BOOKS ABOUT MONEY have been rapidly overtaken by events. With the transformation of the credit crunch into a full-blown panic, banks have ceased lending to each other and sober commentators talk of another Great Depression. There is a crying need for explanations, however provisional, of how the global financial system came to this pass. It is, incidentally, a drama of absorbing human interest.

The Crunch (Random House, £11.99/offer £10.79) by Alex Brummer, City editor of the Daily Mail, is an illuminating place to start. Brummer's focus is the collapse of Northern Rock - the first run on a British bank for more than a century. Brummer writes briskly and often acerbically about the culprits of the financial meltdown. His depiction of the hapless management of Northern Rock and its roots in the local aristocracy is quietly damning.

The Trillion Dollar Meltdown by Charles Morris (Public Affairs, £10.99/£9.89) covers a wider brief, explaining in clear prose, and in a book that is barely more than a monograph, the blow-up in the world's financial markets. Morris traces the origins of the credit bubble to the illusion that clever financial engineering was the same as efficiently managing risk. He is justifiably harsh on the regulatory failures that hastened the crisis, but he is no dogmatist. He acknowledges the merits of financial innovation, and his model for reform is the tough monetary policy that defeated inflation in the 1980s. A similarly painful reckoning now - a huge write-down of assets - is necessary to resuscitate the financial system.

The origins of the bubble lie in the US housing market. In The Subprime Solution (Princeton University Press, £9.95/£9.45), Robert Shiller explains how it happened and what policymakers should do to tame future speculative manias. It is a book with much relevance to the UK too. The housing bubble was fuelled by the belief that prices were certain to go up, and was aggravated by predatory lending. Shiller argues for a financial bailout in the short term: as with the New Deal in the 1930s, a social contract that protects the unfortunate is both an axiom of a civilised society and a means of stabilising the economy. But in the longer term, expanding financial markets is the most effective way of managing risks - including the risk, which was foreseen by Shiller but not by policymakers, of an almighty crash in house prices.

If you only buy one book this Christmas make sure it's...

Michael Parkinson, Sheila Hancock, Roger Moore, Elaine Paige and Andrew Castle pick out some perfect reading for the festive period

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Among the most elegant books I have read this year are The Ascent of Money by Niall Ferguson (Allen Lane, £25/£22.50) and The Soulful Science by Diane Coyle (Princeton University Press, £11.95/£10.76) . Both provide essential background for anyone interested in the global economy.

Ferguson traces the development of the financial system from ancient Mesopotamia to the credit crunch of the past year. Ferguson is able to explain, with well-turned phrases, the complex (and in retrospect, dangerously abstruse) principles of modern quantitative finance. Coyle's subject is ideas - not the views that economists hold so much as the way that they reason about big questions such as growth and poverty. It is a model of accessible exposition.

Amid the gathering economic storm, it will be important to recall, as Coyle says, that “markets in many circumstances remain better mechanisms for sharing and diffusing information than any alternative social institution we've yet devised”. The message is particularly apt for financial markets, despite the contamination of the banking system with a cascade of bad debts.

Two very different books dramatise the world of investment banking: The Partnership: A History of Goldman Sachs by Charles Elli s(Allen Lane, £25/£22.50), and Cityboy: Beer and Loathing in the Square Mile by Geraint Anderson (Headline, £12.99/£11.69). Goldman has been shaken by the financial panic. Its history, however, demonstrates resilience through earlier crises. Ellis's massive but readable account is like a financial Galsworthy, appropriate to the behemoth of its subject and important as social history. Ellis is a fluent populariser of the principles of modern finance, and this background takes his book well beyond the usually tedious genre of blockbusting business hagiography.

Anderson, on the other hand, provides a supposedly autobiographical account, lightly fictionalised, of life in the financial markets. He is a former equity analyst who has turned against what he sees as the hedonistic and corrupt culture of investment banking. The genre of denunciatory memoir usually carries at least a core of reliable insight, but Anderson's mastery of his subject is difficult to understate and his prose style is querulous. Attempting to explain the bailout of the banks by means of a laboured metaphor about oral sex is less endearingly blokish than it is emblematic of an understocked mind.

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