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

by Gillian Tett

Book Overview

From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her news-breaking warnings of a crisis more than a year ahead of the curve, Fool's Gold tells the... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 141659857X
• ISBN13: 9781416598572
• Release Date: May 2009
• Publisher: Free Press
• Length: 293 Pages
• Weight: 1.11 lbs.
• Dimensions: 1.2" x 6.1" x 9.0"

Customer Reviews

An Excellent Book that Breaks Down Wall Street's Financial Jargon

If you want to better understand the financial crisis, but you don't know what a CDO, CDS, SIV, super senior debt, CDOs squared, etc., is this is the book for you. Gillian Tett has written a book that anyone outside of the financial industry can understand and it is a pleasure to read. The book describes how several bankers at JP Morgan were in the forefront of the derivatives markets in the early 90's. She then explains how credit derivatives evolved and how JP Morgan escaped the carnage that took place in the fall of 2008. Essentially credit derivatives are a way for a bank to reduce their exposure to risk. JP Morgan was able to create relatively safe derivatives when they were employed on companies because they could analysis their credit worthiness, but this was not the case with home mortgages. JP Morgan could not fine any reliable nationwide data on US housing market because US home prices had always went up since the Great Depression. The lack of housing data and their merger with Manhattan Chase preventing JP Morgan from becoming a major player in the securitiazation of home mortgages during the decade. Gillian Tett does not point fingers in her book, she simple describes how the course of events played out and how JP Morgan Chase was able to avoid the problems encountered by most banks. Gillian Tett's has written a interesting and informative book about the current credit crisis that a lay person can understand.

The Type of Book You Can't Put Down

Of the recent chronicles of our ongoing financial collapse, this is one of the finest. I'll leave the theoretical hairsplitting to our financial clergy, but for us laity, it's a fast-paced page-turner. It's the type of book you can't put down, but by that I mean that it's a book that you mustn't lay down, because if you stop reading on a Friday and resume the following Monday, will you retain the meaning of all the financial jargon? For us mere mortals, there's a lot of detail here to remember, mostly initials (which Ms. Tett wrongly calls "acronyms"): IIF, ISDA, CDO of ABS, CDOs of CDOs, BISTRO, SIV, & c., & c. But wait! The good news is that this book has a glossary! -- which most of the other financial-meltdown accounts lack. [Hurrah! Wild cheering!] The bad news is that there are only 25 terms listed in it [cheering dies down], and you're left on your own with such esoteric terms as "ABX derivatives," and the definitions themselves are far from obvious: "SIV: An entity that operates in a manner similar to a conduit but does not enjoy complete credit support from a bank, and has external equity investors who bear the first risk of losses." [cheering turns into a dull murmur] That's unfortunate, because the general public sorely needs to know what happened, and the news media are apparently unable to provide a coherent and unbiased account. Without a basic understanding of the situation, the average person naturally reverts to his prejudices: that the meltdown was caused by minorities (you know who) purchasing homes that they knew they couldn't afford; that it was nothing more than another case of shysters trying to do an end run around the wise regulators; or, as is commonly believed in Europe, that it's the rotten Americans to blame again (when, actually, half of the CDOs were traded in the UK). We, reverting to our peasant stock, also want to know who to blame for the mess, so that we can tar-and-feather them, but after reading this book, it's not so clear that any one person or group was to blame. Nor is it clear that the crisis could have been averted if only . . . if only . . . (more regulation, better regulators, Democratic administration -- supply your own pet panacea here). In fact, most people mentioned in this book seem to have conducted themselves admirably, or if not admirably, no worse than you or I would've behaved had we been among the financial elite. My only complaint about "Fool's Gold" is that there is an occasional wrong word ("fallacious" --pg.113-- is not synonymous with merely "mistaken") or lapse of punctuation. Everyone hits the occasional wrong note, but this is the second book with such defects that I've recently read that was published by Simon and Schuster. Apparently they are too cheap to hire proofreaders. High marks to Ms. Tett; low marks to them.

The best book on the crisis, as it relates to Financial Institutions.

An excellent book, engagingly written, tracing the excesses of the credit derivatives and credit structured products that were a major part of the cause of the current crisis. This book is NOT a overview of the whole crisis. It is specifically intended to concentrate on the aspect above. It is written for those who are generally financially literate (e.g., typical readers of the Financial Times and Wall Street Journal), not for those who are already knowledgeable in credit derivatives and credit structured products (a more expert reader would want explanations at the level of the books by Janet Tavakoli). However, for the primary audience, more basic explanations of CDSs, Synthetic CDOs, Super Senior tranches, ABX indices, Conduits and SIVs etc -- all the specialised vocabulary that has been in the financial news in the last two years -- are quite sufficient and are more than adequate. What I particularly liked, in addition to the very readable style, was the clarity of the overriding theme of corruption of the products with undiversified sub-prime mortgage assets, exaccerbated by excesses of leverage and shadow-banking vehicles to hold them; how an intelligent set of ideas was perverted in an environment encouraging greed at the expense of prudent risk-taking. A highly informative book, well researched and written by Gillian Tett. Strongly recommended.

Excellent Review of the Players: From AIG to Wells Fargo

The book starts with a fly-on-the-wall description of big, offsite meeting in Boca Raton for J.P. Morgan employees. There they made plans to ensure that J.P. Morgan led the industry in credit derivatives. This story of the bravado of young party animals becomes the backdrop for how we got into this mess. These recently minted and overconfident traders and analysts risk takers, lead a headlong charge into a poorly understood market innovation. After that, Tett describes in detail the array of models, players and events that lead to the financial crisis and weaves them all together to explain the events like no other author yet has done. Although the description of events are detailed, Tett leaves out explanations of how basic psychology and particular modeling errors contributed to the problem - such as the researched described in Hubbard's The Failure of Risk Management: Why It's Broken and How to Fix It (although Hubbard is talking about risk management in a broader sense than financial risks alone, I still recommend both books for this topic). But Tett is also more pragmatic and specific than Taleb's The Black Swan: The Impact of the Highly Improbable and makes more logically supported conclusions than Posner's A Failure of Capitalism: The Crisis of '08 and the Descent into Depression. Tett seems to cover just about every aspect of the recent crisis that an author can cover without getting into specific mathematical modeling errors (Hubbard argues this is a critical contributor but it would be hard to elaborate without alienating much of the audience). She covers AIG, Bear Sterns, Fannie Mae, the credit rating agencies and the Basel II accords. She mentions Gaussian copula model, Goldman Sachs and the actions of Alan Greenspan. The details of Structured Investment Vehicles (SIV) and Value at Risk are included along with recent events like the Troubled Asset Relief Program (TARP). I do not believe there is another single book that has this breadth of coverage combined with a logical picture of how they formed an avalanche of connected events. As of now, this is the single most important book on the topic, period.