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The End of Wall Street Hardcover – April 6, 2010
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From Publishers Weekly
Lowenstein (When Genius Failed) offers an overview of the causes and consequences of the financial crisis that rises above the glut of similarly themed books with its juicy behind-the-scenes detail and thoughtful analysis. He sets out to prove that the current financial difficulties began long before the summer of 2008, and long before the failure of Lehman Brothers. He begins with the history of Fannie Mae and the rise of mortgage-based securities and a dangerously burgeoning housing bubble, and hits the high points of the 2008-2009 news cycles, including Washington Mutual's unwise loan strategies, the panic following Bear Stearns's near-demise, a rash of foreclosures, TARP, and the woes of Citigroup. The insider knowledge lends flavor and context to many of these stories—a ranting Jim Cramer, Ben Bernanke's loss of confidence, and Alan Greenspan's astonishing 2008 testimony to Congress. Lowenstein's strong knowledge of the source material and flair for the dramatic—and doomsday title—should draw readers who still wonder what went wrong and how. (Apr.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
Lowenstein has written four books on business trends and financial crises and has written for the Wall Street Journal for more than a decade. Although the events leading up to the financial crisis of 2008 have been chronicled from many angles, Lowenstein takes a deeper look at the systemic oversights that led up to that event. The media often blames the bankruptcy of Lehman Brothers and the failure of AIG for the calamity that froze credit markets and ground the economy to a halt, leading to record job losses and the worst downturn since the Great Depression. But the structural damage to the financial system had already been in place by then, brought on by the speculative bubble in real estate nationwide, which was accelerated by lax regulation in subprime mortgages and the securitization of mortgages and endless derivatives, which spread the risk like toxic waste throughout the financial system. Lowenstein does a great job of explaining all this in understandable terms that unobtrusively avoid the injection of emotion and politics. --David Siegfried
Top customer reviews
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.
One point...I am curious as to Mr. Lowenstein's opinion on the effect the TARP and the Fed's intervention will have on inflation and what will be the result on the economy in the future.
I wonder if capitalism is wilting.
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.