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Financial Origami: How the Wall Street Model Broke (Bloomberg) [Kindle Edition]

Brendan Moynihan
4.4 out of 5 stars  See all reviews (5 customer reviews)

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Book Description

An in-depth look at the failure of Wall Street's "proven" financial models

Origami is the Japanese art of folding paper into intricate and aesthetically attractive shapes. As such, it is the perfect metaphor for the Wall Street financial engineering model, which ultimately proved to be the underlying cause of the 2008 financial crisis.

In Financial Origami, Brendan Moynihan describes how the Wall Street business model evolved from a method to transfer risk into a method for manufacturing risk. Along the way, this timely book skillfully dissects financial engineering and addresses how it's often a mechanism to evade regulatory constraints, provide institutional investors with customized products, and, of course, generate revenue for financial engineers.

  • Reveals how Wall Street's financial engineering business model morphed into something destructive
  • Highlights how the origami model worked well in the comparatively stable years of the early 2000s, when there was less risk to transfer
  • Discusses how Wall Street began manufacturing risk by creating products that multiplied risk exposures and encouraged subprime lending

With the collapse of Lehman Brother the Wall Street business model effectively broke. But there are many lessons to be learned from what has transpired, and Financial Origami will show you what they are.



Editorial Reviews

Review

'skillfully dissets financial engineering' Journal of Applied IT & Investment Management

From the Inside Flap

The simplicity of Wall Street's business model is often masked by the supposed complexity of its innovations. While the "financially engineered" products that Wall Street peddles to investors may seem different, in reality, they are nothing more than financial origami—where the attributes of stocks, bonds, and derivatives are folded and refolded to form something that seems new. This is the perfect metaphor for how Wall Street works, and ultimately proved to be the underlying cause of the recent financial crisis.

Now, in Financial Origami, Brendan Moynihan—editor-at-large for Bloomberg News and a twenty-year market veteran—describes how the Wall Street business model has evolved from a method to transfer risk into a method for manufacturing risk. Page by page, he skillfully dissects financial engineering and addresses how financial origami, along with its inherent conflicts of interest, have allowed individuals as well as institutions to skirt regulations or taxes, sometimes meet investor needs, and always boost their profits.

But folding existing products into "new" ones is not the only financial origami performed in the world of finance. Other instances touched upon throughout the book include:

  • Industry refolding in the form of firms, once specializing in specific tasks within the risk-transfer business, now seeking to offer one-stop shopping for all financial services

  • Firms refolding their business charters from private partnerships to publicly traded, shareholder owned corporations

  • Altering the mortgage lending process by unfolding the mortgage market: unbundling the origination, funding, and servicing components so they could be carried out by separate companies

  • And much more

Along the way, this reliable resource explains the events that have shaped financial markets, firms, and products over the past forty years, and have hurt Wall Street over the past three. It also explores the evolution of Wall Street, shows the logical sequence of events that brought us to this point, and offers insights on how to fix some of the problems we face.

The Wall Street business model effectively broke. But there are many lessons to be learned from what has transpired, and this book will show you what they are—helping you avoid getting caught up in financial origami and the extreme of taking good ideas and running them into the ground.


Product Details

  • File Size: 1575 KB
  • Print Length: 192 pages
  • Publisher: Bloomberg Press; 1 edition (February 17, 2011)
  • Sold by: Amazon Digital Services, Inc.
  • Language: English
  • ASIN: B004PGMI5U
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Lending: Enabled
  • Amazon Best Sellers Rank: #1,105,744 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

4.4 out of 5 stars
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Most Helpful Customer Reviews
2 of 2 people found the following review helpful
5.0 out of 5 stars Good Financial Education June 3, 2012
Format:Hardcover|Verified Purchase
This is an essential read for anyone interested in understanding the changes in markets/business since the 2008 crash. Cleverly laid out in a metaphor for folding paper the reader learns how equities, loans/bonds, and all kinds of 'insurance' derivatives are folded together to mitigate the risk of financial operatives. This book is a small price to pay to understand how "Wall Street" wants you to assume all the risks.
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5.0 out of 5 stars Brilliant overview of financial market blow-ups October 11, 2014
Format:Hardcover
This is an excellent and concise guide to financial instruments and their origins in federal regulations. When regulations change the environment, standard instruments and funds are "folded" accordingly in order to maximize profits. This often leads to disaster as moral hazards, lack of fiduciary responsibility, risk transfer, and various other factors create the conditions for spectacular blow-ups.

I definitely recommend anyone read this book, as it will remain relevant long after it was published.
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4 of 6 people found the following review helpful
3.0 out of 5 stars A tad thin but not bad July 11, 2011
Format:Kindle Edition
I found the book to be pretty well explained but I already knew a fair amount about the subject. It appears to be a bit thin but it does explain terminology as well as the time line. It appears that there is a tad of some redundant data on the bottom of graphs maybe that was a typo.

In a nutshell the argument is that when rules are placed people go around them. For example if compensation is limited then it other rewards will be given in leiu of that but not be called compensation.I think he should have illustrated that the dot com bubble fed into this one as the lower interest rates inflated the housing levels and this was compounded by the need to own something physical (i.e. housing). It would have added more to the book if a talk about the bailouts was included (TARP, Cash for Clunkers, stimulus package and recovery act). It should also be noted that debt itself is often sold to other groups. I'd recommend it as a laymens terms on what caused the events of the fall of 2008.
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5.0 out of 5 stars Great read, if a bit repetitive at times. December 30, 2012
Format:Kindle Edition
An excellent read, and a great compliment to books like The Big Short and Winner-Take-All Politics. The author uses plain language, a good grounding in finance, and a simple, underlying metaphor to explain how Wall Street's "financial engineering" is really just a technical-sounding veneer over centuries old securities: stocks, bonds, and derivatives (options, futures, and swaps). The book feels like it was rushed a bit through the editing phase, as evidenced by the fact that certain phrases and even whole sentences are repeated multiple times throughout the book, but honestly, repetition is the mother of learning and I didn't really mind. I would recommend this book to anyone who's not a finance professional.
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4.0 out of 5 stars A Primer on Derivitive Pestilence November 26, 2012
By Acolin
Format:Kindle Edition
I mostly enjoyed Moynihan's "Financial Origami." He starts with some fantastic facts about the incredible Credit Default Swap bubble:
* within hours of the multi-billion dollar Reserve money market Fund suspending redemptions for the first time ever, the world's largest insurer, AIG, was effectively nationalized by the U.S. government
* the oldest bank, Lehman, failed in a bankruptcy six times larger than anything else before
* Merrill Lynch, the biggest U.S. broker was sold
* The oldest money market fund dropped below net asset value for the first time ever
* The largest mortgage lender sand biggest corporate borrowers were taken over
* The largest independent mortgage lender failed
* The largest savings and loan failed
* Two of the largest auto companies were taken over

Moynihan explains, unfortunately more drily than Michael Lewis' wonderfully narrated book, "The Big Short," how wildly speculative and dangerous financial instruments not only grew like man-eating weeds in Wall St.'s "Little Shop of Horrors," but also how they festered large enough and fast enough to threaten NOT merely the street of money benders and folders, but also the entire financial and economic system of the world. He then explains why these virulent parasites still exist amongst us today. A great primer prequel to Lewis' engaging and exciting books on the subject.
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More About the Author

Brendan Moynihan is an editor-at-large for Bloomberg News, where he manages the popular column Chart of the Day and writes about the economy and Wall Street. He has been with the company since 2007 after spending more than twenty years on Wall Street as a trader and risk manager. He is the author of Trading on Expectations (Wiley, 1997) and co-author of What I Learned Losing A Million Dollars (Infrared Press, 1994). He lives in Brentwood, Tennessee, with his wife and two sons, and is currently writing a book on English grammar.

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