Customer Reviews

The End of Wall Street

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One of the differences between Roger Lowenstein's 2000 book, When Genius Failed, and his latest book, The End of Wall Street, is that when Genius was written it plowed a lot of new ground describing the events that led up to (and followed) the collapse of the improbably-named Long Term Capital Management (LTCM) hedge fund back in 1998. (At that time, the LTCM saga was a very big deal, although the seriousness of the event has certainly been eclipsed by the more recent financial crisis.) The fact that Lowenstein was--and remains--a gifted writer just made Genius all the better. Today, in contrast, the events of the recent financial crisis are reasonably well known, and I've lost count how many books have been written on the subject. Is there room for one more? Sure. However, don't expect blinding revelations. Really. There is little new material that you probably haven't seen elsewhere. Fortunately, The End of Wall Street is well written, as you would expect from Lowenstein, so be prepared to enjoy a thoughtful, well-researched and engaging story. I haven't downgraded The End of Wall Street because it isn't the first book on its subject (although some may want to do that), but rather have rated it on the basis of how enjoyable it is. Frankly, I don't think it's quite up to When Genius Failed standards, but it's still a good effort.

This 298-page book begins with a list of its cast of characters that's over eight pages long. However, many of them--like Ben Bernanke, Warren Buffett, Jamie Dimon, Barney Frank, Timothy Geintner, Alan Greenspan, Larry Summers and others--hardly need an introduction. Lowenstein accurately tells the reader than it wasn't so much what followed the Lehman Brothers failure that was most important, but what preceded it. So we go back--way back--to the history of Fannie Mae and Freddie Mac. Fannie, for example, dates back to 1938. (Freddie was created in 1970.) Latter, in 1968, Lyndon Johnson wanted to sell shares to the public in order to get Fannie off the government's books. Obviously, Fannie wasn't all good news, even back then.

Although I am taking some liberty at dividing the book, here are some of the main topics through which Lowenstein tells his story: (1) Fannie, Freddie and the somewhat toothless and ineffective OFHEO (Office of Federal Housing Enterprise Oversight) that was created to watch over them; (2) Subprime loans, complete with the stories of Angelo Mozilo, Countrywide's CEO, NINA (no income, no asset) loans, New Century Mortgage, CDOs, etc.; (3) Other lenders, including JP Morgan and its more cautious CEO, Jamie Dimon; (4) Lehman before its fall; (5) The increasingly aggressive and competitive atmosphere among major banks, with special emphasis on CitiGroup; (6) The government takeover of Fannie and Freddie; (7) Lehman's collapse and its many aftershocks; (7) Hedge fund turmoil; (8) The TARP; (9) The Wachovia deal; (10) Bernanke and Paulson; (11) The Great Recession; and (12) The end--of Wall Street. It's not the really the end of Wall Street, of course. This is literary license. Interestingly, Lowenstein includes mention of Hyman Minsky's provocative "Instability Hypothesis," which is plus for the reader.

The book starts and ends with mention of Robert Rodriguez, the manager of two mutual funds for First Pacific Advisers (and amateur race car driver). According to Lowenstein, here was a man way ahead of his time in regards to seeing the building financial crisis. That may well be true, but Mr. Rodriguez isn't quite the investing genius he may seem in the pages of this book. In 2008, for example, with the conservative Mr. Rodriguez's stock-oriented mutual fund approximately 40% in cash for most of the year, he managed to lose almost 35%, compared to the (100% invested) S&P 500's 37% loss.

In closing, if what you are looking for is a lot of fresh meat regarding the recent financial crisis, I wouldn't buy this book. However, if you enjoy reading a lively, well-written and solidly informative summary primarily of the events that led up to the crisis, this is a good choice.

Roger Lowenstein, an accomplished journalist on issues related to high finance and Wall Street, pens a concise, analytical and thrilling overview of our Great Recession culminating in the pinball like events of September and October 2008. While his protagonists are Paulson, Bernanke and Geithner, he neither fawns nor is overly critical, providing understanding and appreciation to their roles and the outcomes of their policies. He examines the excesses of Fannie and Freddie and the legislative refusal of Democratic Congressional leaders to reign them in. He examines the vital role of the three major rating agencies and how their failure to flag the vulnerabilities in the mortgage securities contributed to the mess. AIG and its tentacles in all areas of the financial world are probed making its highly controversial bailout understandable. When Paulson yanks its blameless president's multi million dollar bonus, the reader murmurs "ouch." Lowenstein ferrets into Morgan Stanley's teetering position explaining its final sale of stock to the Japanese. The Big Three's 10/13/08 meeting with the banks forcing the federal government's investment in them is the capstone of governmental intrusion in this time of crises. He deftly plays out his timeline from 2007 through the Obama election never allowing the reader to get lost in the narrative. Without explication, for an adroit writer like Roger Lowenstein is too subtle, it is clear that the events of this two month crisis period keyed the election of Barrack Obama. His superb closing chapter ends with an observation about the prominence of finance in the last two decades and how its central role has diminished now; thus, the title of the book. The future ramifications of the Great Recession can neither be wholly foreseen nor predicted but Lowenstein does an excellent job of forecasting the future by explaining the past.

When Genius Failed, Roger Lowenstein's previous book on Wall Street, was a tale of hubris. It told the story of the rise and fall of LTCM, a hedge fund led by financial superstars, which failed and was bailed out in 1998 because its managers had placed excessive trust in their models. They thought they had found the ultimate money-making formula, but they fell on the rare event nobody had anticipated: the Asian financial crisis and Russia's default on its government bonds.

The book had a hero: John Meriwether, the brilliant bond trading manager who assembled a team of financial whizkids and Nobel prize winners. John Meriwether gained a measure of fame in Michael Lewis' book Liar's Poker, where he is described by Lewis as a Salomon Brothers fixed income guru and master of Liar's Poker, a game of bluff involving the guessing of numbers on hundred dollar bills which came to define the money culture of Wall Street at that time. Meriwether had grown up a bit by the time he created LTCM, but When Genius Failed retained the youthful energy that made trading floors sound like a college students' lounge, brimming with practical jokes and laughter. Greed and arrogance were tempered by team spirit and irreverence.

By contrast, The End of Wall Street is a story of cynicism and abuse, deception and fraud. The youthful enthusiasm is gone, and all is left are the cold calculating strategies of consenting adults bent on abusing each other. In Lowenstein's rendition, Meriwether was a modern Icarus, who burned his wings by trying to reach the sun. In The End of Wall Street, the book's hero is a modern Cassandra who regularly warns his contemporaries on upcoming catastrophy. This prophet of doom is named Robert Rodriguez, a fund manager who appears at every juncture of the book to foretell the troubles ahead. He interprets a nightmare on Fannie Mae and Freddie Mac's absence of audited financial statements as a fateful omen and moves clear of their government-backed debt as early as 2006. He warns of an "absence of fear" and scrubbs his bond portfolio clean of "suspicious" mortgage-backed securities in mid-2007. He consistently underscores that the core issue of the crisis is capital deficiency and not just liquidity, well before the Fed and US Treasury became ready to consider injecting capital in banks. But he is an outsider to Wall Street, and all he can do is haplessly watching the crisis unfold from a distance, while protecting his investors from the ripple effects.

To me, the most eye-opening chapter was the one on the subprime lending boom. Here I learned about NINA loans (as in "no income, no asset", referring to loans for which the borrower did not provide documentation of either) and option ARMs (for "adjustable rate mortgages") and other financial products from hell by which borrowers usually ended up owing more than they had borrowed. The method by which lenders ensured that borrowers would use their property as a primary home, described by one commercial agent as a "very serious process", was reduced to, simply, checking a box. The waiting period by which borrowers who had filed a personal bankrupcy could qualify for credit was shortened from two years to just one day. Clients could state their income and wealth without being asked to document it, making some credit officers refer to these so-called stated loans as "liar loans".

The weakening of standards and suspension of disbelief by which bankers usually scrutinize potential borrowers was not reduced to the mortgage industry. It was also extended to complex financial products, for which high ratings replaced independent judgment, and to the whole financial system that was believed to have reached a state of permanent stability, leaving the risk of a serious downturn definitively behind. High leverage and excessive risk-taking was fueled by excessive trust in the market and by Wall Street's indulgent compensation practices. And regulation of derivative products was seen as not only unnecessary, but also as potentially damaging.

The End of Wall Street is not the best book on the 2008 financial collapse. The author couches his story in moral overtones and vents his indignation at every corner, with rather gratuitous attacks on academics such as Milton Friedman and Michael Jensen. The day-to-day account of the events immediately preceding and following the Lehman shock have been described in more detail elsewhere, and sometimes read like a me-too account. The title greatly oversells the book, and no attempt is made to explore the overall significance of the disappearance of investment banks from the American financial landscape. Likewise, the web of cross-obligations and the countless conflicts of interests that still mar Wall Street and make its banks too connected to fail are not touched upon. The author concludes, without further elaboration, that "the Wild West model was supplanted with a more European-seeming arrangement, in which a few elite players thrived within government's embrace". I am not convinced.

The author has a lot to say and has investigated very well, but this book is not just for anyone and everyone to just pick up and read. The chapters are not properly laid out. Roger wants to say somethings when he starts a chapter and due to enormous amount of information goes down some other track in the due course of the chapter and ends up somewhere else by the time the chapter finishes.
Having read 'when genius failed' and 'American capitalist' I expected a bit too much, its a bit sad that this latest book of his does not match up his previous work in quality. Really could have been better. This hardcover version I read was really 'hard' to digest

The title promised so much more than the book actually delivers. The dustjacket uses such words as 'sizzling', 'damning' and 'searing' to describe the book's revelations but Emile Zola this book is not. At the time of writing, no custodial sentences had been passed on any of the parties responsible for the Great Financial Crisis and sadly this book will not be the one that leads to the lights being on at midnight in the offices of ambitious prosecutors. That said, it covers the ground and to the layman it is a well written history of a time when the banking industry and Wall Street lost their heads and any trace of ethics.

Roger Lowenstein employs the eighteenth century economist Adam Smith's famous phrase - 'the invisible hand', but credits this to the author of a book written only last year. Perhaps this is not the author's fault; merely the usual careless Penguin editing.

I did enjoy reading the book however, although it is not "J'accuse". Written with more passion, this book could have been truly great.

Apparently, the three-star rating means "its okay", which basically sums up this book. The inside flap of the book indicates that the author combines "deep analysis" with "sizzling narrative". Frankly, I didn't think it did either. But, for someone who simply wants an overview of the economic activities of the 2008 financial collapse, this book does a decent job. The author also does do a nice job of explaining mortgage-backed securities, CDOs, etc.- just don't expect a whole lot of sizzle in this book.

Roger Lowenstein's "The End of Wall Street" details the recent economic collapse by focusing primarily on the Federal Government's interaction with Wall Street as the United States banking system and the entire economy faced a total collapse due to the breakdown of the housing market. What makes Lowenstein's book unique to the multitude of other books that examines the recent economic downtown is the access the author provides to the behind the scenes dealings during this critical period. Much like, "When Genius Failed," the reader receives first-hand accounts of the banks trying to save themselves by merging with other banks, the contentious meetings between the heads of the investment banks and the Federal Reserve as to what was the appropriate course of action, and how Paulson and Bernake lobbied Congress and the White House to get the TARP legislation signed up.

I appreciated the manner in which Lowenstein presented the Government's reasoning for not bailing out Lehman, then recognizing the mistake they made due the market's reaction, and scrambling to not allow any of the other investment banks to fail. Furthermore, I came to realize the extent of Wall Street's leverage and the catastrophic implications that this posed for the entire economy. Lowenstein also points out that the problems the banks were facing were due to the banks' insufficient capital reserves, as opposed to the lack of liquidity that many economists (including Fed Chairman Ben Bernake) suspected. The final chapter is a great read that attempts to put the entire situation into its historical perspective and offers the reader a glimpse of what we can expect from Wall Street going forward.

I recommend this book to anyone that has an interest in finance and economics. Unlike some other books on this subject, Lowenstein does not go into a lot of detail about the securitization of mortgages, credit default swaps, CDOs or the role the ratings agencies played in this entire mess. Therefore, it might be a good idea for those readers to read other books that provide more guidance as to why the markets collapsed before reading "The End of Wall Street." I believe that with this background information, they will enjoy and appreciate this book much more.

If The End of Wall Street were a novel the critics would be after it for foreshadowing. I once read a review of Vidal's Lincoln which read, "This is a Lincoln who is destined to be shot." One could make the same comment about Lowenstein's Wall Street. These mortgages were going to go bad, and they were going to sink Wall Street.

Seen from our vantage point in 2010, the idea that American homes would always keep or rise in value seems insane. With 20/20 hindsight it certainly was incorrect. But just about everybody in this drama politicians, investors, traders, subprime lenders believed that American home prices could not go down. Because Lowenstein fails to emphasize this, the players look even worse than they would otherwise.

Putting aside the almost spirtual belief that many people had in American housing values, Lowenstein makes an excellent case for why the mess happened, explaining the history of mortgage lending since the Great Depression and how lending standards erroded. As each decade comes and goes we see another piece of problem falling into place. Once he gets to the 2000s Lowenstein's point, about lending rules going out the window, is clear. The list of people and institutions who were compromised and who shirked their responsibility is long. It includes Congress, Fannie and Freddie Mac, the rating agencies, both the Clinton and Bush Administrations, numerous bank risk managers and the obvious subprime lenders and on and on. There are lots of embarrassing quotes such as one from Rep. Barney Frank saying that he doesn't want Fannie and Freddie to be "just another bank," and that he doesn't want the same emphasis on "safety and soundness." Eeeechhhh.

No major figure in this book gets off easy except perhaps, the financial press. Certainly the people and institutions listed above deserve the lion's share of the blame, but if the crisis was as easy to predict as Roger Lowenstein implies, where was the financial press? Or, was this disaster more difficult to predict than this book would have you believe. I can't say I know the answer to that, but the book made me think about it.

For example, Lowenstein takes a fashionable swipe at Alan Greenspan, saying that Greenspan's solution for everything was interest rates. Okay but ah, Alan Greenspan? That would be the same Alan Greenspan lauded by the financial press as a genius? The same one whose presentations on his autobiography made some audience members think of the movie Being There, because no matter what the man said or even wrote, the press cheered and failed to report that Greenspan seemed a whole lot less brilliant once he started talking in paragraphs?

Hindsight is 20/20 and The End of Wall Street is heavy on hindsight and light on all the things that made the crisis hard to predict (9/11 was a pretty big distraction.) This makes it more of a reporters notebook than a historian's analysis. While the book explains all of the factors that made disaster inevitable, it doesn't really explain why so few people could see it. To the nonfinancial observer this is a pretty scary thing. The clarity of reporters on the history of the mortgage crisis doesn't seem to carry over to reform discussions, giving one the sneaking suspicion that nothing was as obvious as it looks today.

Despite these concerns, as a blow-by-blow chronicle, The End of Wall Street is excellent. There's a lot of information here and future students of the financial crisis will get a lot out of this book.

If fifty years from now, bankers, investers and individuals start thinking that home prices cannot go down, its quite likely that the same or new mistakes will be made. If they read this book they may think that recognising a an impending mortgage crisis is far easier than it is.

BRAVO! BRAVO! BRAVO!

Nobody can tell this particular story any better than Roger Lowenstein. After reading House of Cards by William Cohan, When Giants Fall by Michael Panzer, In Fed We Trust by David Wessel, 13 Bankers by Simon Johnson and James Kwak, and Too Big To Fail by Andrew Ross-Sorkin, TheQuants by Scott Patterson, Freefall by Joseph Stiglitz and A Colossal Failure of Common Sense by Lawrence McDonald and Patrick Robinson -- Lowenstein rules!

To ALL of the above, I savored your works as well...we are fortunate to have such a group of profoundly talented literary artists whom, each in their own way, have provided a unique and robust perspective on this important historical tragedy.

When Genius Failed: The Rise and Fall of Long Term Capital Management by Roger Lowenstein is one of my favorite books. Any author who can write a "Can't Put It Down - Thriller" about a hedge fund's origins (LTCM) and then its fall, as a globally significant financial cog -- Well, you just can't wait for the author's next work of art. Lowenstein did NOT disappoint this reader with The End of Wall Street (April 2010 - Penguin Press - New York, NY).

An obscure sentence in the book really resonated with me, in terms of Lowenstein's particular perspective on the U.S. financial crisis. He writes:

"Real life is messy and admits to doubt." P. 85.

The origins, maintenance and subsequent disintegration of this particular U.S. financial crisis was inhabited by, (once again), man's certainty about the uncertain - to put it plainly. Certainty has consequences, as Lowenstein points out, the intellectual "model" behind this particular bubble was flawed or, as he says, "This was absurd - because of the arrogance and self delusion embedded in such fine, decimal-point precision." P. 46.

"What truly failed was the post-industrial model of capitalism. The market's tools for measuring risk simply did not work." P. 287.

Yet, more specifically, the characterization of risk morphed into something that had little basis in fact. Lowenstein writes:

"The new finance was flawed because its conception of risk was flawed. The banks modeled future default rates (and everything else) as though history could provide the odds with scientific certainty-as precisely as the odds in dice or cards. But markets, as was observed, are different from games of chance. The cards in history's deck keep changing." P. 288

Once again, as was the case in the failure of Long Term Capital Management, the ability to use historical data as the predictive basis of future performance of the "innovative" financial instruments of the day" proved to be a force that fueled the ongoing deception; Lowenstein characterizes this observation in the following:

"Forecasting is the most hazardous of scientific endeavors. Like meteorologists, modern economists employ computers to project trends from the visible present into a future yet obscure. The reliance on standard (and backward-glancing) models is their great weakness. Any knave can project a continuation of a trend. To call a turn requires judgment-the capacity and courage to read the data and analyze the factors likely to cause a reversal. Very few individuals can do it with any reliability. It is less likely that a group, which naturally strives for safe-seeming consensus, will ever do it." p. 150.

In his introductory remarks, Lowenstein suggests that "Capitalism without capital is like a furnace without fuel." (P. XXV). By the end of the book, one has the distinct appreciation that "fuel without a furnace can burn up your home, your neighborhood, your country and imperil the global financial system."

Something tells me the "last word" has yet to be written. Then again, maybe there isn't such a thing.

Have you tried to sell a home lately? If so, you are surely finding it a "long, hard slog" (to borrow from former defense secretary Donald Rumsfeld). You are also undoubtedly wondering: how did we get into this mess?

Roger Lowenstein's The End of Wall Street is a layman's primer on how we got into this Great Recession. He introduces us to the major government figures in the financial crisis, including Ben Bernanke, chairman of the Federal Reserve; Hank Paulson, secretary of Treasury from 2006-2009; and Timothy Geithner, former president of the Federal Reserve Bank of New York and Paulson's successor at Treasury. We also meet the barons of Wall Street and newsmakers like AIG, Merrill Lynch, and Bank of America - all "too big to fail."

Lowenstein pinpoints the boom era of finance in the 1970s, when banking and markets were liberalized and deregulated. (Remember Reagan's "Government is not a solution to our problem - government is the problem"?) Says Lowenstein, "In the postindustrial era, what we may call the Age of Markets, diplomats no longer adjusted currency values; Wall Street traders did...Finance became a growth industry,
fixated on new and complex securities." Average Americans jumped on the bandwagon, increasingly borrowing on credit and rampant consumerism. "By the late 2000s the typical American household had become a net borrower, fueled by credit from less-developed countries such as China - a curious inversion of the conventional rules," says Lowenstein.

How did government play a role in the unfolding drama? Lowenstein points out the paradox that "the more license that was given to markets, the more that Wall Street called on bureaucrats for help." After all, it was government intervention (FDR's New Deal) that helped to end the Great Depression. What was different now, however, was that this crisis was born of overleveraging and undercapitalization of our economy. While government can set the conditions for recovery, it still has little influence on investors' private capital, which is the true engine of any
economic turnaround.

Government's role in the housing crisis was central, says Lowenstein, "only in housing did the government so greatly disturb the natural supply and demand...government's housing policy had a big effect on what people could afford to pay, which made it hugely influential over the largest sector of the U.S. economy." Fannie Mae and Freddie Mac, the two giant mortgage companies, became the principal agents of the government's policy in recent years to promote ever more affordable housing. The mortgage industry took this as a green light to provide loans to subprime borrowers - in many cases, not even requiring documentation of income.

Lowenstein goes on to detail the collapse of Lehman Brothers, the bailouts of companies like AIG and Citigroup, the rescue of Fannie and Freddie, and all these effects on global markets. He does a good job of explaining complex financial instruments like derivatives, collateralized debt obligations (CDOs) and concepts like "moral hazard."

I found The End of Wall Street to be an eminently readable treatise on our road to financial catastrophe and a prescription for keeping a watchful eye on the capital markets and financial regulators as they try to right our economic ship of state.