ONE of the most famous books to come out of the boom of the Eighties was Barbarians at the Gate. In this book, it seems that the nerds have taken over from Conan and his chums.<br /><br />In fact, the subtitle of the book makes it clear that greed was to blame – politicians and central bankers all over the world will be pleased to hear that – and more specifically the search for a way to make money using clever computer models when the markets were slow.<br /><br />In Tett’s analysis, it all started at JP Morgan in the mid-Nineties, when the bank started securitising commercial loans in order to keep capital flowing when interest rates were falling. The practice soon spread to other banks, and other sorts of loans, including mortgages.<br /><br />Soon, as we all know, things got out of control and banks were accepting dubious AAA ratings on the loans without looking to see if those ratings were justified, despite the warnings from legislators and regulators. Greed trumped prudence, and even those who could have done something about it decided to let the greedy reap the rewards of the dubious models.<br /><br />The problem was that the models were badly built: human error was built in, in the sense that the models could not cope with a downturn. When it came, the loans turned out to be too complex and almost entirely worthless.<br /><br />Tett’s interpretation of the credit crisis has the perception of an insider (she worked for the FT during the period she writes about) and she explains complicated concepts crisply. An important book.