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Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
Synopses & Reviews
From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her newsbreaking warnings of a crisis more than a year ahead of the curve, Fool's Gold tells the astonishing unknown story at the heart of the 2008 meltdown.
Drawing on exclusive access to J.P. Morgan CEO Jamie Dimon and a tightly bonded team of bankers known on Wall Street as the Morgan Mafia, as well as in-depth interviews with dozens of other key players, including Treasury Secretary Timothy Geithner, Tett brings to life in gripping detail how the Morgan team's bold ideas for a whole new kind of financial alchemy helped to ignite a revolution in banking, and how that revolution escalated wildly out of control.
The deeply reported and lively narrative takes readers behind the scenes, to the inner sanctums of elite finance and to the secretive reaches of what came to be known as the shadow banking world. The story begins with the intense Morgan brainstorming session in 1994 beside a pool in Boca Raton, where the team cooked up a dazzling new idea for the exotic financial product known as credit derivatives. That idea would rip around the banking world, catapult Morgan to the top of the turbocharged derivatives trade, and fuel an extraordinary banking boom that seemed to have unleashed banks from ages-old constraints of risk.
But when the Morgan team's derivatives dream collided with the housing boom, and was perverted — through hubris, delusion, and sheer greed — by titans of banking that included Citigroup, UBS, Deutsche Bank, and the thundering herd at Merrill Lynch — even as J.P. Morgan itself stayed well away from the risky concoctions others were peddling — catastrophe followed. Tett's access to Dimon and the J.P. Morgan leaders who so skillfully steered their bank away from the wild excesses of others sheds invaluable light not only on the untold story of how they engineered their bank's escape from carnage but also on how possible it was for the larger banking world, regulators, and rating agencies to have spotted, and heeded, the terrible risks of a meltdown.
A tale of blistering brilliance and willfully blind ambition, Fool's Gold is both a rare journey deep inside the arcane and wildly competitive world of high finance and a vital contribution to understanding how the worst economic crisis since the Great Depression was perpetrated.
"At once a gripping narrative, an education in derivatives, and a most lucid origin-story for the current financial meltdown, it's no surprise the author of this volume is an award-winning Financial Times journalist. Taking readers back to the invention of credit-derivative obligations (CDOs) at J. P. Morgan in 1994, and the subsequent exponential growth of that market, Tett (Saving the Sun) deploys a remarkable sense of pacing, generating real suspense over rapidly inflating debt on bank balance sheets; by the time Lehman Brothers fails, the book has become a bonafide page-turner. Tett explains how credit derivatives seemed a win-win for the financial world, freeing up capital, increasing profits, and diversifying risk, but makes the missteps equally clear as the industry hurtles toward a largely-unforeseen wave of loan defaults (the worst since the Great Depression). Interestingly, J.P. Morgan was one of a handful of banks sufficiently prescient to imagine this 'perfect storm' of simultaneous defaults, and so never became over-reliant on CDOs. Ignoring the tacked-on, preachy epilogue (in which Tett advocates her specialty, social anthropology, as a way to avert future such crises), Tett's explosive, illuminating narrative is the one to read for anyone confused by the present financial mess." Publishers Weekly (Starred Review) (Copyright Reed Business Information, Inc.)
Ever wonder, looking at your 401(k) account statement, what exactly happened last fall, when the financial system nearly collapsed and trillions of dollars of "wealth" evaporated? Gillian Tett's splendid book might be the explanatory tonic you've been looking for. There are other good books that help explain the disaster of 2008, notably Mark Zandi's "Financial Shock" and Charles... Washington Post Book Review (read the entire Washington Post review) R. Morris' "The Two Trillion Dollar Meltdown," both accessible works by experts who wrote for a general audience, but neither is as engaging as Tett's. A writer for London's Financial Times, she brings an unusual credential to financial journalism: a Ph.D. in social anthropology. Anthropologists, as Tett notes at the very end of her book, look for holistic descriptions of human cultures that "link different parts of a social structure." She has done just that in her book, which illuminates a basic truth: Apart from natural disasters, the great events that alter human history are, however complicated, the work of human beings. In the end, economic forces, the tides of history and such are just manifestations of human foibles, often encouraged by dysfunctional cultures like the one on Wall Street. Tett's mouthful of a subtitle implies that she found the tribe responsible for this crisis. She does make a convincing case that a small group of J.P. Morgan investment bankers, employees of the firm's swaps department, were among the smartest and most creative proponents of the new kind of financial tool called derivatives, defined prophetically in 2003 by the investor Warren Buffett as "financial weapons of mass destruction." But if these bankers, mostly young and many with credentials in computer science and mathematics, dreamt before others about the potential power of derivatives, they were hardly alone, and hardly deserve the blame for what happened. They do however provide a rich cast of characters and a storytelling device that helps make this book compelling fun to read. And Tett, a resourceful reporter, got many of them to open up. There isn't room in a brief review to define the terms and acronyms of the financial meltdown, but Tett does this well, partly with a glossary at the back of the book. Better, she describes the evolution of the derivatives called credit default swaps that contributed so much to last fall's unpleasantness. The first of these worked out by J.P. Morgan insured Exxon against the risk to its finances created by a threatened fine of $5 billion for the Exxon Valdez oil spill. Blythe Masters, the brilliant young woman who figured out how to do this, became a J.P. Morgan star — and very rich. At first Morgan made the most hay from credit derivatives, briefly dominating this new financial market. (Just how profitable it was Tett doesn't say, a frustrating and unusual failing.) But the biggest money ultimately was made from derivatives based on securitized home mortgages, a category ultimately poisoned by subprime mortgages issued to homebuyers with dubious credit ratings in the United States during the great housing bubble in the middle of the current decade. J.P. Morgan opted not to get into that market, a very smart expression of a cautious corporate culture that ultimately saved the company from the disasters others suffered. Though she never lectures or hectors, Tett's portrait of the way greed, hubris and sheer stupidity combined to put global capitalism at risk of disaster is devastating. Different readers will find their hair curled by different revelations. Those most effective in raising my blood pressure involved the bank executives who presided over the institutions most prone to wretched excess but who knew little or even nothing about the derivatives their associates were buying and selling. "As the pace of innovations heated up," Tett writes, "credit products were spinning off into a cyberworld that eventually even the financiers struggled to understand. The link between the final product and its underlying assets was becoming so complex that it appeared increasingly tenuous. ... Most financiers lacked the cognitive skills to truly understand the connections in this new world." Oh yes, and "even regulators seemed only vaguely aware of what the banks were really doing." My favorite quotation of the whole sordid story came from Charles Prince, the hapless chief executive of Citigroup, one of the most irresponsible banks. Prince said in the summer of 2007, "As long as the music is still playing, we are still dancing" — dancing, a year later, right off the cliff. Not everyone was so oblivious. Indeed, some banks, including Goldman Sachs, shifted tactics in 2007 and began to bet heavily on a downturn in the mortgage market, which soon followed. Timothy Geithner, the young head of the New York Federal Reserve Bank, now secretary of the treasury, presciently warned that the proliferation of new financial gimmicks could have unforeseeable negative consequences, specifically warning about the leverage — borrowed money — so freely used by the big banks. But the head of the Federal Reserve, Alan Greenspan, "the maestro," was the leader of the camp of optimists who truly did believe that the wonders of the free market would dissipate the risks created by the new financial tools. While the music still played, the ideology of deregulation or just no regulation continued to prevail. Only later, after "the entire intellectual edifice collapsed," in Greenspan's memorable phrase, did he and some of his allies (though far from all) admit what he acknowledged so poignantly last October: The meltdown had reduced him to a state of "shocked disbelief." "I made a mistake," said the man who, when he ran the Fed, had the legal authority but not the inclination to regulate the behavior by banks that led to the disaster. Tett is an anthropologist, not a psychologist; she doesn't provide satisfying explanations of the personal motivations of her principal characters. Nor does she explain how rich they got, a frustrating shortcoming. Greed is the permanent backdrop to her story; the ridiculously luxurious lives of her principles are taken as simple facts of life. She shortchanges the role of governments and officials like Greenspan. But these are all quibbles. She has written an irresistible book. Robert G. Kaiser, associate editor of The Washington Post, is author most recently of "So Damn Much Money: The Triumph of Lobbying and the Corrosion of American Government." Reviewed by Robert G. Kaiser, Washington Post Book World (Copyright 2006 Washington Post Book World Service/Washington Post Writers Group)
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The Financial Times writer who scooped the whole financial world with her warnings of an economic crash takes readers to the elite inner sanctums of the banking world to reveal the untold story at the heart of the boom and bust.
From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her newsbreaking warnings of a credit crisis more than a year ahead of the curve, Fool's Gold tells the astonishing unknown story at the heart of the 2008 meltdown.
The fascinating, unknown story at the heart of the current financial crisis by the award-winning journalist who warned of the crash well in advance.
About the Author
Gillian Tett oversees global coverage of the financial markets for the Financial Times, the world’s leading newspaper covering finance and business. In 2007 she was awarded the Wincott prize, the premier British award for financial journalism, for her capital-markets coverage. In 2008, she was named British Business Journalist of the Year. She previously served as the newspaper’s deputy head of the Lex column (an agenda-setting column on business and financial topics), Tokyo bureau chief, economic correspondent, and foreign correspondent. She speaks regularly at conferences around the world on finance and global markets. She has a PhD in social anthropology from Cambridge University. In 2003, she published a book on Japan’s banking crisis, Saving the Sun: How Wall Street Mavericks Shook Up Japan’s Financial World and Made Billions.
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