Customer Reviews:
Showing reviews 26-30 of 46
 Good insights but inadequate examples of derivative trades June 30, 2009
Adrian
1 out of 3 found this review helpful
The complex story is well told and most revealing, but the varieties of derivatives are not illustrated and explained adequately. The assumption is that the reader is already familiar with derivatives and their manipulations.
 High quality work June 27, 2009
Donald Hsu (NYC, United States)
0 out of 1 found this review helpful
Yes, Gillian Tett did it again.
I agree with most critics on this book. It is a fine piece of writing on the
problems of JP Morgan. Fast forward to 2009, James Dimon is still the best leader in the banking business. Citibank, Bank of America and many others are struggling to pay back the TARP loan to the government. JP Morgan is moving forward with great acquisition of Wachovia and Bear Stearns.
Great book about the people and equity products behind the crash June 26, 2009
bjp
This is an excellent book. It is well written and clearly explains the background behind the recently created stocks or equity products that exploded and are responsible for the current economic crash. These security products are explained in clear terms with good examples. The author disects complicated mortgage/debt/ and economic issues with great clarity. Its an easy read because the author puts the reader with the people who created these products and follows them and these products from the beginning through their ultimate crash. If you want a good overview of what put the banks, insurance companies and ultimately the taxpayers in crisis, this is the book.
Excellent in general;however,Tett overlooks Smith,Keynes,Mandelbrot,and Taleb June 21, 2009
Michael Emmett Brady (Bellflower, California ,United States)
6 out of 8 found this review helpful
Tett has written an excellent book. However,she appears to have no understanding that the major conclusion of her analysis-that unregulated commercial and investment bankers deliberately collaborated in the creation of a massive speculative bubble ,based on the creation of collateralized debt obligations(CDO's), credit default swaps (CDS's),and other kinds of derivatives that were structured in such a way so that there was no transparency,in order to make a profit without production ,that collapsed and resulted in the most serious economic downturn for the USA and the world since the 1930's-had already been provided in greater detail by Adam Smith,John Maynard Keynes,Benoit Mandelbrot,and Nassim Nicholas Taleb long before her book was publisbed.No mention of these individuals occurs anywhere in her book.The reader is not provided with any historical background or perspective on the 400 plus year problem of banker financed bubbles that has been occurring regularly in all countries having a private profit maximizing banking system.The reader is not shown that this latest crash is just the most recent result of many,many past crashes resulting from banker financed speculative behavior.Only the names of the banks and bankers has changed over the centuries.This problem repeats with a regularity that is ergodic.The latest crash was completely predictable and preventable.
Tett does an excellent job of demonstrating the speculator views of modern bankers.Her best example is Mark Brickell. Mark Brickell's views are ,and were, very representative of the J P Morgan bankers involved in the creation of the types of speculative financial assets that led up to the crash. He was a firm believer in the Efficient Market Hypothesis (EMH)created at the University of Chicago's economics and business departments by economists such as Merton Miller,Eugene Fama,and Milton Friedman.The claim here was that the time series data of all financial markets were normally distributed .There is not a shred of historical,empirical, or statistical evidence to support the EMH claim,which is the equivalent of claims made by Ptolomaic astronomers from the first through the 17th century,that the earth was stationary and the center of the universe.All goodness of fit tests show that the time series data is best represented by the Cauchy distribution.The time series data is not even remotely normally distributed.Tett fails to note that Keynes,in his 1921 A Treatise on Probability,had pointed out the special case nature of the Normal distribution.Benoit Mandelbrot has,since the late 1950's ,shown time and again that the data sets are not normally distributed.The same can be said of Nassim Taleb since the mid 1990's.It is interesting that E Fama did his dissertation under Benoit Mandelbrot in the mid 1960's.He concluded that the probability distributions of the Dow 30,were, in the mid-1960's,all Cauchy.He then turned around and started claiming,directly contradicting the empirical and statistical analysis contained in his own dissertation ,that the time series data was normally (log normal) distributed.Tett's discussion of the use of the normal distribution as the basic foundation of banker models of risk takes place on pp.99-103.There is no mention of Keynes,Mandelbrot,or Taleb.However,her biggest omission is of Adam Smith,who was well aware of the dangers of banker induced bubbles.
The first extensive discussion of the problem of banker induced speculative bubbles was contained in Adam Smith's The Wealth of Nations(1776).Smith's conclusion was that loans given by bankers to speculators would end up being "wasted and destroyed ". That is what has happened every time in the past , what is happening in the present,and what will happen again in the future unless the private banking industry is prevented from making loans to speculators and/or prevented from creating speculative ,debt based ,financial instruments in the future.
What Needs Elaboration June 19, 2009
Donald L. Conover (Washington, DC)
3 out of 6 found this review helpful
Like the local Coroner, Tett has successfully autopsied what happened in the global financial meltdown in Fool's Gold. What desperately needs elaboration is why the creature got so big in the first place (over $500 Trillion notional value in derivatives markets globally); and what will happen next (over the next 2-5 years). Let me provide some thoughts on this.
In her Epilogue, P. 248, she quotes Andrew Feldstein as saying, "Over time, it would be untenable for investors to keep their money in zero-yielding government bonds." While I quite agree with his assessment, the implicit assertion that this money will come back into the derivatives market at anything like previous levels is false. She notes, "Feldstein wasn't expecting a recovery anytime soon." Quite right! Because, in his heart of hearts, he has to know that investors won't want to make the same mistake twice. Tett's Feldstein quote in the second full paragraph of P. 251 is also relevant to the following train of thought! He may not know the answer to his question, but a good reporter should want to know!
What Fool's Gold lacks are answers to a few questions, just to open the can of worms: Who were the "investors"? Why was there so much demand? Why was so much money flowing into Wall Street in the first place, allowing the future inmates to create so much ephemera.
As I write this, I am sitting in Jeddah, Saudi Arabia, on a brief business trip, where my view is somewhat different from the average investment banker. While oil revenues are not the only answer, nor is Saudi Arabia's wealth, they represent a start toward understanding the future, and understanding why Feldstein's wan hope that the money will come back into his particular bailiwick of derivatives is unlikely to happen at anything like previous levels. On September 8, 2008, McKinsey reported that at $50/barrel oil the GCC has $1 billion per day to reinvest; and at $100/barrel oil, the number is $2 billion per day. If that is so, where has so much of Saudi Arabia's money gone over the last 2-3 decades. If your answer is into Dubai structures, you would be wrong. "The World," Dubai's ambitious island creation project, in the shape of a map of the World, is only a $30 billion project; which means that if you add in "The Palms," the other terra forming projects, you're only up to around $150-200 billion (100 day's worth at McKinsey's rate). If you then add all of the construction in Dubai, you're therefore only up to around $5-600 billion, and a lot of that has been accomplished on borrowed money. Saudi Arabia, which is 63% of the GCC, has done nothing like that to date. So where did all of the money go? If you say "Swiss banks," I will point out that money does not sit in vaults. Once it hits a vault, all but the reserve requirement must be reinvested immediately, and "trickles" through the global economy several times, never stopping at one place very long.
My guess is that GCC and Russian oil and gas money was pushing Wall Street to invent more and more derivatives. Yes, Prince Alwaleed bin Talal did make some huge investments in western and eastern companies, BUT those investments were nothing like the amount of money that had to be invested. Therefore, my guess is that the flow of those funds was the real reason why so much "demand" for these "investments" ("derivatives") existed from the time of the Boca Raton meeting Tett reported. It was an easy place for the Egyptian, Palestinian, Indian, Pakistani, and Jordanian managers, who actually run the investments of the GCC princes, to hide the money, without attracting the unwelcome attention that Prince Alwaleed often drew. So, what happened when the September 15, 2008 crash started to occur? My guessing is that, based on 2-3 decades of investing like this, the GCC princes must have lost $30-50 Trillion, saved over decades, which simply evaporated in markets run behind the scenes and out of the view of CNBC and global regulators. If I'm right, how could Feldstein's wan hope of a return of the funds into derivatives (at least at the old rate) be realized?
So where would you put your money, if you were a Saudi prince, going forward? My betting is on the real global real estate market--actual properties; and global companies, which actually produce a good or service. Prince Alwaleed started that ball rolling long ago, but I expect it will become an actual torrent. Why? Because the Saudis can't drink their oil, and they have a population (legal and illegal) of 30 million people, who must be supported in some way. Of course, financially bloodied as they must be, and licking their wounds just now, they are letting their piles of little green electrons build up in U.S. government bonds, etc., but ultimately those little green electrons must produce a return. They will think to invest at home! King Abdullah Economic City and other grand projects are symptoms of that. But KAEC is only an $80 billion project between now and 2020. Even adding in 5 other "economic cities" (they'll be economic until they're built, then what?), you're still only up to $480 billion between now and 2020. Where is the rest of it going to go? King Abdullah reportedly says that the "reasonable" price for oil is $75/barrel, so I believe that "magically," the steady price after some more manipulation upward will indeed be about $75/barrel, which means (using McKinsey's numbers) that the GCC will soon have about $1.5 billion per day to invest. 55% of it will go back into the oil patch, which means that Saudi Arabia will have (at 63% of the GCC total), about $425 million per day in loose change to reinvest in things other than their oil industry. All of the economic cities are going to consume only 1/3 of that excess between now and 2020. And it won't be easy to build $480 billion worth of developments in the Kingdom in the next 12 years. Keep in mind that the excess is on the order of $1.7 Trillion in that period of time. And that begs the question of the Russians, etc., who also can't drink their oil and gas, not to mention a few other petroleum producers. So I do entirely agree with Feldstein, that "investors" will get tired of the backlog of little green electrons getting no return, but I am very doubtful that many of them will find their way back into funny money derivatives.
Mind you, I think the post mortem in Tett's book is excellent, but I do think she needs to elaborate on where the money that drove the current financial crisis came from! And, where will it be going from now on?
Showing reviews 26-30 of 46
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