial system seized up in the fall of 2008 and what may happen in the months and years to come if serious reforms and new regulations are not embraced.” —Michiko Kakutani,  The New York Times "A rigorous yet highly readable look at why booms and busts occur and how to keep them from wreaking havoc on the real economy" — Bloomberg “An impressive, timely argument on behalf of transparency and stability for a financial system conspicuously lacking both.” — Kirkus Reviews Nouriel Roubini is a professor of economics at New York University's Stern School of Business and the founder and chairman of Roubini Global Economics. He has served in the White House and the U.S. Treasury. He lives in New York City. Stephen Mihm writes on economics and history for The New York Times Magazine, The Boston Globe , and other publications and is an associate professor of history at the University of Georgia. He lives in Decatur, Georgia. For the past half century, academic economists, Wall Street traders, and everyone in between have been led astray by fairy tales about the wonders of unregulated markets and the limitless benefits of financial innovation. The crisis dealt a body blow to that belief system, but nothing has replaced it. That’s all too evident in the timid reform proposals currently being considered in the United States and other advanced economies. Even though they have suffered the worst financial crisis in generations, many countries have shown a remarkable reluctance to inaugurate the sort of wholesale reform necessary to bring the financial system to heel. Instead, people talk of tinkering with the financial system, as if what just happened was caused by a few bad mortgages. Throughout most of 2009, Goldman Sachs chief executive Lloyd Blankfein repeatedly tried to quash calls for sweeping regulation of the financial system. In speeches and in testimony before Congress, he begged his listeners to keep financial innovation alive and “resist a response that is solely designed to protect us against the 100-year storm”. That’s ridiculous. What we’ve experienced wasn’t some crazy once-in-a-century event. Since its founding, the United States has suffered from brutal banking crises and other financial disasters on a regular basis. Throughout the 19th and early 20th centuries, crippling panics and depressions hit the nation again and again. The crisis was less a function of sub-prime mortgages than of a sub-prime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess. The road to recovery will be a long one. For starters, traders and bankers must be compensated in a way that brings their interests in alignment with those of shareholders. That doesn’t necessarily mean less compensation, even if that’s desirable for other reasons; it merely means that employees of financial firms should be paid in ways that encourage them to look out for the long-term interests of the firms. Securitization must be overhauled as well. Simplistic solutions, such as asking banks to retain some of the risk, won’t be enough; far more radical reforms will be necessary. Securitization must have far greater transparency and standardization, and the products of the securitization pipeline must be heavily regulated. Most important of all, the loans going into the securitization pipeline must be subject to far greater scrutiny. The mortgages and other loans must be of high quality, or if not, they must be very clearly identified as less than prime and therefore risky. Some people believe that securitization should be abolished. That’s short-sighted: properly reformed, securitization can be a valuable tool that reduces, rather than exacerbates, systemic risk. But in order for it to work, it must operate in a far more transparent and