“Panic” covers four major episodes: the 1987 United States stock market crash, the 1997-98 emerging-market bust-ups (called “Foreigners Gone Wild”), the dot-com meltdown and the current housing/credit/stock market collapse. Each is a triptych — the first panel is a brief essay by Lewis, the second is filled with contemporaneous newspaper or magazine articles that set up the boom, and the third presents sober analysis of why it happened. While being anthologized is usually a badge of honor for writers, some of the articles were plainly chosen for the way in which they typified the dangerous pre-panic zeitgeist, capturing “the feeling in the air immediately before things went wrong,” as Lewis puts it. I suspect the authors of the Time article from July 1987 on how individual investors were riding the bull market, and of the January 1996 New York Times article extolling emerging market mutual funds, now regard these works the way my brothers and I regard bell-bottom pants — signs of youthful indiscretion that are best forgotten.

Image Credit... Illustration by Julia Hasting

But there are plenty of gems, especially involving the 1987 crash, which now seems quaint. An excerpt from a book by the former Wall Street Journal reporter Tim Metz sheds light on the chaos in the markets then. More broadly, the entries remind us that before CNBC, Yahoo Finance and E*Trade, those not sufficiently with it to possess a hand-held Quotron had to visit brokerage offices to check stock quotes.

What else is noteworthy? Paul Krugman’s dissection in Fortune of what went wrong in Asia in 1998, a Jeffrey Sachs interview on what went wrong in Russia. The Wall Street Journal’s 1998 article on how the stock of the second-tier book retailer Books-A-Million went on a wild rise after the company introduced its new Web site and Katharine Mieszkowski’s May 2000 Salon account on dot-coms’ blowing millions of dollars on Super Bowl advertisements don’t taste as good as Proust’s madeleine. But they sure take you back. Mark Gimein’s July 2000 Fortune article on AllAdvantage, which paid people 53 cents an hour to surf the Net with a special advertising bar on their screens, is a howler. The headline: “Meet the Dumbest Dot-Com in the World.”

The most recent episode, which Lewis calls “The People’s Panic,” is less funny — it’s too close, it roped in many more people, and the costs to the public are likely to be huge. The bailouts are especially galling given the ample warnings, like those sounded by John Cassidy of The New Yorker, who warned in November 2002 that housing would be the next crash. A single entry from the Irvine Housing Blog, which shows how a person in January 2005 bought a $1.157 million house with $270 down, refinanced with a funky teaser-rate mortgage and then proceeded to open up a $491,000 home equity line of credit by 2007, neatly encapsulates the lunacy.

Some of the best entries are Lewis’s own, including his January 1999 New York Times Magazine article on the failed hedge fund Long-Term Capital Management. The quantitative geniuses who designed this vehicle had a tough time grappling with the fact that their model had failed. “It is interesting to see how people respond when the assumptions that get them out of bed in the morning are declared ridiculous by the wider world,” Lewis writes. In each of the episodes, the bottom fell out because a bedrock belief held by many participants — smart professionals, not the perennially stupid individual investor — suddenly evaporated. “Panic” is to a large degree a chronicle of the capacity of highly paid professionals for self-delusion.