Origins of the Crash: The Great Bubble and Its Undoing [Mass Market Paperback]

Roger Lowenstein (Author)

Book Description

Publication Date: December 28, 2004

With his singular gift for turning complex financial events into eminently readable stories, Roger Lowenstein lays bare the labyrinthine events of the manic and tumultuous 1990s. In an enthralling narrative, he ties together all of the characters of the dot-com bubble and offers a unique portrait of the culture of the era. Just as John Kenneth Galbraith’s The Great Crash was a defining text of the Great Depression, Lowenstein’s Origins of the Crash is destined to be the book that will frame our understanding of the 1990s.

Editorial Reviews

From Publishers Weekly

Well-known financial journalist Lowenstein (Buffett; When Genius Failed) sets out to explain the stock market crash of 2000 and the ensuing corporate scandals. The ingredients are familiar: executive overcompensation and stock options, irrationally exuberant shareholders, friendly auditors, short-term focus by financial professionals and overemphasis on shareholder value. The author puts his unique stamp on these factors by juxtaposing them so brilliantly that the 20-year history that inflated the bubble seems not just understandable, but inevitable. The story is traced from the doldrums of the 1970s through the raiders and junk bonds of the 1980s to the financial brave new world of the 1990s. In self-conscious parallel to John Kenneth Galbraith's The Great Crash, Lowenstein explains that it is the boom that needs to be explained; the crash is simply the natural consequence. Lowenstein's low-key ease with the most complex financial reporting makes this book both accurate and easy to read, just as his earlier Buffett revealed a fascinating character where other writers saw only dullness, and his Where Genius Failed was a very comprehensible account of the 1998 Long-Term Capital Management blowup.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.

From Booklist

Lowenstein traces the origins of the trend that fueled the great stock market boom of the 1990s, which ultimately led to the dot-com bubble, the collapse of Enron and Worldcom, and the exposure of corruption that followed in its wake. Back in the 1970s, stocks were in such disfavor that one columnist was moved to write a piece called "The Death of Equities." At that time, no one expected history to repeat itself, but the dire conditions gave rise to the largest financial boom-and-bust cycle in history. The takeovers and leveraged buyouts of the 1980s played a role in the resurgence of the stock market, but the granting of stock options to CEOs as incentive for growth played a bigger part in what was to come. Finally, corporations wishing to transfer control of pensions to individual employees through 401(k) programs pegged the performance of millions of ordinary workers' investments to the stock market and created a cult of equities on a massive scale. Lowenstein creates intriguing portraits of the players in this larger-than-life culture. David Siegfried
Copyright © American Library Association. All rights reserved --This text refers to an out of print or unavailable edition of this title.

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Product Details

• Reading level: Ages 18 and up
  
• Mass Market Paperback: 272 pages
• Publisher: Penguin (Non-Classics) (December 28, 2004)
• Language: English
• ISBN-10: 0143034677
• ISBN-13: 978-0143034674
• Product Dimensions: 7.9 x 5.7 x 0.6 inches
• Shipping Weight: 8 ounces (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (42 customer reviews)
• Amazon Best Sellers Rank: #785,154 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

37 of 38 people found the following review helpful:

5.0 out of 5 stars Outlining the Causes of the Stock-Market Crash of 2000-2002, February 19, 2004

By 

Donald Mitchell "Jesus Loves You!" (Thanks for Providing My Reviews over 109,000 Helpful Votes Globally) - See all my reviews
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This review is from: Origins of the Crash: The Great Bubble and Its Undoing (Hardcover)

Roger Lowenstein is one of the best financial reporters around, and he has done a fine job of taking the public information about stock market influences since the 1970s and connecting them to the 2000-2002 stock market crash in the United States.

I know of no book that touches on so many subjects including:

-Retirement money moving into mutual funds

-LBOs creating pressure on CEOs to get their stock prices up

-Leveraging of public companies to improve stock price

-The rise of free market economics as a policy influence

-401(k) plans creating a chase for fast results

-CEO stock options rising through the roof

-Michael Jensen and Joel Stern providing arguments in favor of excessive payments to executives

-Rise of the CFO as a "profit engineer" to produce most of company earnings results

-Lack of e.p.s. hit for stock options

-CEO pay skyrockets in the absence of performance due to lax consultants and boards

-New stock options being granted after stocks drop

-Cozy boards that inappropriately keep CEOs in place

-Managed earnings (especially by GE and Coca-Cola)

-Reduced disclosure

-Special Purpose Vehicles (to keep losses and debt hidden from investors)

-Security analysts having conflicts of interest

-SEC didn't do enough

-Accounting firms have conflicts of interest

-Derivatives are too unregulated

-Too much money to Venture Capital funds

-IPO boom

-Pro forma earnings

-Overinvestment in telecommunications

-Unrealistic expectations for the Internet and Internet companies

-Fraud by Enron, WorldCom and others.

Mr. Lowenstein also goes on to describe the current reform efforts including Reg FD and the Sarbanes-Oxley legistlation, and finds that we have not really cured the problem. We will inevitably have another bubble and crash ahead. I agree with that view.

At bottom, Mr. Lowenstein understands very well that too much financial incentive for executives is bad for everyone. The temptation is simply too great to bend the line . . . or to cross way over it. The average compensation in major public companies is excessive now, so the ultimate cause of inappropriate behavior is still in place. As a consultant, I have repeatedly seen honorable people make lousy decisions when the size of their bonus and stock option potential was larger than they could deal with in an unemotional way.

The book's main weaknesses come in two areas. First, Mr. Lowenstein views from the problem as an outsider and gets almost all of his information from the media. As a result, he doesn't give you the real pulse of what was going wrong in the companies. It would have been helpful if he had contrasted the Enrons and WorldComs with companies that were led by executives who have done an outstanding job running their companies during the same years (while being exposed to the same temptations and conflicts) such as Michael Dell, Tom Golisano, James Morgan, Jake Gosa, Bob Swanson, and Bob Knutson.

Second, he is sometimes careless about details. Joel Stern's Economic Value Added (EVA) is described as "Equity Value Added." The Innovator's Dilemma by Professor Clayton Christensen is described as being a bad influence on Citicorp by discouraging executives from improving their existing operations (nothing could be further from the truth).

In the end, I was impressed by his understanding that feeding greed with unlimited incentives is a bad idea. That's the bottom line on this crash.

As I finished the book, I was left wondering how we can cure this tendency to provide too many financial incentives to do the wrong thing. Simply policing those who are provided with the incentives more closely will probably not work by itself.

41 of 48 people found the following review helpful:

2.0 out of 5 stars Sadly Derivative, January 26, 2004

By 

"justforawu" (New York, NY) - See all my reviews

This review is from: Origins of the Crash: The Great Bubble and Its Undoing (Hardcover)

I agree with much of what has been said in the other reviews; particularly, that most of what is said here as already been said by others, often more lucidly and without the vitriol. I much preferred reading the Times' coverage. The book also seemed pretty quickly put together; there were a couple of obvious factual errors, and other sections looked like they were thrown in at the last minute. The overall impression that I received was of a book desperately done on a deadline, which affected both the tone (righteous) and substantive content (often derivative) of the text. I would have much preferred the book had Lowenstein taken the time to do this book right, with a fresh approach and a least a little new insight.

I know that Lowenstein has many loyal readers who would happily declare "brilliant" anything he writes. I like his stuff too, usually. But this book is just not up to standards. I know he could do better if he tried, but he just didn't do so here. And that's the harsh but accurate truth about this book.

16 of 17 people found the following review helpful:

4.0 out of 5 stars Competent coverage but not a great deal more, February 18, 2004

By 

O. Buxton "Olly Buxton" (Highgate, UK) - See all my reviews
(REAL NAME)   

This review is from: Origins of the Crash: The Great Bubble and Its Undoing (Hardcover)

First off, disclosure: Penguin sent me a copy of this book to read & review for free based on an earlier review I wrote of one of Roger Lowenstein's books on this site. So I have a theoretical conflict of interest, though I am doing my best not to allow it to affect - positively or negatively - my view of this book.

That being said it is a somewhat ironic marketing tactic for Penguin to use n this particular case (but one which I heartily encourage, by the way) since Lowenstein's main theme is the mischief arising from conflicts of interest suffered by research analysts when covering the stocks of companies to whom their firms are pitching for investment banking business.

Be that as it may, I've disclosed it now, so you're warned.

Origins of the Crash covers much the same ground as Frank Partnoy's Infectious Greed and John Cassidy's Dot Con. As usual, Partnoy can't resist hopping on his moral high-horse, or mentioning 10+ year old derivatives scandals that have nothing to do at all with the recent market turmoil; Cassidy is more measured but restricts himself very much to the Dot Com phenomenon, adding an interesting history of the internet and computers in finance.

Lowenstein manages deals with the spinning, laddering and corporate governance scandals of the early part of this decade, but as many of the reviewers here have noted, doesn't really add much that you wouldn't know had you been reading the papers for the last few years.

Also, as he was with his book on LTCM, he is good at wisdom after the fact and retains a weakness for the cute aphorism, though he is more circumspect with it here and doesn't allow the neat turn of phrase to undermine his argument in quite the same way. Certainly, Lowenstein writes well; the book moves at a nice clip, and you never really get the chance to be bogged down.

For all that, I thought Origins of the Crash was a far more measured work than Partnoy's Infectious Greed (though not quite so comprehensive), and a better overview of the whole situation than Cassidy's Dot Con, but ultimately short on new insight or analysis.

If you're looking for an entertaining overview, though, this might just be the book for you.