Customer Reviews

The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It

5 star:		(32)
4 star:		(10)
3 star:		(1)
2 star:		(1)
1 star:		(3)

 

 

A must read for those of us who started to believe the worst is over. But be forewarned: this book will reawaken the anger, frustration, and fear you felt during the 2008 crash. The book clearly explains what happened and why. You'll finally be able to understand collateralized debt obligations (CDOs), credit default swaps (CDS), and all that "fantasy finance." And there's a handy glossary in case your grasp of these tricky topics starts to slip again. The book is a page-turner. There was a point where I couldn't put it down.

Just minutes after I finished reading this I happened to be standing in a long, slow moving line at a store. Someone wondered why they didn't have more clerks working just before a long holiday weekend and the man in front of me voiced the opinion that "nobody wants to work anymore". Somehow that led us into a discussion of the Wall Street/Banking crash.

His first comment was "It's Barney Frank's fault". Of course I knew he was referring to the Community Reinvestment Act. I challenged him on that, but he just got more angry.

Unfortunately, attitudes like his (and the 1 star review below) are pretty common. I call it "Fox News" mentality. Nothing is going to change their minds.

It's sad. The vast majority of these people aren't wealthy, but they are singing the song the wealthy want them to sing.

Anyway, this is a great book. I loved the analogy to "fantasy baseball"; indeed, that's exactly what this is all about. I'd love to see some sort of multiplicative wage cap as he suggested - even if it were set at 100 times the low end it would still do good! However, any suggestion of that will just cause our Fox News loving friends to insist that doing that will just drive executive talent overseas. Of course they will have been fed that line by greedy people who actually would be affected by such a cap.

I had not understood the full impact of the "CDO squared" games until I read this. I tried to explain some of that to the man I mentioned above; he'd have none of it: this was strictly from sub-prime lending to poor people and it was all Barney Frank's fault. End of discussion.

It's refreshing to read someone who knows they don't have all the answers. Economics is complicated, and good intentions can lead to unexpected horrors. But, as he says, we've tried the "let the wealthy have whatever they want". That sure hasn't worked. Why don't we try not letting them have so much for a while and see what happens?

It looks like a no-brainer: returning wealth to the middle and lower class would decrease welfare needs, increase demand for real goods, and increase governments overall tax take. What's not to like? Oh, yeah, the super-rich would only be "ordinary rich". Gosh, that's awful - guess we can't do that!

I had read and liked Leopold's previous book about labor leader Tony Mazzochi, so was curious about this new title. This is a shorter, more compact book, but that's one of its virtues. It takes on the task of explaining what the heck just happened to our economy, and lays it all out in readable prose, carefully outlining the various shaky financial products that proved to be worthless and that somehow missed the due attention of regulators. The author does a good job of identifying both the culprits and victims of this scam, and offers a compelling explanation for why a vibrant labor movement might have helped keep the banking and corporate titans honest. This is not a happy book, because one senses the problems Leopold discusses are not going to disappear overnight. He has a very nice touch as a writer, weaving easy-to-follow examples and analogies throughout the text. But it's not "economics for dummies" by any means. He's obviously done his homework and the material has depth and intellectual heft. I'd recommend this to anyone seeking a greater understanding of the "crash of 08," and its significance for us all.

This is the best book I have come across on the crash of 2008. The author explains in plain English how the financial sector created derivatives based on fantasy finance that brought down the real economy. The author makes a strong case that it was not greedy consumers and people buying houses that they could not afford, but the greed for bonuses and profits that lead to this chaos. The financial sector thought they had created the perfect, safe, high profit mortgage backed debt instrument. By splitting and mixing mortgages from different borrowers with different levels of risk the belief was that the risk was minimized. Housing prices always go up, right? The rating agencies gladly rated them AAA to get much needed business from their competitors. But, unfortunately housing prices do not always go up. Housing prices are tied to cost of replacement, the rise over the past 80 years was caused by inflation. We were in a housing bubble, the prices had become far removed from replacement cost with the help of loose lending and low interest rates. The author makes some excellent points about how real wages for workers did not increase to match improved productivity out put starting in the late 70's like it had historically. The pay gap lead to average CEOs making 500 times more than the average worker ($50 million CEO salary vs. $30,000 average worker salary). This gap has caused the two working parents world and decreased buying power. A perfect storm for a financial catastrophe. The profit keeping in the executive and investor class lead to the problem of running out of places to store this wealth. Leading to the creation of CDOs, synthetic CDOs, and the derivative industry. These risky derivatives were sold to investors around the world and leveraged to the maximum. The housing crash and readjusting ARM mortgages brought down this entire house of cards. This book is the one to buy if you are interested in understanding all of these details. It also makes excellent points on how American workers are competing with workers around the world and losing their standard of leaving without corporate profits trickling down. Great book!

With America in the economic doldrums, a lot of attention has been paid to artificial financial instruments, called derivatives, created by Wall Street. No one has tried to explain them in plain English, until now.

Your local bank puts together a financial security pooling 10,000 debts (mortgages, credit card debt, car loans, etc.). That is a collateralized debt obligation, or CDO. An investor would get a portion of the interest owed by those 10,000 borrowers. There is always a risk that some borrowers will default on their loans, supposedly reduced by bundling together so many loans. The amount of interest an investor gets is based on the amount of risk they are willing to accept.

Of course, the bank has sold that security, or pieces of it, to other banks, municipalities, pension funds; anyone it could seduce with promises of high profits, with little or no risk. The security had been given a high rating by one of the major credit rating agencies, in exchange for huge fees, when such a rating was totally unjustified. Large numbers of borrowers start defaulting on their loans, because the local economy is in big trouble, and the bank is on the hook to pay off the security based on all that debt (not to mention being on the hook for the original debts). Unfortunately, the bank does not know the size of their obligation, because there is no public listing of derivative prices. They can't sell the security at any price, because the other banks are also in trouble.

Move that bank to Wall Street, and multiply the problem by trillions of dollars per day, and you get some idea of the size of the problem. Those who still worship the free market say that government intervention is the cause of all this. All that credit card debt, and all those homebuyers who defaulted on their mortgages, knowing that they could not afford them, are what drove the economy into the ditch, not Wall Street. Simply cut taxes on the rich, reduce or eliminate government regulations on business, and the market will take care of itself. Nonsense, the author says.

He advocates greater transparency in derivatives, including a publicly accessible list of prices, and keeping them on an institution's regular books, not "off the books." He also calls for salary limits, and a consumer watchdog agency with teeth.

Finally, someone explains how the economy almost collapsed (in plain English). This is an excellent and eye-opening book that is very much worth reading.

Imagine -- a page-turner about economics! Les Leopold skillfully throws a lifeline to those of us who struggle to understand how and why our financial system failed so spectacularly in 2008. Using plain language and engaging examples, he shows how Wall Street's exotic financial products sopped up the excess private capital created by the Reagan-Bush tax cuts and stagnation of real wages in the face of productivity growth. His humanity and humor help temper the reader's outrage at the greed, gullibility, and ideological blindness that brought our economy to the brink of collapse. His prescriptions for change are a mixed bag, and he mostly avoids critiquing the policies our government is pursuing now. But anyone who wants to understand how and why we got to where we are should start with this valuable book.

The Looting of America, by Les Leopold

The `Introduction' tells how Leopold began to investigate modern economics after the bursting of the "housing bubble". Many Establishment Experts can neither explain the crash or solve it because of their "ideological blinders" (p.ix). Many caused it over the past thirty years (p.x). Leopold asks where "several trillion dollars worth of value" disappeared to (p.xi)? That is how a swindle works: the seller gets the money, the buyer gets the loss. Collateralized Debt Obligations (CDO) were a swindle when money was given for fraudulent loans (p.xii). This was similar to the High Tech Stock swindles in the late 1990s where new stock was sold for a price far in excess of its true value. "Some men rob with a six-gun, others with a fountain pen." Financial products (p.xii) bought with real money are dependent on promises to repay the debt. If people do not have the funds to repay their debt there is a recession.

Chapter 1 tells about the looting of Whitefish Bay. Are people kept ignorant of economics in order to fleece them? "Not financial persons" (p.6) is a confession of incompetence. Bankers and brokers profited (p.8), Whitefish Bay owned nothing but owed everything (p.9). Chapter 2 discusses the link between productivity and income. [Wages are kept down by political oppression.] The devaluation of the dollar in 1971 led to lower wages and higher taxes (p.14). The rich grabbed wealth (p.15) then spent it on investments. Under-paid workers were offered "easy credit" (p.19) but not higher wages. Chapter 3 provides a historical perspective on finance. Government bonds were invented in the 15th century (p.30), corporate shares in the 17th century (p.31). Free financial markets lead to panics and depressions (p.33). The "bubble" is a symptom (pp.34-35). Wall Street controls the White House (p.38). Chapter 4 has the lessons of the Great Depression. Ending the New Deal financial regulations led to out Great Recession (p.49). Those "enormous returns" (p.50) were based on low wages.

Chapter 5 tells how the GAO warned of the dangers of derivatives. Innovative financial services did not protect the nation's financial systems (p.55). Derivatives are not based on real items (p.59). Are they frauds (pp.61-63)? The collapse of LTCM was a warning against derivatives (pp.64-66). Was the housing bubble caused by marginal buyers (Chapter 6)? The "most widespread abuses occurred in the institutions with the least federal control" (p.75). CRA banks made fewer risky loans (p.76). Sub-prime mortgage loans were a small percentage (p.79). Lower interest rates increases the demands for homes (p.80), and the value of houses (p.81). Pages 88-89 tell how the scam worked: sub-prime mortgages were rated as AAA and sold as a CDO! Brokers collected billions by selling "toxic debt".

Chapter 7 explains Credit Default Swaps as insurance for a risky CDO derivative. A CDS and a CDO create a "synthetic CDO" (p.94). This sells risk but not value in securities; they are not backed by real mortgages (p.95). The downturn in the economy revealed the frauds (p.99). Synthetic CDOs allow selling the same debt over and over (p.102). Pages 106 to 108 explain how wealth is created by juggling figures. Chapter 8 explains how the use of CDO created an explosive growth in sub-prime mortgages (p.117). Once the supply exceeded the demand home prices declined. Stagnant wages were part of this (p.119). CDO were fancy swindles that made junk bonds appear to be AAA rated. Regulation by the government is the only way to prevent swindles like Synthetic CDO (p.136). The credit agencies were paid for AAA ratings (p.139). They were frauds (p.144). That surplus capital came from shortchanged workers (p.148).

Chapter 10 explains why finance must be better regulated: our economy depends on it. Can insurance premiums prevent future meltdowns (p.156)? Leopold recommends a small tax on each and every financial transaction. Chapter 11 tells that workers earn less than they did in 1973 (p.165). These policies account for today's inequality (p.166). This can be corrected by a higher income tax standard deduction and a higher minimum wage, and closing the loopholes on untaxed income and capital gains (p.169). High profits and low wages cause a "stock market crash, banks fail, currencies depreciate, unemployment rises" and a recession or depression follows (p.176). The cure is to raise real wages to increase economic activity, raise the minimum wage, and increase union membership. "Money-making" causes social instability (p.184) because of impoverishing others. "Private financial markets" lead to depressions, especially when fraud is used (p.185). Isn't it time to nationalize the banking system (p.186)? This would control them "for the good of us all" (p.189).

...and considering it's a very well-researched book that covers all the basics of what's already known about the financial markets and the junk securities that dragged them into a black hole, that should be all you need to know.

Yes, Les Leopold is a leftist and has done a lot of work for organized labor, and yes, he's an outsider to finance. But I've read a lot of material on the derivatives shell game (including Frank Partnoy's FIASCO), and Leopold gives a very even-handed presentation of what happened, how it happened, and, most importantly, since many people have a painfully oversimplified view of the situation, what exactly the problem was -- addiction to risk, systemic shell-games remniscent of the Banach-Tarski paradox (look it up, or better yet google "Arlo Lipof"), and a systemic disregard for the actual effects on Main Street (or, more specifically in this case, the town of Whitefish Bay, WI, which had bought heavily into the credit default swap market and lost big). Along the way, Leopold derives a strong rebuttal to free-market economics -- without regulation, greed will drag a free market into near-incoherence.

Like many such books, it's preaching to the choir to a certain extent, but only because the free-market fundamentalists of the world really refuse to pay any recognition to criticisms of their ideas. And at the end of the day, Leopold doesn't have much new to say that hasn't already been said by other critics of the conditions that created the crash. But if you want to know the basics, or if something doesn't ring true about the push to blame the Democrats in Congress or the millions of people caught up in bad mortgages, this book is probably about the best place to start.

It's hard to write about this little book without indulging in the superlatives customarily employed in selling the bankrupt ideas of empty suit politicians and folksy market gurus. What would be readers should know is that Les Leopold has nailed it. Derivatives may be innovative and opaque and complex to Alan Greenspan, but they are crystal clear to this author, who explains them completely in a way anyone can understand. That alone would be enough these days, but Leopold goes much further. He captures the reasons as well as the consequences of our casino economy, and outlines a plan, perhaps the only conceivable plan, for getting our world back on track. If the book has a weakness, it is that the author UNDERSTATES the size of the problem which our federal government has added to the mix by bailing out the financial sector. He talks about a two trillion dollar bailout, but as of November, the bailout was over $14 trillion and counting!

Meanwhile, there are several hundred trillion in Collateralized Debt Obligations and Credit Default Swaps still at large and poisoning the financial atmosphere. All of these are waiting to be triggered by tiny shocks like the collapse of Dubai World, or bank failure in Greece or Turkey, and God only knows what else.

You don't need to be a genius to understand that unless the financial system somehow validates all the outstanding debt of just about everyone, the world economy remains in danger of complete meltdown. To date the government strategy has been to load up the Fed, pump up the stock market, pretend to restructure a few mortgages, bribe a few customers to buy new cars, and lie about green shoots. The bankers, who raked off billions in creating this disaster, have raked off billions more in the financial bailout and are still talking nonsense every day on the business network, intent on keeping the whole scam going.

Meanwhile, the debt upon which all these derivative contracts are pyramided remains hostage to consumer demand and consumer credit and household income, all of which continue shrinking. The Bernanke Obama Geithner top down strategy isn't working, and its most likely outcome may be collapse of another financial market bubble.

While we still have time, everyone should read this book. That way, we can all have an intelligent conversation about what to do after the next collapse.

I read this book to my wife while we were on a road trip this summer. I have been paid to follow the stock market for 23 years. My wife is a preschool teacher with very little interest in financial matters. We both found the book compelling. Les Leopold has clearly done his homework. He has a working knowledge of the complex financial products that stumped professionals and brought our global financial system to the brink of collapse. Even more impressively, he has explained them in a way that my wife can understand. And he entertained us with a playful sense of irony, personal stories involving some of the victims, and a breezy history of money and markets.

Based on an initial cursory reading, I expected to be insulted by some of his conclusions and prescriptions. On the contrary, I found his arguments to have some merit. Although I don't buy into everything he believes, I think all of his ideas belong in a serious dialogue about the shortcomings of our economic system. Having been a student of investing for a long time, I object to those who equate the stock market with gambling. But Les Leopold is right about the derivatives game. A very useful tool for transferring risk evolved into a high-stakes casino with no economic value and enormous systemic risk. With the explosion of state-sanctioned gambling in this country, is it a surprise that we have lost track of the purpose of financial markets? I am concerned that long-overdue restrictions on the creation and use of financial derivatives are being watered down by lobbying groups. Read this book if you don't think you have a stake in the outcome of the ongoing debate on financial regulation.