Customer Reviews

Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation

5 star:		(10)
4 star:		(3)
3 star:		(4)
2 star:		(1)
1 star:		(1)

 

 

Mr. Gross has given us a clear, non-technical account of our current financial crisis, credit lockdown and recession. It makes for lively reading as well, since many of the key players of this account are allowed to characterize themselves in their own words (quoted mostly in context). Mr. Gross falls just short of self-righteous indignation by reminding himself and us of the parts we played in enabling the players. There are enough facts and figures to refute the idea that somehow the people who did not make money were to blame for the excesses into which the money-makers were enticed. I do have two complaints about the story. First, there is a lack of discussion of the involvement of international credit markets connected with international trade - what I believe were the "canary in the mineshaft" - that dragged down central banks once counterparty trust was lost. Secondly, I accuse Mr. Gross of copping out in his concluding chapter. Following such a story of legal, ethical, and moral drama, I would expect the author to give us an account of the lessons he learned, and lessons we might carry away. However, he was gun-shy, and said as much, about making "predictions" about future events. The reader will have to write his or her own conclusions. For me, it was the old virtues of honesty, thriftiness and hard work. You cannot write a credit default swap on those. Other people will have other lessons.

Gross has managed to write one of the most clearly stated, precise and condensed versions of the origins and nature of the current economic crisis currently on the market.

Gross is not interested in finding a ideologically motivated one-stop-shopping-style guilty party ("It's Clinton's fault!"). Instead, he concentrates on the mechanics of how things got to the point they are at now - and in a way easily accessible to the layperson, without sacrificing accuracy.

Recently I read a Newsweek column by Daniel Gross documenting that U.S. private employment today is less than in 2000, despite population having grown 9%. That bit of basic insight led me to read his "Dumb Money" about how the Ownership Society quickly degenerated into the Bailout Nation during the same time period. The book is short (101 paperback-sized pages), interesting (even entertaining), yet comprehensive, covering all the decade's financial 'stars' - Ben Bernanke - keeping interest rates low, continuing Greenspan's rosy forecasts), Christopher Cox (ineffectual SEC head), Alan Greenspan (keeping interest rates too low for too long, lobbying for deregulation, blindly following philosopher Ayn Rand instead of economic data and theorists), Edward Lambert (acquired K-Mart and Sears early in the decade, then spent $4.9 billion to buy back shares at an average $118 - now $70), Richard Fuld (named a #1 CEO by Institutional Investor magazine in 2006, received a $22 million bonus in 2007, and then watched the 28,000+ firm Lehman Brothers collapse in a market-terrorizing bankruptcy in 2008), Angelo Mozilo (making mortgages available to almost everyone in his pursuit of #1 market share), Henry Paulson (a latecomer to the crisis, he then created a bailout for the institutions that created the crisis), Robert Rubin (lobbyist for deregulation, Citibank board member while sailed into a major government rescue), John Thain (CEO NYSE from 2004-2007, paid $83,785,021 in 2007 - mostly by his not-yet employer Merrill Lynch, requested a $10 million 2008 bonus for 'saving' Merrill by selling it to Bank of America for $28 billion + $20 billion in government money, spent $1.22 million in 2008 corporate funds to renovate two conference rooms, a reception area, and his office, and was fired in January, 2009), the fine folks (both legislators and regulators) behind the Community Reinvestment Act, and countless financial geniuses that bought up every exotic three-letter financial instrument, company M&A or LBO, and mirage within sight.

Gross even managed to 'share the blame' (sarcastically) with China for our low interest rate-fueled housing bubble. Institutional players involved and included in Gross' accounting included insurance giant AIG, banks, bond rating agencies, builders, Congress (bought, paid-for, and asleep), Fannie-Mae and Freddie-Mac (repeatedly raised their loan limits, allowing the bubble to keep inflating), mortgage originators, and the shadow bankers. Dumb money players were not limited to the private sector - California and the U.S. government also were major participants, followed by New York, New Jersey, Illinois, etc. - all but North Dakota, Wyoming, Montana and Alaska. And none of this could have happened without the little people (you and I) who bought ARMs, balloons, HELOCs, liar's loans, and no-down loans by the millions and then got stuck with them after the crash; regardless, we're all paying now for the private and public sector bailouts, along with our children, grandchildren, great-grandchildren, etc.

Gross' Recommendations? Outlaw stupidity, and create some sort of fiscal lithium (sprayed over Wall Street?) for starters. Gross is not enthusiastic about more regulation (too easy to get around). Perhaps a tax on securities trading and the creation of structured financial products to be used to help cover future messes.

This is a very basic explanation of what caused the collapse of the financial system. Basic. The intent was not to provide all the financial rationale or details of what happened. The intent is to give a broad based overview of what caused the collapse. To completely understand it all in detail you would have to first be very experienced in this field and/or very financially literate (which most are not), and you would need to read tome after tome on the subject. But, if you have said, "Could someone just explain what happened?" then this is the book for you. It's not a class on economics or an in depth analysis of the psychology behind it all, or a textbook with citations and footnotes. This guy is just trying to explain to you "what happened." I believe that was his goal and I believe he achieved it successfully.

Hindsight is always 20-20 and everything is always so obvious after the fact. Daniel Gross offers a concise view at the mechanics of the financial meltdown, which points out the root problems, how they developed, and the mania that ensued. Refreshingly, the author does not carry any political biases and instead focuses on the facts. If you're looking for a short and approachable summary of the meltdown, then this is it.

On the other hand, what makes this book so good as a summary, is also its weakness in the broader context of financial & market policy moving forward - I would be careful about drawing generalized conclusions based on the analysis.

This book, which promises much, delivers little. It is written in a general easy to read tone like a long blog by a skilled amateur blogger. It has little insight, few facts, and much personal opinion. You probably already know more about the financial crisis than you will learn from this book.

This book is a really great starting place to begin to understand the financial cataclysm of 2008 that was so large that there don't even exist adjectives to span its enormity - words like "colossal", "monumental", "humongous", all seem too small or ordinary for this extraordinary financial castasrophe. Everyone should try to understand an event of this magnitude and for those like myself who are not finance professionals, this short (101 pages of surprisingly readable text) is a great place to start. Gross informs us at the outset that he set out to try to understand why "it suddenly became acceptable for the United States to start guzzling debt the way fraternity boys pound beers on spring break" and he mostly succeeds.

It's all here: the steady loss of our manufacturing base to China, the rise of "cheap money" (loans at temptingly low interest rates), "securitization" (the packaging of high and low risk mortgage debt into "mortgage-backed securities"), Enron and Worldcom, the epidemic of sub-prime, risky home loans, the wanton use of debt as "leverage" to finance more and more absurd take-overs, soaring government debt levels fueled by the low cost of borrowing, and the addictive need for constantly rising values in all asset classes to prevent total collapse of over-leveraged hedge funds, private equity groups, and investment banks. Large investment banks inexplicably thought they could carry 30 dollars in debt for every dollar of capital. Sub-prime lenders offered no-down-payment home loans to borrowers with undocumentable income. Government regulators obligingly eased requirements for reserves in order to keep the party going.

Faced with stagnating wages, average workers borrowed their way into affluence through refinancing mortgages and running up credit card balances until they could not longer safely get off the treadmill. Hungry for profits, the rest of the world joined in the frenzy and got burned as well. Gross gives the sense that the lethal overdose of borrowing was a juggernaut that no one individual or institution could control. In his somewhat underwhelming concluding chapter, Gross seems to think that the world financial crisis of 2008 is neither the first nor the last of an inevitable series of bubbles that inhere in free markets. He anticlimactically recommends we be "smarter" and more restrained in our investment choices.

I learned many interesting specifics about the financial crisis of 2008, and overall, that it really was what most of us suspected it was: a lethal admixture of greed, narcissism, diabolical ingenuity, and lemming-like, imitative behavior on a grand scale. This is a great, painless introduction to a disturbing, complicated, important tale of capitalism gone wild.

In this quick, little book, author and journalist Daniel Gross looks at the financial crisis of 2008+. The author divides the years leading up to the crisis into three eras - the Era of Cheap Money (2001-2004), the Era of Dumb Money (2004-2006), and the Era of Dumber Money (2006-2008). Along the way, the author shows how the exuberance of the expansion pulled in more and more people, and created a classic bubble that popped with such catastrophic results.

For the most part I thought that this was a good book. The author does an interesting job of explaining what happened, when and why. He shows all of the non-government players (eschewing any substantive discussion of the government's involvement in the disaster), and how they influenced the bubble...usually for the worse.

On the down side, however, it is true that the book is written in a very non-professional manner. With no index, bibliography or footnotes, the book has the feel of an over-long blog. Also, the author allows his (strong) opinions of people and competing news sources to have free rein, further undercutting my feeling of trust in what the author has to say.

So, let me just say that while this is a good book on the recent (and ongoing) financial disaster, it is far from being the best book on the subject. I give it a very guarded recommendation.

"Dumb Money" is an easy-to-read account of how greed, ignorance, and wishful thinking combined to produce the great economic bubble of 2004-2007 and how it all fell apart in 2008. It is entertaining and somewhat informative, but the author glosses over (or ignores) the role that the Federal Government and the Federal Reserve Bank played in creating this speculative binge. He makes it sound like greedy Wall Street types were the prime villains, and while the financial industry certainly was a key player, the push for "easy money" from Republican and (mostly) Democratic politicians is barely discussed or brushed aside. Overall, "Dumb Money" has a rushed quality; it reads like a collection of pop-journalism pieces rushed into print to cash in on the desire to understand what caused the mess we are in. The paper it is printed on is cheap, which adds to the "quick and dirty" feel of the book. For a better explanation of what happened, I would recommend "Meltdown" by Tom Woods.

No table of contents. No index. A rush job to the printer. But it could be just right for you if you are looking for a condensed version of this historic financial disaster. The booklet is only about 100 pages long and should not take more time to read than a Newsweek magazine. The author urges investors to be smarter. His contribution to reducing the amount of dumb money out there (is that a euphemism for dumb people with money?). But he also believes that Wall Street will always find ways around all regulations. "Bubbles speak to something innate in the American psyche." It will happen again. The details will be different there will be new players and we can't prevent it.