|  | Author: Gillian Tett
Publisher: Tantor Media
List Price: $34.99
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Rating:  46 reviews
Sales Rank: 113516
Format: Audiobook, CD, Unabridged
Languages: English (Original Language), English (Unknown), English (Published)
Media: Audio CD
Edition: Unabridged CD
Number Of Items: 8
Shipping Weight (lbs): 0.4
Dimensions (in): 6.5 x 5.5 x 1.1
ISBN: 1400112834
Dewey Decimal Number: 332.660973
EAN: 9781400112838
ASIN: 1400112834
Publication Date: July 1, 2009
Availability: Usually ships in 1-2 business days
Condition: Brand new item. Over 6 million customers served. Order now. Selling online since 1995. Order with confidence. Code: B20090808210327T
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Showing reviews 16-20 of 46
 Capital markets is a matter of Perception August 8, 2009
Anthony F. Paul (New York, New York United States)
1 out of 3 found this review helpful
This is a book I read start to finish, non-stop on my trans-atlantic flight. The pace of the book and the revelation of the creation and use of credit-derivatives is historically laid out, with the right amount of technical detail.
The references are most useful especially since Gillian as a social-anthropology scholar has gone to great pains to provide a clear list of references. The references are a handy list of the serious researcher.
This also provides an insight into regulatory thought process that culminated in the economic capital calculation, that the financial firms used much to their own peril.
The book is a dimensional step from the list of economic history books published in light of the panic of 2007, in the way it has laid out the thinking, the implementation, the use and then the abuse of financial innovation. It reminds one that financial innovation is not going to end or stop, but one who forgets history condemns himself. In that context this is an excellent read for both serious industry practioners and the casual bystander who wants to see why the banks lost so much of their retirement money.
A little more geared to people who deal with banking August 5, 2009
Info searcher (Eagle Lake, MN)
0 out of 2 found this review helpful
This book is enlightening and interesting however much of it is very hard to follow because of how convoluted and confusing this banking system has gotten. In my opinion this book is well written and she obviously knows the subject matter well but wouldn't recommend it for any average layman. Today we are hearing that it has all been well designed to serve a purpose (the banking system) and so I'm not really sure anyone can or would even want to expose what has really happened!!! It is shocking!!!
Smashing financial journalism August 3, 2009
Rolf Dobelli (Switzerland)
0 out of 1 found this review helpful
This ranks as one of the most thorough, accessible explanations of how the global financial system nearly disintegrated during the great financial crisis that broke in 2008. Gillian Tett traces the development of credit derivatives from their inception at an alcohol-fueled Boca Raton corporate retreat in the early 1990s. She shows how the pioneers struggled with risk management, turning down business that other financial institutions with less regard to risk sought eagerly. She elucidates the building and breaking of the wave of institutional crises - Bear Stearns, Lehman, AIG - during 2007 and 2008, and takes readers inside tense meetings between bankers and regulators at the New York Federal Reserve and the U.S. Treasury. This is capital financial journalism, which getAbstract highly recommends to any reader who hopes to get a better understanding of the forces at work in the financial crisis.
The Credit Derivative McGuffin July 31, 2009
Aaron C. Brown (New York, New York United States)
2 out of 7 found this review helpful
On the first page, Fool's Gold tells us, "as with most intellectual breakthroughs, the exact origin of the concept of credit derivatives is hard to pinpoint." It does not proceed to tell us that in 1970, Fischer Black wrote "Thus a long-term corporate bond could actually be sold to three separate persons. Once would supply the money for the bond; one would bear the interest rate risk; and one would bear the risk of default." Nor does it mention Robert Merton's seminal paper on the subject four years later, nor any of the quarter-century of research and practical experimentation by hundreds of academics and working quants that led to modern credit derivatives and short-term financing of long-term liabilities. Robert Merton does appear in the book three times, but only as a friend and sometime partner of banker Peter Hancock. Instead we are asked to believe the market originated at a 1994 drunken frat party of an off-site attended by young bank executives and sales people.
If you keep reading, however, you discover the author does have an important story to tell, and she tells it well. This is the history of credit derivatives from the perspective of people who didn't understand them. Alfred Hitchcock used "McGuffin" to describe the arbitrary element of a movie that drives the action, it could be a jewel, a one-armed man, a scientific formula, whatever. You could substitute anything for "credit derivative" in Fool's Gold, "exploding cigar" or "pet rock" or "jewel of the Nile," and the story would make just as much sense. The characters are frequently "shocked" in the book by events that resulted from advances financial and information-processing technology, or by concepts taught in a first-semester finance course. Salespeople, bank executives and regulators were important forces in the evolution of the credit derivative business. To a financial engineer who knows the technical story, this book will explain the politics, corporate and international, and marketing spins that led to otherwise puzzling decisions. To anyone else, this book tells half the story, but a half that stands on its own.
To my knowledge, this is the first book to explore some key early decisions. For example, no academic or quant ever envisioned a credit derivative in which the buyer was not allowed to know what the underlying bet was, or where the underlying bet was determined after the security was sold. There was even a "quant strike" at the time as modelers refused to set prices on securities written against blind pools (it didn't stop the business). The author explains these abominations as European banks trying to reduce their credit exposure without revealing their customers. To a financial engineer this is insanity, like buying fire insurance not on your house, but on a house selected by the insurance company and not revealed to you. To a marketer, a blind pool is just a clever way to sell to a new customer, like selling a car in a different color (to a quant it's like selling a car with the windshield painted black).
An even more fateful decision was for banks to retain exposure to super-senior risk. The idea of securitization is simple, you buy something and chop it up into pieces that sell collectively for more than the cost of the underlying. It's like buying a cow for $1,000 and selling hide, steaks, chops and hamburger for $1,100. It often happens that you discover the sum of the parts sells for less than the cow, say $900. To a quant it's no problem, you just reverse the process (don't try this with a cow, it only works in virtual space) and buy up pieces to reconstitute underlyings, buying for $900 and selling for $1,000. Or you find a new business, one that is profitable.
But bank executives have been known to persist in securitizing, hiding the losses by inflating the values of some part. For example, you say the hooves are worth $50 each, $200 total. You then find some hedge fund or set up some special purpose entity to buy them, with $200 you lend for the purpose. Or you buy "insurance" from some entity that doesn't have the money to pay if the security goes bad, and you don't demand collateral. Or you stick them on your own balance sheet. Of course, this never works. Sooner or later someone asks why your "profitable" business is consuming vast amounts of cash, why the balance sheet is filled up with hooves, and why you can't find any arms-length purchaser to pay $50 for them.
For credit derivatives, the losses were hidden in the "super-senior" tranches. These made up a large majority of the pool value, and were given low rates, such as 15 basis points over LIBOR, in order to pay high rates on the tranches that were sold to customers. Investors demanded much more, say 35 or 50 basis points over LIBOR, to hold the super-senior notes. But many banks made the crazy decision to continue in the money-losing business anyway, using one or another of the traditional gimmicks, and auditors and regulators signed off. While Fool's Gold doesn't exactly have a good explanation for this decision, it is the first book to even ask the question of the people responsible and give some dim suggestions of possible answers.
Unfortunately, the price of this access appears to be that the author could not ask hard questions. People are always telling her either they knew the problems but were unable to act, or they didn't know what was going on, or even sometimes both at the same time. The people who claim to have known the problems are not asked to explain seemingly contradictory public statements or actions from the time, nor annual report disclosures. They are not asked to justify keeping powerful government positions or accepting tens of millions of dollars in compensation for overseeing things they knew were headed for disaster. I think these people do have answers to those questions, that is I don't think they're idiots or crooks, and if we had those answers we could start making sense of what happened. But Fool's Gold accepts their claims uncritically.
Worse is people who claim not to have known. Robert Rubin claims to have never heard of liquidity puts. He is not asked about the annual reports he signed (the 2006 Citigroup report, for example, shows $2.2 trillion of SPE's and specifically discusses the bank's "contingent liquidity facilities" and other guarantees). If he didn't read that, he could still be asked, "You knew these entities held 30-year assets and were funded by 30-day commercial paper, what did you think would happen if the commercial paper came due and no one was willing to lend the entity money to repay it or buy its assets?" Again, I'm sure Rubin could give an intelligent answer to that question, and it would be helpful to know what it is.
The executives who claimed they didn't know about the billions of dollars of super-senior securities on their balance sheets aren't asked what they thought was on there instead. The financial statements reveal the amount of non-government-backed mortgage securities on the balance sheet, if they executives didn't know they were super-senior, they must have thought they were something riskier.
Similarly, interviewees are allowed to use complexity as an excuse. If someone offers you a AAA security that pays half a percent more interest than other AAA securities, you know you're making some kind of a bet. If you are told it is backed by a leveraged pyramid of subprime mortgage securities, you know approximately what that bet is. You can read in the general business press that there's a Yale professor who says this stuff is a bubble and will lead to another Great Depression. You read plenty of stories about low lending standards, fraud and inflated valuations (including stories by the author of the book). You may not be able to trace precisely how your security is affected by a specific subprime mortgage loan, and you may not be in a position to judge whether or not you are being paid fairly for the risk; but you know that you're betting $100 against an extra $0.50 per year in interest that subprime won't collapse. When it does collapse and you lose $100 you can say you thought it was a good gamble at the time, but you can't say you didn't understand the bet.
Similarly, if you have $10 billion in equity and hold $50 billion of super-senior notes on your balance sheet and fund with overnight repos, you know you're betting the firm that no one will ever have the slightest doubt that super-senior notes are worth more than $0.80 on the dollar even in a firesale. If even one repo lender ever has a tiny doubt, you're out of business. You might know nothing about what super-senior is, nor about the probability that its value will be questioned, but you know the bet you're making, and you should be able to explain the results without invoking "opaque spider webs" and "tsunamis," or blaming some nameless quant.
My other criticism is the book was clearly rewritten hastily after the credit crisis. All the interview subjects are treated sympathetically, and the overall story is highly positive. The author tells us that the crisis was not the result of greedy or evil individuals. But the subtitle claims "Wall Street greed. . .unleashed a catastrophe" and that credit derivatives were "corrupted." Fool's Gold is a balanced account of how regulators, bank executives and salespeople responded to the technological innovation of credit derivatives, and it is the best account we have to date on how decisions that were baffling to quants made sense in marketing offsites (with plenty of liquor), executive suites (with plenty of bonus cash) and government offices (with plenty of prestige and power). If there's a message it's not that corruption caused the problems, it's that the wrong people are running things.
The Type of Book You Can't Put Down July 21, 2009
Keith Otis Edwards (Dearbron, MI United States)
4 out of 5 found this review helpful
Of the recent chronicles of our ongoing financial collapse, this is one of the finest. I'll leave the theoretical hairsplitting to our financial clergy, but for us laity, it's a fast-paced page-turner. It's the type of book you can't put down, but by that I mean that it's a book that you mustn't lay down, because if you stop reading on a Friday and resume the following Monday, will you retain the meaning of all the financial jargon? For us mere mortals, there's a lot of detail here to remember, mostly initials (which Ms. Tett wrongly calls "acronyms"): IIF, ISDA, CDO of ABS, CDOs of CDOs, BISTRO, SIV, &c., &c.
But wait! The good news is that this book has a glossary! -- which most of the other financial-meltdown accounts lack. [Hurrah! Wild cheering!] The bad news is that there are only 25 terms listed in it [cheering dies down], and you're left on your own with such esoteric terms as "ABX derivatives," and the definitions themselves are far from obvious: "SIV: An entity that operates in a manner similar to a conduit but does not enjoy complete credit support from a bank, and has external equity investors who bear the first risk of losses." [cheering turns into a dull murmur]
That's unfortunate, because the general public sorely needs to know what happened, and the news media are apparently unable to provide a coherent and unbiased account. Without a basic understanding of the situation, the average person naturally reverts to his prejudices: that the meltdown was caused by minorities (you know who) purchasing homes that they knew they couldn't afford; that it was nothing more than another case of shysters trying to do an end run around the wise regulators; or, as is commonly believed in Europe, that it's the rotten Americans to blame again (when, actually, half of the CDOs were traded in the UK).
We, reverting to our peasant stock, also want to know who to blame for the mess, so that we can tar-and-feather them, but after reading this book, it's not so clear that any one person or group was to blame. Nor is it clear that the crisis could have been averted if only . . . if only . . . (more regulation, better regulators, Democratic administration -- supply your own pet panacea here). In fact, most people mentioned in this book seem to have conducted themselves admirably, or if not admirably, no worse than you or I would've behaved had we been among the financial elite.
My only complaint about "Fool's Gold" is that there is an occasional wrong word ("fallacious" --pg.113-- is not synonymous with merely "mistaken") or lapse of punctuation. Everyone hits the occasional wrong note, but this is the second book with such defects that I've recently read that was published by Simon and Schuster. Apparently they are too cheap to hire proofreaders. High marks to Ms. Tett; low marks to them.
Showing reviews 16-20 of 46
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