When Empires Fail: 3 Books That Predict The Crash

Ancient columns of the Temple of Saturn in the Roman Forum in Rome. Historians have noted that the Roman Empire expanded beyond its abilities to defend its borders. i i
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Ancient columns of the Temple of Saturn in the Roman Forum in Rome. Historians have noted that the Roman Empire expanded beyond its abilities to defend its borders.
iStockphoto.com

It begins with a political leader or a businessman who hits on a powerful new idea, one that puts him miles ahead of everyone else. It could be a new innovation, like the financial derivative, or a new way of doing business, like Microsoft selling software. It could be something destructive, like Hitler's blitzkrieg, which ran over France in two months. No matter the specifics, it leaves everyone else flat-footed and looking foolish.

Our man (it's usually a man) is now indestructible and untouchable. With nothing in his way, he is, for a while, an irresistible force.

Until he takes one step too far. You can usually see it coming. And then things start to collapse, often with profound or humiliating consequences. It's like a good disaster movie — the crash is the best part.

When Genius Failed

When Genius Failed

by Roger Lowenstein

Paperback, , Random House Inc, $16, published October 1 2001 | purchase
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  • When Genius Failed
  • The Rise and Fall of Long-Term Capital Management
  • Roger Lowenstein

When Genius Failed, by the great business writer Roger Lowenstein, is a modern classic in this genre. It's the story of Long-Term Capital Management, founded in 1994 when a bond trader named John Meriwether recruited the smartest academic economists in the world, future Nobel Prize winners like Myron Scholes and Robert Merton. Together, they created an uber-hedge fund, based on complex mathematical models, and soon began gobbling up cash like Pac-Man on steroids, with returns of greater than 40 percent per year. This is, of course, when they should have gone back to academia. Instead, they reinvested much of the money and borrowed billions more. They kept going until the autumn of 1998. The Russian financial crisis broke their mathematical models and began a chain reaction that in polite circles is called a "flight to liquidity." Lowenstein's chronicle of the panic and collapse is captivating — an unheeded warning about our current financial problems.

The Rise and Fall of the Great Powers

The Rise and Fall of the Great Powers

by Paul M. Kennedy

Paperback, 677 pages, Random House Inc, $20, published January 1 1989 | purchase
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  • The Rise and Fall of the Great Powers
  • Economic Change and Military Conflict from 1500 to 2000
  • Paul M. Kennedy

The Rise and Fall of the Great Powers, by Yale history professor Paul Kennedy, is the textbook of imperial overreach. One by one, we watch the rise and fall of the Spanish, Napoleonic and British empires. Then, we move on to the Nazis and the Imperial Japanese. The leaders always make the same mistake. Hitler can't stop after conquering France and Western Europe — he has to go and invade Russia. Imperial Japan, unsatisfied with its conquests in China, decides to pick a fight with the United States. It's not like I'm rooting for the Spanish empire, but the moment when it all starts to crumble is painful. No one, it seems, ever learns from history.

Master of the Game

Master of the Game

by Connie Bruck

Paperback, , Penguin Group USA, $22, published April 1 1995 | purchase
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  • Master of the Game
  • Steve Ross and the Creation of Time Warner
  • Connie Bruck

Master of the Game, by Connie Bruck, is the story of the original 1970s, tuxedo-wearing, big media mogul Steve Ross, who built Time-Warner Inc. Ross' invention was the "media conglomerate." He borrowed money and went on a wild merger binge, marrying his funeral parlor operation and a parking lot business, with film studios, magazines, a soccer team, the Franklin Mint and anything else he could get his hands on. He also began a tradition of media executives who strive to make Roman emperors look restrained, indulging in every conceivable pursuit of pleasure available to the adult male. The decline of Time Warner doesn't come until after Ross dies (and after the end of the book), when the conglomerate goes still further, buying AOL and spinning out of control.

When you've got a good thing going, it's hard to quit, and easy to go too far. I recommend these books for anyone in your life who might be in need of a cautionary tale.

Tim Wu is the author of The Master Switch: The Rise and Fall of Information Empires.

Three Books... is produced and edited by Ellen Silva with production assistance from Rose Friedman and Andrew Otis.

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