Comes now Kevin Phillips, mighty sage of "political economy," that gray area spanning elections, growth, and geography, to condemn the financial-service industries he blames for the current credit crunch.
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With a recession at the gates, Phillips's previous record as a Republican strategist-turned-skeptic gives "Bad Money" the gravity sure to guide the conversation about what is to be done.

Phillips's central thesis is that the financial-services sector - banking, investments, insurance, mortgage lending, and related areas - has taken on far too great a share of the country's economy: 21 percent of gross domestic product, bigger even than manufacturing. But too much of finance relies on arcane, derivative securities that have proven too volatile and in turn destabilized markets and exacerbated policy mistakes.

Despite examples of eras like the Roaring Twenties that also ended badly, Phillips writes, nobody in this decade did enough to rein in financial firms' rush into fast-lane instruments like subprime mortgage lending and collateralized debt obligations. Growing global trade created misplaced confidence in the transparency of American markets, worsening the problem. The current downturn came about because, as Phillips writes, "technology, quantitative mathematics, and leverage allowed more to go wrong more quickly, and with much greater global reach."

Phillips's diagnosis seems all the more prescient since it was written before the collapse of Bear Stearns and the auction-rate bond markets. But his grand writing style puts a narrative structure around what at times reads like a cut-and-paste review of business press articles of the past two years. He also fails to note the case for the financial industry in the first place: the credit and lending it provides to homeowners or small businesses. And the rising assets of the risk-averse retirement-savings industry surely accounts for much of the growth he condemns.

Another weakness is Phillips's ambition to connect his themes to his criticism of America's reliance on imported oil. He repeatedly points out that because oil is traditionally paid for in dollars, weaker dollar exchange rates reduce income for producing states, creating geopolitical disadvantages for America in an era of rising oil consumption in Asia. Then he suggests that environmentalist policies backed by Democrats will somehow weaken the US situation further. This seems to be a hint at the costs of emission-reduction programs, but it's not intuitive that reducing US oil consumption would harm our overall diplomatic position.

Despite these shortcomings, Phillips, a former Nixon aide, shines at his strength: describing the influence of great wealth on major parties, both now and in past eras. He lays out how moneyed interests shape and limit the policies that Washington might impose on Wall Street. Most interesting is his analysis of how the Democratic Party's regions of strengths - the blue states - coincide with money-center cities, including Boston, New York, and Los Angeles. The shift of contributions to Democratic candidates from hedge funds and private equity is likely to diminish the party's enthusiasm for strong regulations of the financial-services industry, he argues convincingly, the merits of such changes aside.

Ultimately this book is a challenge: the case against an industry he charges has captured key political and regulatory ground. Phillips's worldview stems not from either the left or the right, but rather from his conviction that leaders of both major parties don't grasp the gravity of the current situation. He is convinced that the United States faces an inevitable decline comparable to that of Rome or imperial England. Phillips's tone is strident and sometimes unconvincing, but his loud questions come at the right time.