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Inside Job

The Big Short: Inside the Doomsday Machine by Michael Lewis (Norton, $15.95, 291 pages)

“The problem wasn’t that Lehman Brothers had been allowed to fail.   The problem was that Lehman Brothers had been allowed to succeed.”

If you read The Blind Side by Michael Lewis, and think this is going to be another warm and fuzzy story, think again.   This is a former insider’s telling of the reasons the American economy was virtually destroyed by greed in the early 2000’s and it will get you angry – or at least it should.   Here’s one example pointed out in the book…

It’s late 2006 and U.S. home values have just suffered their greatest decline in 35 years.   And, so, Goldman Sachs selected this time to give a bonus to each and every one of its employees – a little bonus of $542,000 (not salary, but some extra spending cash for the holidays)…   How does this make you feel?

If you’re a normal human being without any ties – familial or otherwise – to Wall Street, you should be infuriated by the knowledge of these practices; and there are dozens of examples provided by Lewis.   Yes, this is a tale of incredible hubris.  Lewis, who had once worked at Solomon Brothers, notes that Wall Street traders saw themselves as geniuses who were above reproach:  “(They had) the ability to see themselves in their successes and their management in their failures.”   In fact, however, Lewis well makes the case that these same self-proclaimed geniuses simply didn’t grasp the details of the game that they were playing.   And we all paid the price for their failures.

In just a few years, “One trillion dollars in (subprime-related) losses had been created by American financiers…”   Lewis is honest enough to say that if he’d remained on the Street, he might have been part of the problem:  “If only I’d struck around, this is the sort of catastrophe I might have created.”

“This woman (Meredith Whitney) wasn’t saying that Wall Street bankers were corrupt.   She was saying that they were stupid.”

This is also the story of one Dr. Michael Burry, a man who figured out that big money could be made off of the Street’s losses and ignorance – he decided to bet, big-time, against subprime mortgage tranches and won big-time.   Burry was a man who figured out early on (in 2007) that Wall Street’s rating firms were engaging in massive cheating – rating as solid risks mortgage packages that were pure losers.   One single pool of “crappy mortgages” (falsely rated) – based on home loans made between April and July of 2005 – was allegedly worth three-quarters of a trillion dollars, but the entire pool was basically worthless.

The problem with Lewis’ account, which he states began as a policy paper on the roots of the modern-day American fiscal crisis, is that it reads like a dry white paper.   There’s no sense of outrage, no moral center.   Even while Lewis complains that the U.S. government (and, specifically, the White House) transformed Wall Street firms into public corporations, which were then deemed to be “too big to fail,” there’s no sense of anger.   Thus, we’re left with a sense of amorality, instead of immorality, in this presentation.

This is an interesting and easily read account, but it’s quite frustrating and not recommended.   If you want to enjoy something written by Michael Lewis, try The Blind Side.

Joseph Arellano

This book was purchased by the reviewer.  

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When the Music’s Over

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. McDonald with Patrick Robinson (Crown Business Reprint Edition; $16.00; 368 pages)

A Colossal Failure of Common Sense describes a CEO acting as if his firm was too big to fail…  One might be tempted to think that Lehman’s bankruptcy was too mild a punishment for the firm’s management.”   James Freeman, The Wall Street Journal 

The bankruptcy of Lehman Brothers is now 2 years behind us.   It was the largest bankruptcy in history and the first in a series of banking and financial institutional failures linked to the housing bust.   It marked a low point in the chronology of Wall Street.   Former Lehman vice president of trading, Lawrence McDonald, and a veteran professional writer, Patrick Robinson, have painstakingly detailed the intellect, honesty and caring at the heart of the Lehman trading groups that tried valiantly to warn upper management of the impending doom.

This one hundred and fifty-eight-year-old institution was leveled by a small clique of men at its very top who lacked the restraint and manners that were the key to traditional corporate culture at Lehman.   The arrogance, greed, weak egos and excesses (think of TV’s Dynasty) are similar to the unfortunate behaviors exhibited by members of any and all cliques.

We view the action from McDonald’s perspective starting with his early yearning to work at a major player on the Street.   If you think every aspect of the real estate bubble and bust has been examined and reported on, think again.   This hefty book is written from an insider’s perspective.   Credit is given to whomever it is due at both ends of the spectrum of good and evil.  

The reader can feel the suspense building as the story continues to develop.   This book became a true page-turner prior to its end, even though its conclusion had already been written.   Recommended.

This review was written by Joseph Arellano.   Reprinted courtesy of Sacramento Book Review.

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Less Really is More

Street Fighters by Kate Kelly (Portfolio, 245 pages)

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry M. (Hank) Paulson, Jr. (Business Plus, 496 pages)

“Bear Sterns, as it turned out, was only the first in a long string of financial firms to suffer mortal harm.  …By September 2008, just six months after Bear’s sale to J. P. Morgan, the investment banking industry had effectively ceased to exist.”   Kate Kelly

Kate Kelly’s book, subtitled The Last 72 Hours of Bear Sterns, the Toughest Firm on Wall Street, proves once again that less can be more.   This is a riveting, fly on the wall, account of the rapid demise of the once-powerful Bear Sterns investment firm.   Sterns was Wall Street’s fifth-largest investment bank with a market value of $25 billion dollars – with a “b.”   It was virtually given to J. P. Morgan for the fire sale price of $236 million – with an “m.”

Kelly’s book, an expansion of a three-part series of articles that she wrote for The Wall Street Journal, tells us how this all came to pass in less than half a week in March of 2008.   These were mad-crazy times, the beginning of this country’s fiscal implosion and she covers it in a manner that brings to mind Robert (Bob) Woodward’s reporting.   As with Woodward, Kelly interviewed hundreds of individuals who were present at the meetings and events described here and quoted them without attribution.   But in some instances the reader can clearly tell who the source was, as in cases where an underling criticizes a supervisor.   However, Kelly’s style is smoother and less choppy than Woodward’s first drafts of history.

Street Fighters has 229 pages of actual content and it appears to be just right.   The typical reader will finish the true tale thinking that everything essential was told and little was left out.   There’s both a new preface and a prologue to the trade paperback edition for those who don’t choose to supplement the account with Google searches.

That the length appears to be just right is not something that can be said of On the Brink, the loveable Hank Paulson’s 496 page account of the U.S. and the world’s financial meltdown.   If the mention of 500 pages doesn’t make the point, consider that it takes 13 full CDs to contain the unabridged audiobook version.   Apparently no editors were employed to deliver this effort.

What’s mind-boggling, and often frustrating, about Paulson’s account is that he appears to cover every meeting, every phone call, every thought over a period of weeks and months with dozens of important figures.   Yet he tells the reader that he does not maintain briefing papers, nor ask his staff members to do so, and does not keep records (including e-mails) other than phone call and meeting logs.   From this, he’s recreated virtually everything that happened from an apparently perfect memory – or could it be that recordings were used?   It doesn’t really matter.   It’s just that there is so much detail that this reviewer was worn out less than a third of the way through.

There are also some contradictions apparent in Paulson’s telling.   He gives us several of his seemingly expert opinions about the financial events of the last two years before reminding us that, “I’m not an economist.”   This has the same effect as someone writing about brain surgery and then stating, “I am not a physician.”   He also tells us that he’s not a sentimental person, but he writes of the often-criticized Tim Geithner like a father writing about his favorite son.   One half expects to read that Geithner solved the financial crisis by walking on water.

For those looking for an explanation as to why the U.S. government saved or bailed out some companies but not others, the explanation is not here.   Why did the government ensure that Morgan purchased Bear while permitting Lehman Brothers to fail?   All that can be said is that Paulson provides a few non-explanatory explanations.   In the end they just do not add up.

And lastly, as Bob Seger might have warned, what to leave out is just as important as what to leave in.   Kate Kelly in her nonfiction account nailed it.   Paulson was not even close.

Take Away:  Street Fighters is highly recommended.  

A copy of Street Fighters was purchased by the reviewer.   A copy of On the Brink was provided by the publisher.

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