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 [Hardcover]

Gillian Tett (Author)

Book Description

Publication Date: May 12, 2009

<DIV><DIV>From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her newsbreaking warnings of a credit crisis more than a year ahead of the curve, Fool's Gold tells the astonishing unknown story at the heart of the 2008 meltdown.</DIV>

--This text refers to the Audio CD edition.

Product Details

• Hardcover: 304 pages
• Publisher: Free Press; 1 edition (May 12, 2009)
• Language: English
• ISBN-10: 141659857X
• ISBN-13: 978-1416598572
• Product Dimensions: 9 x 6.1 x 1.2 inches
• Shipping Weight: 1 pounds
• Average Customer Review: 4.3 out of 5 stars  See all reviews (76 customer reviews)
• Amazon Best Sellers Rank: #435,399 in Books (See Top 100 in Books)

Editorial Reviews

From Publishers Weekly

Starred Review. At once a gripping narrative, an education in derivatives, and a most lucid origin-story for the current financial meltdown, it's no surprise the author of this volume is an award-winning Financial Times journalist. Taking readers back to the invention of credit-derivative obligations (CDOs) at J. P. Morgan in 1994, and the subsequent exponential growth of that market, Tett (Saving the Sun) deploys a remarkable sense of pacing, generating real suspense over rapidly inflating debt on bank balance sheets; by the time Lehman Brothers fails, the book has become a bonafide page-turner. Tett explains how credit derivatives seemed a win-win for the financial world, freeing up capital, increasing profits, and diversifying risk, but makes the missteps equally clear as the industry hurtles toward a largely-unforeseen wave of loan defaults (the worst since the Great Depression). Interestingly, J.P. Morgan was one of a handful of banks sufficiently prescient to imagine this "perfect storm" of simultaneous defaults, and so never became over-reliant on CDOs. Ignoring the tacked-on, preachy epilogue (in which Tett advocates her specialty, social anthropology, as a way to avert future such crises), Tett's explosive, illuminating narrative is the one to read for anyone confused by the present financial mess.

Review

[Audio Review] Most of us have been scratching our heads (tearing our hair might be more accurate)
trying to fathom the whos, the hows and the whys of the mega-financial meltdown
we re in. Answers have been scarce and understanding the abstruse financial instruments
that paved the way, difficult. Help is here in Gillian Tett s totally engrossing 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 performed by Stephen Hoye with the care this complex story deserves. Tett has the remarkable ability to make swaps, derivatives and their arcane securitized, synthetic offspring understandable to a financially challenged dummy like me and she does it while telling the tale of how this brainstorming group of J.P. Morgan whiz kids came up with a way to make risk, riskless, removing old constraints and unleashing a great wave of capital into the economy that should have been beneficial. But, sadly, it was all too good to be true. When Morgan s rivals combined this financial alchemy with subprime mortgage madness, without considering that a boom could bust, it was all over, leaving us battered by the rippling toxic aftereffects of unregulated greed. --Bookpage --This text refers to the Audio CD edition.

See all Editorial Reviews

Product Details

• Hardcover: 304 pages
• Publisher: Free Press; 1 edition (May 12, 2009)
• Language: English
• ISBN-10: 141659857X
• ISBN-13: 978-1416598572
• Product Dimensions: 9 x 6.1 x 1.2 inches
• Shipping Weight: 1 pounds
• Average Customer Review: 4.3 out of 5 stars  See all reviews (76 customer reviews)
• Amazon Best Sellers Rank: #435,399 in Books (See Top 100 in Books)

More About the Author

Gillian Tett oversees global coverage of the financial markets for the Financial Times, the world's leading newspaper covering finance and business. In 2007 she was awarded the Wincott prize, the premier British award for financial journalism, for her capital-markets coverage. In 2008, she was named British Business Journalist of the Year. She previously served as the newspaper's deputy head of the Lex column (an agenda-setting column on business and financial topics), Tokyo bureau chief, economic correspondent, and foreign correspondent. She speaks regularly at conferences around the world on finance and global markets. She has a PhD in social anthropology from Cambridge University. In 2003, she published a book on Japan's banking crisis, Saving the Sun: How Wall Street Mavericks Shook Up Japan's Financial World and Made Billions.

Most Helpful Customer Reviews

93 of 100 people found the following review helpful

5.0 out of 5 stars Well written book that is a must-read for anyone who works in finance, or is mad at the financial wreck we are in May 23, 2009

By S. Yang

Format:Hardcover|Amazon Verified Purchase

Having read this book over 3 days (interrupted only by work, playtime with my two toddlers, and sleep), I highly recommend it to anyone who cares about our financial system (be it that you work in finance, or hate financiers that brought us the ruins - just bear in mind they were not the only ones to blame, throw in the regulators, lenders, and borrowers who enjoyed the party, and politicians who took credit for the housing boom). The book is well-written, focused, and surprisingly a page-turner that you don't want to put down once you start reading it.

Having fought the battles in the trenches over the past two years during the ongoing financial crisis, I have a deep appreciation for what Gillian Tett has accomplished in this book. It provides a comprehensive view of one corner of the financial markets - the one that caused so much of the wreckage over the past two years. While it will be a daunting task for any single writer to document the crisis we are still going through (given the multiple contributing factors/actors to this crisis), the author has done a great job producing a contemporary record on the credit derivatives market and its role in fueling the housing bubble leading up to the crisis.

Obviously, the author deliberately chose to exclude some critical episodes of the credit crisis (such as the SocGen trading scandal, the resulting ill-timed massive cut in Fed funds rate leading to the oil shock of 2008 that partially contributed to the inflation scare and added shock to the economy).... She also chose to withhold judgment on policy responses during the early stage of the crisis and exclude the various "local" factors contributing to the subprime housing boom (think Hank Paulson and Ben Bernanke claiming the subprime crisis "being contained", think Barney Frank and his role in shielding Fannie and Freddie from proper oversight, think Clinton and Bush administrations' claim that homeownership was at "historical highs"). She may be right to do so as inclusion of these topics will obfuscate the focus on credit derivatives. An educated reader will want to keep in mind such background information as part of the mosaic of the financial crisis.

Without a full understanding of all the factors contributing to the crisis we find ourselves in, it would be tempting to find solutions that seem to eliminate the excesses of the past years only to sow the seeds for future problems. So-called "always fighting the last war". A simplistic solution to the credit derivatives abuse would be to ban it. A simplistic solution to the failed U.S. auto industry would be to subsidize it with taxpayer funds. A simplistic solution to the housing problem would be to mitigate mortgage foreclosures through taxpayer subsidies (as if everybody who bought a home deserves to live in that home or be a homeowners in the first place).

Gillian Tett was nominated as British Business Journalist of the Year not for this book, but her regular writings in the Financial Times. Her writings in the FT are insightful and timely. This book only reinforces her reputation as one of the best journalists in the field.

On a separate note not related to the book but the book reviews found on Amazon, I find it hard to believe that any review by people who haven't actually read the book is entertained on this site. Simply saying that "I heard this was a good book and I heard the author interviewed" is no qualification for one to write a book review. There is no prize to win from writing the first review, especially when it's only based on hear-say. Anyone who does that is doing the author and intended readers a great disservice, no matter how flattering the review is. Amazon should impose some minimal standard on such postings. Read more ›

170 of 196 people found the following review helpful

3.0 out of 5 stars Not as Good as it Appears May 26, 2009

By EWC

Format:Hardcover

I loved the documented history this book provides. It's a treasure trove of dates, quotes and important juxtapositions on the development and unwinding of structured finance. I turned the pages and you will too. But in the end, I was disappointed by the author's superficial understanding of the underlying issues. She wants to argue that the banks used clever innovation to exploit big loopholes in Fed and Basel regulations and to arbitrage ratings but she doesn't have a deep enough understanding to truly explain how this was done. As a result, she ends up contributing to the general populations' great misunderstanding of these markets.

Pages 61 to 64 provide one of many examples. She concludes at the top of page 64, "Banks had typically been forced to hold $800 million in reserves for every $10 billion in corporate loans on their books. Now that could be just $160 million. The CDS concept had pulled off a dance around the Basel rules." Regulators and rating agencies aren't that naive! Three pages earlier she notes that the issuer of credit default insurance had to post $700mm of collateral, held as Treasuries, and that the Fed demanded that the issuer either had to have a triple AAA rating, i.e. the capacity to absorb losses greater than the $700mm it posted as collateral, or else the bank had to post an addition $160mm of reserves with the Fed, over and above the $700mm. The logic of this requirement is obvious, either way, someone, the bank or the insurer, had to post at least $800 of reserves. There is a popular belief that AIG posted no collateral but the truth is that while, it in part did not post liquid collateral, it in fact posted the value of its other businesses as collateral. The Fed, of course, took those businesses as collateral in exchange for posting liquid collateral....

Her descriptions of leveraged super senior on pages 96-98 are similarly muddled, incomplete and misleading, greatly overstating the extent to which sophisticated regulators, rating agencies and commercial paper investors failed to understand the issues surrounding these structures. It's akin to a beginning chess player interpreting the games of grandmasters by mistakenly assuming they are boldly trying to win pieces rather than much subtler truly winable advantages. Instead, capital markets are highly efficient. And regulators and rating agencies are far more knowledgeable than the popular press wants to admit. I would suggest going to: [...] and reading paragraph 1.3, "Incentives for the Protection-Buyer in a Leveraged Super Senior Transaction".

In the end, if the value of loans fall far enough, no matter how much you slice and dice the risk tranches someone must eat those loses. The slicing and dicing isn't necessarily the problem but rather the magnitude of the losses. And so, the story is woefully incomplete without also understanding the buying spree of Freddie and Fannie who, when they were not allowed to guarantee sub-prime and alt-a mortgages, instead bought 15-20% of the market with cheap quasi-government guaranteed financing, which drove up pricing. Brokers and banks couldn't have offered homeowners the ridiculous terms they did unless investors stood eagerly ready to buy on those terms. In large part, that buyer was Freddie and Fannie.

For its rendition of history, I would give the book 4; for the more important underlying argument, a 2; and so generously in total, a 3. Read more ›

16 of 17 people found the following review helpful

5.0 out of 5 stars The best book on the crisis, as it relates to Financial Institutions. May 28, 2009

By Nicholas Warren

Format:Hardcover|Amazon Verified Purchase

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.

9 of 9 people found the following review helpful

4.0 out of 5 stars Easy read, noteworthy book providing insight from the JP Morgan point of view.... May 26, 2009

By "Truebadour"

Format:Hardcover

If you want to understand the current economic crisis, this book is a fascinating and well written narrative which personalizes the crisis from the JPM point of view. It also suggests and invites serious dialogue about the way by which the banking, regulatory and investment world conduct themselves. If one can extrapolate lessons to broader concerns about human folly related to global social areas, all the better.

Gillian Tett's book Fools Gold covers the current financial crisis from its purported beginning in 1994 to the point at which most of us became aware of the systemic flaws in the global financial systems, with an inside look at the crisis from J.P. Morgan's version of the story.

The book begins by engagingly and sympathetically introducing us to the players on the banking and investment side of the equation; the team of collegiate, young, impassioned and idealistic folks at J.P. Morgan responsible for creating and marketing credit derivatives back in the early 1990's. It loosely follows the team, and more interestingly, follows the firm's evolution through the 1990's (with an admiring nod to Jerry Corrigan's concern regarding risk) and subsequent leaders (with a resounding `hurrah!' to Jamie Dimon and his `hands on' management style) and the industry excesses outside of JPM that, combined with a crisis in confidence in the financial markets, have created the worst financial crisis known since The Great Depression....

The book provides the reader with a relatively balanced look at the conditions, culture and tools that allowed a cadre of `quants' (quantitative analysts) to trump historically `sound' banking practices across the banking industry and which further allowed the subsequent derivative / analysts culture combined with unregulated banking and investment banking practices to prevail and flourish during the mid-1990's up to the current period (2009). To be fair, Tett's narrative indicates that at least at J.P. Morgan, the risk sensitive side of the equation held sway within policies of the firm. She provides the reader with a compelling understanding of how the desire to bolster shareholder profits in an unrealistic market led to decisions to embrace greater risk across the banking, investment and finance industry in spite of the ever more looming and unaccounted for 5% side of the 95% correlation, the so-called 'fat tail'(simplistically, what happens if more than anticipated % of US mortgage holders default?).

In summary, Ms. Tett provides an insiders view of JPM's creation of and internal struggles with the increasingly complex derivatives which the firm initially lobbied for, then marketed and finally shied away from due to the unknown risk the instruments presented. As such, the book is an insider's view and a noteworthy `first look' of the financial industry's corporate culture out of which the crisis came but by no means was the sole player in.

The author's background as a social anthropologist (she holds a PhD from Cambridge) provides a solid basis for her narrative, and the ending Epilogue holds alone enough material for a burgeoning Masters student who wishes to potentially dissect the financial excesses of society and the psychological bases which fuel them ... Read more ›