I find this book extremely readable though when they go into some of the esoteric financial tools, I more or less skip over them. No wonder the CEO's of most if not all of these banks did not really understand them, just the young Turks who were making the immense fortune for the companies. What bothers me the most so far is the fact the nothing seems to have changed on Wall Street. All of the problems, the methods, the ways of making money that led to the disaster are still in place for the most part. I suppose the firms are a bit chastened by what happens, but it's clear their goal is to make money, lots of it, which means taking risks, and everything seems fine until it isn't.
The book chronicles the events that lead up to the fall, to the bail outs, by going in to brief biographies of all the main players. Interestingly, most of them come from blue collar families; very few of them were blue bloods, thus giving credence to the Horatio Alger myth...anyone can become a billionaire! It seems most rise not only by their smarts, and chutzpah, but all seem to have had a mentor or sugar daddy, whom they followed up the ladder, eventually surpassing them, leaving them, or getting fired and started anew.
One of the major themes of the text is how everyone disagrees on how to value a companies assets, whether it's the regulators, the accounting firm, the firm itself, or the outsider like a Hedge fund who might want to short the stock. The other dilemma is the market depends on the confidence of the investor for its strength, nothing else. Thus, you rarely if ever hear anyone say things are going to be bad; things are always going to get better, or brighter, or are not as bad as we thought. To say otherwise, is to begin to erode the confidence of the masses, thus precipitating a crisis. Thus, everyone lies, the broker, the CEO, Alan Greenspan, Tim Geither, and George Bush.
It's also interesting how secretive everything is; deals are done behind the scenes, usually on weekends, when the market cannot be affected. Few trust the others though it's certainly a men's club, where everyone seems to know or worked for everyone else at one time. Those who were down a few years ago may be on top at the moment whereas yesterday's king's may be history today.
As I am about half way through, I am surprised at how little Bush seems to be involved. Occasionally, Paulson will update Bush but other than that, he seems to be on his own, with his staff and other bankers, the government, especially the White House, on the sidelines, letting Paulson, Geithner, the Fed, and the bankers make the decisions. The only restriction seems to be that the govt, after the Bear Stearns fiascol, is not going to get involved, until AIG comes along, I guess. It is hard to believe all these decisions about the economy are being made without the President part of the process. I suppose Bush has enough to worry about and feels confident leaving it in the hands of Paulson. By the way, WRA graduated Neel Kashkari is featured prominently in the first half of the book, a trusted aide of Paulson.
I am at the point where the Fed has to eat its words and bail out AIG, at first 80 billion but if I remember correctly, it ends up being around 160 billion dollars, more than the GPR of most developed countries. The numbers are mind boggling and yet there's little uproar. It is ironic that its the Republicans who are doing all of this bailing out, as they are usually against this sort of thing. It shows you how scared they are that the entire world's economy would tank, that there are all kinds of unexpected consequences if they didn't bail out AIG. Also, the money market fund where I had quite a bit of cash just went below a dollar, the first time this has ever happened to a Money Market Fund. I can remember emailing Nan, asking her if we should get my money out of this fund; she emailed back that there was no problem, don't worry, her usual response. A day later if fell. So much for the experts. Nothing is certain. Nobody knows anything for sure.
Most of all that Paulson and company are doing is unprecedented; he comes across as fairly competent, confident things can be fixed but each time a problem is solved, a couple more appear, the uninteneded consequences, so they are at the point where the govt MUST guarantee the various loans and Congress must go along with it, something they are loathe to do. I do love the fact that it's the Republicans who created this mess, that the only solution is to involve the Govt. The basic choice of the book: do we let companies, banks, investment firms fail, which is capitalism, or will their failure destroy the entire financial system, world wide a real fear. Neel Kashkari has just come up with a plan which will eventually be adopted, to save the financial system.
Right now there's chaos, as the Fed fears both Goldman and Morgan Stanley make go under; thus, everyone is trying to come up with likely merger candidates, from Wachovia, to Citi Bank, to Mitsuibishi to a Chinese conglomerate. Things change not only daily but hourly, as know one knows what's going to happen. Some are worried about their turf; others about the entire system. No one agrees on what needs to be done but the Fed seems to forcing the players into the game. A 700 billion bailout bill is going to Congress along with giving Paulson the power to do almost whatever he wants.
In one of the deals, one of Goldman's principals was worried about being short of cash. Despite making 54 in 2006, 71 million in 2007, he was a bit short on cash, and was selling his Nantucket estate for 55 million and his ranch in Colorado was costing his tens of millions of dollars to operate. It's hard to feel sorry for this guy, a Winkelried, nice name.
Well, I finally finished the tomb and I must say, I am more depressed than ever as it looks like nothing on Wall Street has changed. The banks and investment firms are still paying out huge bonuses, taking extraordinary chances with main street's money, leveraging their bets to extraordinary lengths, and paying lobbyists huge salaries (one group received 30 million) to fight any reforms in the way they do business. Must troubling is that Wall Street basically creates nothing but profits, no jobs, and the only innovation according to Paul Volker is the ATM! He adds there is not a shred of evidence between growth of the economy and financial innovation. The banks seem bigger than ever; no one seems to care. Despite some of the protestations of Obama, the Congress seems to have lost the interest in reform, arguing that nothing will work; Republicans argue that firms should self regulate. What a joke. That's what created the mess. All in all, it seems that there was no one villain; all conspired, took chances, made huge profits and when things fell apart, the government came in and saved their ass. So, they took the money, paid themselves huge bonuses, and began the same routine with other people's money. LITTLE IF ANYTHING HAS CHANGED.
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