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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 by [Tett, Gillian]
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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 Kindle Edition

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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

“To understand the calamity on Wall Street, we need erudite financial analysis and good old-fashioned stories about human fallibility. Gillian Tett, who oversees global market coverage for The Financial Times, offers some of each. She shows us the financial world through the eyes of her talented but short-sighted subjects. The author excels at recreating this fevered environment. She also deciphers Wall Street mumbo-jumbo in terms that a lay reader, or at least a determined lay reader, can understand.” (Paul M. Barrett The New York Times Book Review)

“The physics of finance is complex, but Tett explains the world of derivatives as well as any book for lay readers ever has.” (Time)

“Tett, a Financial Times reporter who covered the credit markets, was one of the few people to have seen the implosion coming. She was perfectly placed to follow the story as it happened, and to pull together the story of how we got here. There are a number of different ways of peeling this particular onion; Tett does so through the J. P. Morgan team that helped create the new credit derivatives. These lie at the heart of the current crisis, and Tett’s account of their invention and dispersal makes Fool’s Gold a gripping and indispensable book.” (The New Yorker)

“I can’t imagine a better vehicle to tell the story of credit derivatives—the financial instruments that laid the groundwork for the financial crisis—than the one Gillian Tett uses in Fool’s Gold. The author, a top reporter and columnist for the Financial Times, views the whole mess through the prism of a single company: JPMorgan Chase…she has a good story here, too, taking us inside the genesis of the crisis. It all began at a Boca Raton hotel in 1994, where a rambunctious crew of idealistic bankers broke noses, threw bosses into the pool, and conceptualized the financial product that would cause the near-destruction of the world economy a little more than a decade later. It’s fascinating to follow this crew over the next fifteen years, as they navigate the shoals created by their own invention.” (Columbia Journalism Review)

“Ms. Tett was in the vanguard of those who foresaw the implosion in the credit markets. And in Fool’s Gold…she deftly explicates Wall Street dynamics… At the heart of Fool’s Gold is Ms. Tett’s portrait of the high-octane culture at J.P. Morgan in the 1990s. She shows the premium that young hotshots there placed on “innovation” and “creativity,” and… her book starkly illustrates the folly of using mathematical models to predict human behavior and the Las Vegas-like bet-making embraced by many bankers.” (Michiko Kakutani The New York Times)

“[Tett] does an excellent job of assembling the facts. Her clear and simple accounts of complicated financial instruments are superb.” (Wall Street Journal)

“In a major irony alert, Tett details how many of the derivatives that helped crash the economy were cooked up by the brains at…J.P. Morgan. The concepts were then taken by the rest of Wall Street, and WaMu, and you know what happened. Tett had access to Morgan executives, including Dimon. It’s a riveting read.” (Seattle Times)

Fool's Gold is a welcome and engaging read. Tett digs down to its origins in a carefully researched account, guided by in-depth access to JPMorgan Chase CEO Jamie Dimon and several of the members of the JPMorgan team. Tett steadily unravels how what began as an alcohol-fueled, youthful brainstorming getaway by several dozen young bankers who worked for the “swaps” department—a corner of the derivatives universe that was one of the fastest-growing areas of finance—went haywire.” (Kerry Hannon USA Today)

“Gillian Tett's Fool’s Gold finds a nice middle ground between gripping narrative and detached analysis.” (Robert Samuelson Newsweek)

“The book comes closer than anything I've read to nailing down the connection between the rise of credit default swaps and all the craziness in housing finance.” (Justin Fox The Curious Capitalist (Time.com blog))

“Of the crop of books that aim to make sense of the global financial crisis, few are more lucid
than Gillian Tett's Fool’s Gold.” (Dan Gross Newsweek)


Product Details

  • File Size: 756 KB
  • Print Length: 305 pages
  • Publisher: Free Press; Reprint edition (June 9, 2009)
  • Publication Date: June 9, 2009
  • Sold by: Simon and Schuster Digital Sales Inc
  • Language: English
  • ASIN: B002AQRVXQ
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Enabled
  • Lending: Not Enabled
  • Enhanced Typesetting: Enabled
  • Amazon Best Sellers Rank: #145,330 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Top Customer Reviews

Format: Hardcover 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).
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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.
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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.
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