I ve done a fair amount of reading about the Panic of 2008, and Gillian Tett s Fools Gold explains the exotic investment instruments at the heart of the panic better than any other work I ve read A group of derivatives traders at J.P Morgan created commoditized credit default swaps in the early 1990s as a way to move risk off the company s books, freeing up capital for lending and investment that otherwise would need to be held in reserve Morgan made payments to AIG, which assumed the risk that Morgan s assets would go into default Derivatives traders at other firms began assembling securities backed by subprime mortgages, trying to put together instruments that would be just risky enough to obtain returns but safe enough to obtain AAA ratings They then paid AIG to assume the risk of the mortgages underlying those securities going bad However, many institutions kept what they thought were the least risky of these mortgages on their own books, as they could not obtain much in the way of returns on the securities that they would back The whole thing was unregulated by government, and the ratings agencies were easily bamboozled into turning poo into gold as it turned out As the cruddy mortgages went bad, AIG began to take on water When the less risky mortgages went bad, the financial institutions themselves sank.Interestingly, J.P Morgan did not get into the business of mortgage backed securities Morgan s mathematicians could not put together a risk model with the kind of integrity to which they were accustomed First, they had no data on what could happen if real estate values ever declined Second, they had no long term data on default rates for the kinds of subprime mortgages that proliferated in the early and mid 2000s Moreover, Morgan Chase chairman Jamie Dimon pushed the concept of a fortress balance sheet containing rock solid assets on which the bank could rely if things went to hell Dimon pushed Morgan s derivatives traders to investigate getting into the business of mortgage backed securities a couple of times, but, consistent with the notion of a fortress balance sheet, he accepted the traders reasons for staying away from that business The book contains a brief account of the events leading to the Lehman Brothers bankruptcy that turned a situation into a panic, and concludes with Tett s cultural analysis of U.S and U.K investment houses. Well done account of the Global Economic Meltdown of the Year Eight as seen from inside J.P Morgan Tett focuses on the rise and collapse of the credit derivative market she is the FT s specialist on that and not on the subprime mortgages that attract so many other authors Her angle here is that CDS and derivatives were designed by her main characters not as financial weapons of mass destruction but as perfectly legitimate instruments for dispersing risk and were employed with no clear direction by the major banks Her explanation of markets and market instruments is clear and straightforward, and her account of the disasters at Bear Stearns and Lehmann is one of the best and most direct that I ve read Still, Tett s account does remain just a bit abstract a tale of technicians and their tools with very little emotional connection to what happened to the ordinary economy in the late summer and autumn of 2008 She makes the case that too big to fail isn t a myth, since it does mean too interconnected to fail , that allowing a general collapse of the big trading houses and banks would ve imploded the economy in a way not seen since 1929 30, but she doesn t go much beyond a few sentences the local ATM stops giving out money that give a ground level view of the disaster so narrowly averted. This is yet another book about the credit crunch and the Crash of 08, but it s one of the best Gillian Tett tells the story of the crisis from the point of view of JP Morgan Morgan was an early innovator in the derivatives market Indeed Tett credits Morgan with creating the credit default swap market which eventually overwhelmed the financial world But, having created the market, Morgan walked away from it when it was unable to develop any sort of reliable risk modeling As a result, Morgan was able to survive the crisis in a much stronger position than its rivals Tett s reporting and analysis is excellent The first third of the book, called Innovation, is literally the best possible primer you could read on derivatives and the shadow banking system that developed in their wake Her description of the events surrounding the crash is very good Unlike virtually everyone else writing about these issues, Tett avoids heavy handed finger pointing This book is notably lacking in hysterical jeremiads, whether against Richard Fuld, Henry Paulson, Barney Frank, Tim Geithner, and anyone else you would care to name This is also a very well written book Despite covering a lot of esoteric and abstract material, it flows very well and reads very quickly This is highly recommended. Another crisis bailout book, this one told mostly from the point of view of J.P Morgan, which came out slightly less dirty than most everyone else once the dust settled It s interesting to learn how derivatives became the Frankenstein s monsters of the financial industry the Morgan folks who thought them up meant well, and to an extent they make a kind of sense spreading risk around to lessen its negative effects , but when misused, they brought the house down Also, Jamie Dimon must be a ridiculously charismatic guy, since both Tett and Andrew Ross Sorkin write about him like he saved the world.Unlike The Big Short, which is an amazing combination of potboiler and finance textbook, Tett s book is both drier and less insightful, in some ways She clearly gets the derivatives market, and she explains it competently, but in a book that is entirely focused on the CDO and CDS, I thought I would come away with a solid understanding of how the darn things work I know she didn t want to write an actual textbook, but the stories she tells of the meetings at the Fed in 2008, of Dimon taking over JP Morgan, etc are available elsewhere, in accessible forms.So, ultimately, if I hadn t read a few other books on similar topics, I d probably have liked this one And, in fact, if you only want to read one book about this stuff and still get most of the knowledge, this isn t a bad place to start It s not thrilling, like Michael Lewis book, and it s not comprehensive, like Sorkin s, but it s interesting enough and detailed enough to make do. Good sketch of some of the structural factors behind the GFC Chief factors appear to be i Excessive securitisation of inappropriate underlying assets, with risk retained on bank balance sheets key word is excessive, not derivatives with the residual super senior risk being taken up by banks themselves onto balance sheet, without due recognition of fact that CDOs were not meant to be written on mortgages in the first place but on diversified corporate loans, let alone to the extent that they were ii seizing up of the commercial paper markets that the SIVs were using to fund yield carry trades on AAA rated CDOs, as the asset quality of these CDOs started to come into question These trades started to falter when the subprime market began to falter in 2006 unfortunately the book and most other analysis is unclear on what led the subprime housing market to start faltering in the first place Thus it describes the set up, and the denouement but omits the catalytical turning point. Excellent read Good focus on the evolution of credit derivatives and how a small coterie of bankers at JP Morgan changed the world I found this book a much enjoyable read than Ms Tett s columns at the FT Given a chance to tell a story in depth and paint idiosyncratic portraits of eccentric bankers at work and at play, Ms Tett s writing style and skills are given space Reading this book, one gets the sense of a Dr Frankenstein type scenario where some financial engineers with good albeit slightly greedy intentions created a monster that overpowered its creators and went on to wreak global financial terror It is ironic that the creators at JPM later or less disowned their creation and had the good sense to cut back their subprime debt exposures unlike their hapless counterparts at Bear Stearns, Lehman Brothers, Merrill Lynch and Citibank I confess to a bias in Ms Tett s favor having heard her deliver a short talk in Singapore and observed her on televsion and media she has a few striking cameos in the Oscar winning documentary Inside Job , I find her quite attractive, witty and engaging Another good reason to read on. If you re like me, making sense of the economic implosion has been difficult I am lucky if I can manage to keep my checking account balance So, the whole world of derivatives and complex investment vehicles generally soars right above my head That is, until I stumbled upon Gillian Tett s book, Fool s Gold Now, I am still no economic expert, but I feel like Tett has provided me with a primer to sort through the mess brought about by a small band of investment bankers that left a devastating trail of destruction through the livelihoods of many.Fool s Gold tells the story of how a small group of investment bankers cooked up the investment scheme that ultimately led to the crash of 2008 It is not a pretty story It is one filled with greed, arrogance and blind faith in the so called free market Although the narrative sometimes gets bogged down in acronyms, it is worth the effort Highly recommend for those of us who don t hang out on Wall Street. Is Wall Street motivated solely by greed, or do its bankers have humanity s interests at heart In this revealing account of the events leading up to the Global Financial Crisis, Gillian Tett sheds light on how investment bankers think, why they made the decisions they did, and how it all came unstuck Tett, anthropologist and editor of the Financial Times, explains how a small team at J.P Morgan believed they were developing financial products that would reduce risk and help stabilise the global economy As Tett explains, the bitter irony is that they first developed their derivatives ideas in the hope that they would be good for the financial system In helping their own careers and their bank s portfolio, they thought that they could also help humanity See at From Award Winning Financial Times Journalist Gillian Tett, Who Enraged Wall Street Leaders With Her Newsbreaking Warnings Of A Crisis Than A Year Ahead Of The Curve, Fool S Gold Tells The Astonishing Unknown Story At The Heart Of The Meltdown Drawing On Exclusive Access To JP 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 ControlThe 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 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 RiskBut 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 JP Morgan Itself Stayed Well Away From The Risky Concoctions Others Were Peddling Catastrophe Followed Tett S Access To Dimon And The JP 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 MeltdownA 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 If anyone doubts the value of a social anthropology PhD, then this book offers a great answer and rebuke Tett, a financial journalist, had completed a PhD in anthropology and used those skills to understand the on the ground culture of the bankers and financiers in the derivatives market Tett probed a culture of extreme risk taking, excess and ridicule of regulators Fascinating, she also probed the consequences of disconnecting finance capitalism money exchange from the people it is meant to serve.The ruthlessness and carelessness will remain my memories of this book Bright people who not only behaved irresponsibly, but laughed at the misfortunes and losses of others.
Gillian Tett is a British author and journalist at the Financial Times, where she is a markets and finance columnist and U.S Managing Editor She has written about the financial instruments that were part of the cause of the financial crisis that started in the fourth quarter of 2007, such as CDOs, credit default swaps, SIVs, conduits, and SPVs She became renowned for her early warning that a
- 338 pages
- Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe: How an Ingenious Tribe of Bankers Rewrote ... Made a Fortune and Survived a Catastrophe
- Gillian Tett
- 06 March 2019 Gillian Tett