The End of Wall Street

One of the differences between Roger Lowenstein's 2000 book, When Genius Failed, and his latest book, The End of Wall Street, is that when Genius was written it plowed a lot of new ground describing the events that led up to (and followed) the collapse of the improbably-named Long Term Capital Management (LTCM) hedge fund back in 1998. (At that time, the LTCM saga was a very big deal, although the seriousness of the event has certainly been eclipsed by the more recent financial crisis.) The fact that Lowenstein was--and remains--a gifted writer just made Genius all the better. Today, in contrast, the events of the recent financial crisis are reasonably well known, and I've lost count how many books have been written on the subject. Is there room for one more? Sure. However, don't expect blinding revelations. Really. There is little new material that you probably haven't seen elsewhere. Fortunately, The End of Wall Street is well written, as you would expect from Lowenstein, so be prepared to enjoy a thoughtful, well-researched and engaging story. I haven't downgraded The End of Wall Street because it isn't the first book on its subject (although some may want to do that), but rather have rated it on the basis of how enjoyable it is. Frankly, I don't think it's quite up to When Genius Failed standards, but it's still a good effort.

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.

Roger Lowenstein, an accomplished journalist on issues related to high finance and Wall Street, pens a concise, analytical and thrilling overview of our Great Recession culminating in the pinball like events of September and October 2008. While his protagonists are Paulson, Bernanke and Geithner, he neither fawns nor is overly critical, providing understanding and appreciation to their roles and the outcomes of their policies. He examines the excesses of Fannie and Freddie and the legislative refusal of Democratic Congressional leaders to reign them in. He examines the vital role of the three major rating agencies and how their failure to flag the vulnerabilities in the mortgage securities contributed to the mess. AIG and its tentacles in all areas of the financial world are probed making its highly controversial bailout understandable. When Paulson yanks its blameless president's multi million dollar bonus, the reader murmurs "ouch." Lowenstein ferrets into Morgan Stanley's teetering position explaining its final sale of stock to the Japanese. The Big Three's 10/13/08 meeting with the banks forcing the federal government's investment in them is the capstone of governmental intrusion in this time of crises. He deftly plays out his timeline from 2007 through the Obama election never allowing the reader to get lost in the narrative. Without explication, for an adroit writer like Roger Lowenstein is too subtle, it is clear that the events of this two month crisis period keyed the election of Barrack Obama. His superb closing chapter ends with an observation about the prominence of finance in the last two decades and how its central role has diminished now; thus, the title of the book. The future ramifications of the Great Recession can neither be wholly foreseen nor predicted but Lowenstein does an excellent job of forecasting the future by explaining the past.

The title promised so much more than the book actually delivers. The dustjacket uses such words as 'sizzling', 'damning' and 'searing' to describe the book's revelations but Emile Zola this book is not. At the time of writing, no custodial sentences had been passed on any of the parties responsible for the Great Financial Crisis and sadly this book will not be the one that leads to the lights being on at midnight in the offices of ambitious prosecutors. That said, it covers the ground and to the layman it is a well written history of a time when the banking industry and Wall Street lost their heads and any trace of ethics.

Roger Lowenstein employs the eighteenth century economist Adam Smith's famous phrase - 'the invisible hand', but credits this to the author of a book written only last year. Perhaps this is not the author's fault; merely the usual careless Penguin editing.

I did enjoy reading the book however, although it is not "J'accuse". Written with more passion, this book could have been truly great.

If The End of Wall Street were a novel the critics would be after it for foreshadowing. I once read a review of Vidal's Lincoln which read, "This is a Lincoln who is destined to be shot." One could make the same comment about Lowenstein's Wall Street. These mortgages were going to go bad, and they were going to sink Wall Street.

Seen from our vantage point in 2010, the idea that American homes would always keep or rise in value seems insane. With 20/20 hindsight it certainly was incorrect. But just about everybody in this drama politicians, investors, traders, subprime lenders believed that American home prices could not go down. Because Lowenstein fails to emphasize this, the players look even worse than they would otherwise.

Putting aside the almost spirtual belief that many people had in American housing values, Lowenstein makes an excellent case for why the mess happened, explaining the history of mortgage lending since the Great Depression and how lending standards erroded. As each decade comes and goes we see another piece of problem falling into place. Once he gets to the 2000s Lowenstein's point, about lending rules going out the window, is clear. The list of people and institutions who were compromised and who shirked their responsibility is long. It includes Congress, Fannie and Freddie Mac, the rating agencies, both the Clinton and Bush Administrations, numerous bank risk managers and the obvious subprime lenders and on and on. There are lots of embarrassing quotes such as one from Rep. Barney Frank saying that he doesn't want Fannie and Freddie to be "just another bank," and that he doesn't want the same emphasis on "safety and soundness." Eeeechhhh.

No major figure in this book gets off easy except perhaps, the financial press. Certainly the people and institutions listed above deserve the lion's share of the blame, but if the crisis was as easy to predict as Roger Lowenstein implies, where was the financial press? Or, was this disaster more difficult to predict than this book would have you believe. I can't say I know the answer to that, but the book made me think about it.

For example, Lowenstein takes a fashionable swipe at Alan Greenspan, saying that Greenspan's solution for everything was interest rates. Okay but ah, Alan Greenspan? That would be the same Alan Greenspan lauded by the financial press as a genius? The same one whose presentations on his autobiography made some audience members think of the movie Being There, because no matter what the man said or even wrote, the press cheered and failed to report that Greenspan seemed a whole lot less brilliant once he started talking in paragraphs?

Hindsight is 20/20 and The End of Wall Street is heavy on hindsight and light on all the things that made the crisis hard to predict (9/11 was a pretty big distraction.) This makes it more of a reporters notebook than a historian's analysis. While the book explains all of the factors that made disaster inevitable, it doesn't really explain why so few people could see it. To the nonfinancial observer this is a pretty scary thing. The clarity of reporters on the history of the mortgage crisis doesn't seem to carry over to reform discussions, giving one the sneaking suspicion that nothing was as obvious as it looks today.

Despite these concerns, as a blow-by-blow chronicle, The End of Wall Street is excellent. There's a lot of information here and future students of the financial crisis will get a lot out of this book.

If fifty years from now, bankers, investers and individuals start thinking that home prices cannot go down, its quite likely that the same or new mistakes will be made. If they read this book they may think that recognising a an impending mortgage crisis is far easier than it is.

The author has a lot to say and has investigated very well, but this book is not just for anyone and everyone to just pick up and read. The chapters are not properly laid out. Roger wants to say somethings when he starts a chapter and due to enormous amount of information goes down some other track in the due course of the chapter and ends up somewhere else by the time the chapter finishes.
Having read 'when genius failed' and 'American capitalist' I expected a bit too much, its a bit sad that this latest book of his does not match up his previous work in quality. Really could have been better. This hardcover version I read was really 'hard' to digest