Bailout

September 30, 2010
Review of Books on the Bailout and Financial Collapse

Written by Ezra Rosser This summer I decided to read up on the bailout and the origins of the economic crisis because, while I was aware of the broad strokes, I thought the near collapse of our financial sector was a topic that could have sufficiently lasting impact that it was worth learning more.  I read (in order): Lawrence MacDonald & Patrick Robinson, A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers (2009); Michael Lewis, The Big Short: Inside the Doomsday Machine (2010); and Roger Lowenstein, The End of Wall Street (2010). I decided to read A Colossal Failure of Common Sense because I liked the cover, which features a great photo of the Wall St. bull.  But the common advice about buying a book for its cover held true in this case.  It is billed as an inside account, but the insider is not sufficiently powerful to have played much of a role and too often fails to recognize the larger problems at Lehman and similar banks.  The mortgage department is subject to scorn and hindsight-aided insults, while the successful trades of the author are celebrated for whole chapters.  What is missing is recognition that the gains in non-mortgage arms of Lehman and the gains and eventual losses in the mortgage and real estate arm were driven by the same tool: tremendous leverage.  The authors attribute the failure of Lehman largely to a distant CEO - Fuld - and while you leave the book convinced that a change in leadership would have helped pull Lehman back from real estate, I did not get the sense that that change alone would reduce the bank's exposure to the next bubble.  Mortgage brokers are described as flashy with fancy cars and big muscles, but the authors seem unaware of the irony of spending so much time describing the fancy meals and presents that Lehman executives lavished on well performing mid-level employees.  The culture of mortgage lenders at the height of the bubble described in the book could have been, but was not, a way for the primary author and Wall St. to look in the mirror.

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