What Happened?: And Other Questions Everyone Is Asking About the Credit Crunch [Paperback]

"The Chinese economic miracle was throwing off cash at an astonishing rate. In very simple terms the world was awash with money in the early years of the 21st century Lenders were falling over themselves to find willing borrowers. If the supply of money is outpacing demand, its price will fall."

In very simple terms in a cute, concise and rather deliciously crunchy little book, Hugh Pym and Nick Kochan have done what it says on the tin and provided the "intelligent lay reader" with a highly readable, jargon free and accessible guide to the credit crunch. To illustrate how this has been accomplished, compare the quotation cited above with a comparable passage from the Bank of England's explanation of the same phenomenon in its latest Financial Stability Report.

"Cheap exports from China and elsewhere in Asia, along with growth in world trade, contributed to falls in inflation in a number of developed countries. Nominal short-term interest rates were reduced to very low levels."

The authors have managed to pull off the trick of writing about a highly complex and technical subject in a style that will engage and painlessly enlighten the reader without compromising the quality of the analysis. The book kicks off with a survey of the economic, political and financial factors that combined to create the current crisis and then tackles a range of issues including: the response of governments and central bankers; how the crisis may affect individuals; the impact throughout the rest of the world and the question of how such a catastrophe may be prevented in the future.

The book has an unusual format in that it is structured as a set of questions and answers. The authors have posed the questions that they assume that most people are asking about the crunch and then have provided the answers. For example, the chapter which deals with how the crunch will affect the individual answers such tricky questions as "How safe are pensions now?" "Is gold a safe investment?" and "Is the stock market going to fall further?"

For those who have been trying to follow the crisis but have been struggling to keep up as events have proceeded at such an astonishing and unprecedented speed and severity, this book will prove to be a very handy "nutshell" guide.

The discussion of the origins of the crisis covers not just the primary economic influences, such as the crucial payments imbalance noted above, but also the role of politicians from Jimmy Carter onwards in promoting the growth of the sub-prime housing market and how these political pressures in turn had an impact on banking practices which led to the creation of the strange shadow banking universe of off-exchange vehicles, securitised debt and debt insurance products, such as credit default swaps. The whole bizarre story of how the supply of cheap money spawned a housing bubble and a buy side "hunt for yield" which the bankers -- egged on by politicians and eager consumers and aided and abetted by cooperative credit ratings agencies and indulgent regulators -- were only too happy to satisfy, is laid out in terms that the average non-specialist reader can easily understand.

Of course no short book can hope to encompass every detail of a story as complex as this and time constraints mean that the narrative stops just after the US government passed the first $700bn bail-out proposal but that does not detract from the fact that if you want to dazzle the guests at your next dinner party with your spookily encyclopaedic and astute grasp of the intricacies of the crunch then this is the book for you.

The book says it is aimed at the non-banking reader which then qualifies me to comment!

It is a welcome contribution since the subject is clearly extremely important, opinions are strongly divided on what to do, it has become political, and the opinions of laymen voters are likely to influence what is done. We need the understanding to avoid herd behaviour.

The book provides very useful insights for the layman into the man-made complexities which have contributed to the current mess and explains the background to various dippy loan decisions which have been made.

Many people, if not most, have felt uneasy for some time at the excessively easy credit over the last few years and the corresponding growth in house prices that looked unsustainable. It was interesting to hear the links from the surplus funds created elsewhere from our cheap imports to our easy credit.

Messrs Pym and Kochan appear to concentrate on the current liquidity problem rather than the options to deal with the massive debt problem. I got no comfort about what should be done, or who actually understands it. The impression is that it is all about financial complexities, detailed mistakes and confidence issues which few people if any can understand. It seems to this layman that the fundamental problem as a nation is that we have been consuming a lot of products from overseas without trading our goods and services in return. In effect, it seems we have built up a massive unsustainable debt that was bound to crash sometime with the credit crunch being a symptom rather than the underlying problem.

The current government drive for us to consume more seems as ill-advised as an individual with a debt problem trying to spend their way out of trouble.

The current Conservative advice to consume less could obviously result in less production as jobs are lost, which seems equally daft.

So what is the answer? After deriding economists and politicians in general, Will Self in a recent Question Time programme said the answer was to produce more. This actually sounds a much better answer than most economists give if Mr Self's implication is that the government should target its expenditure to boost production where we can help to reduce our debt. Other commentators warn us against protectionist policies but surely it does no-one any good for countries with massive trade surpluses to keep sending us goods we effectively can only pay for on tick.

It would have been very good if this book had gone on to analyse the options for national debt clearance in terms the layman could understand.

I recognise my limited understanding of the financial world and am grateful for the insights from this book. However, hopefully this book will not be the last analysis aimed at laymen voters as well as laymen MP's to help us correctly influence the best path forward. Someone who can actually explain it to the layman may provide confidence that they understand it themselves rather than telling us it is all too difficult for us.