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Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy with New Post-crisis Update Paperback – 16 Jul 2010

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Product details

  • Paperback: 360 pages
  • Publisher: John Wiley & Sons; 1 edition (16 July 2010)
  • Language: English
  • ISBN-10: 0470596325
  • ISBN-13: 978-0470596326
  • Product Dimensions: 15.2 x 2.2 x 22.9 cm
  • Average Customer Review: 5.0 out of 5 stars  See all reviews (2 customer reviews)
  • Amazon Bestsellers Rank: 939,525 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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"Best books to make sense of financial crisis of 2009" (USA Today)

"Best business books of 2009" (Miami Herald)

"Investment Book of the Year" (Stock Trader s Almanac)

"Succeeds in laying out all that transpired in easy–to–understand language. If you want to know how we got into this mess and what might still be coming, this is the book for you." (Wall Street Journal)

"The author writes with the fury of an insider mortified by the behavior of his heretical peers . . . There is much to be said for the book s irreverence. Mr. Ritholtz has written an important book about a complicated subject, and yet you could still read it at the beach. Here s hoping that some policy makers in Washington take it with them on vacation this month." (New York Times)

"Ritholtz makes a valuable new contribution to our understanding of how we arrived at this sorry juncture. He s smart, sassy and often amusing. If you re looking for an all–in–one place explanation of what went wrong and why, this is the book for you (or your confused neighbor)." (Bloomberg)

"Bailout Nation s straightforward, compelling account puts the crisis in context, explains why the US government responded so stupidly, offers solutions, and advises how to prevent a repeat. Ritholtz s indictment of the financial and political establishment is devastatingly accurate." (Asia Times)

"Before the housing and credit bubbles popped, Barry Ritholtz, a lawyer turned blogger and money manager, was one of the voices crying in the wilderness. His caustic (and occasionally profane) blog, The Big Picture, dissected macroeconomic news and relentlessly cut through spin. His book takes a long view of the roots of the economic crisis, tracing the history of a series of ever more expensive taxpayer–funded bailouts of failed industries." (Newsweek)

"Ritholtz s book seeks to explain how the United States, once so proud, became "a nanny state for well–paid bankers. Ritholtz may be just the right person to explain the transition to both the disillusioned amateur and the finance junkie. He doesn t pull his punches or bury the truth in layers of finance–speak, caveats, and disclaimers. Since he began blogging seven years ago, in–the–know readers of his popular blog, The Big Picture, have turned to Ritholtz for his prescient, refreshingly honest commentary on the economy. Anyone interested in understanding the roots of our current crisis should check out the book.." (Freakonomics)

"A comprehensive crisis scrapbook compiled by the money manager behind the popular financial blog the Big Picture in a quippy, no–nonsense voice..." (New York Magazine)

"These are some of the provocative and even dangerous questions that Barry Ritholtz takes on in Bailout Nation Above all, Bailout Nation is about the socialization of risk and the privatization of profits." (Forbes)

--This text refers to the Hardcover edition.

From the Inside Flap

"Do you find yourself wondering: How did we get here? How did the United States of America get into such a predicament whereby in one year, 2008, the financial system nearly vaporized, the stock market crashed, real estate tanked, and major corporations were being bailed out. . . .How did our great country, a bastion of capitalism, devolve into a Bailout Nation where the gains were privatized, but the losses were socialized?"
From the Foreword by Bill Fleckenstein

In Bailout Nation, Barry Ritholtz, author of the popular finance blog, deftly mixes financial history with an insider′s knowledge of modern finance to reveal how we′ve arrived at one of the worst economic crises ever. Engaging and informative, this book clearly shows how years of trying to control the economy with easy money has finally caught up with the United States and how the government′s practice of repeatedly rescuing Wall Street as well as other industries and organizations has come back to bite them.

Divided into five compelling parts, this timely guide opens with a brief history of bailouts, detailing their particular patterns and unintended consequences. From here, it quickly moves on to reveal the events, individuals, and institutions that have shaped our current situation. You′ll see how various government interventions in individual companies such as Lockheed during the 1970s, in specific sectors such as banking in the early 1990s, and eventually, entire markets with the rescue of stocks in 2000 opened up a Pandora′s Box. You′ll also discover how the misguided philosophies of many players, from Fed Chairmen and Presidents to Senators and Treasury Secretaries, promoted the massive meltdown that has engulfed our global economy.

Ritholtz leaves no stone unturned, as he breaks down how the Federal Reserve′s interest–rate targeting policies as well as a condition known as moral hazard the belief that you won′t bear the full consequences of your actions perpetuated the reckless financial risk taking that has pushed us to the brink. Ritholtz also takes some of the biggest Wall Street firms along with their enablers, the ratings agencies to task. Page by page, you′ll learn how the repeal of certain regulations allowed banks to merge into unruly financial behemoths, while unproven investment vehicles, including collateralized debt obligations (CDOs) and credit default swaps (CDSs), wreaked havoc on both the credit and housing markets.

The United States has abandoned its capitalist roots and become a Bailout Nation. The implications of this are significant and far–reaching. If you intend on navigating today′s treacherous terrain, it would be wise to understand how we got here and what you need to get ahead. Scathing, but fair, Bailout Nation puts this financial debacle in perspective through discussions of past miscues and an exploration of solutions being proposed–and offers a voice of reason during these uncertain economic times. 

--This text refers to the Hardcover edition.

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Format: Hardcover Verified Purchase
Great book need to read over some points as a lot to take in. I always knew politic was a dirty business, but it has nothing on the finance world.
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4 of 6 people found the following review helpful By Pick a nick on 7 Feb. 2011
Format: Paperback
Simply excellent. One of the most easy to read books on the current crisis that still captures the core of the problems.
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Most Helpful Customer Reviews on (beta) 76 reviews
309 of 328 people found the following review helpful
The Backstory to Bailout Nation 22 May 2009
By Barry Ritholtz - Published on
Format: Hardcover
Amazon Review

Long story short: After Bill Fleckenstein's GREENSPAN'S BUBBLES: THE AGE OF IGNORANCE AT THE FEDERAL RESERVE McGraw Hill asked him to do a follow up to that book. He (wisely) said no.

However, Bill suggested they contact me.

Which the publisher did. I turned them down (several times). Who had time to write a book? Besides, I did not want to do a fast rush-to-judgment type of thing. But they were tenacious in their pursuit, and I eventually succumbed to their flattery -- but on my terms, including having final edit on the manuscript. (This becomes important later on, as you will soon see).

Because of the way events played out, I ended up writing three separate Bailout Nation books over the next 15 months. The first version was a history of bailouts. This overview covered an arc from Lockheed (1971) to Bear Stearns (March 2008). Around the time this book was due (~Labor Day 2008), something was in the air . . . you could smell the leading edge of the approaching storm. I convinced the publisher to hold off a few weeks.

Boom! Fannie Mae blew up. Then Freddie Mac, Lehman Brothers, AIG, Citigroup, Bank of America. Soon Merrill was on the ropes, followed by Morgan Stanley, Goldman Sachs, GM and GE. All hell was breaking loose. Well, I thought, at least I had an ending. The expanded version of the manuscript, with greater emphasis on the latter part of 2008, was finished in December '08.

Or so I thought.

After I handed the book into the publisher (McGraw Hill), they let me know they had problems with my assessment of the Ratings Agencies. They were unhappy with my calling them "Pimps & Hos", or describing their business model of rating junk bonds as AAA for big fees as "Payola." (What would you call it?)

Not coincidentally, McGraw Hill owns of the largest Rating Agencies, Standard & Poor's.

The compromise was to remove the reference to Pimps, but using publicly available data and congressional testimony, to add more detailed analysis and quotations from experts. When it was finished, I found the revised section to be much more even handed -- and far more devastating -- to S&P. They (along with fellow rating agencies Moody's and Fitch's) were key enablers to the entire crisis. There were many other guilty parties, but I simply could not under-emphasize the ratings agencies.

When McGH rejected it again, I exercised my right to buy the manuscript back from them in January 2009. Numerous publishers were interested, but I went with Wiley -- they have a great deal of experience publishing business/investing related books, and as a publisher, had no conflicts of interest that would interfere with telling the full story.

The third version was the charm.

By this time, the amount of bailout money going to mismanaged companies, reckless speculators, and incompetent corporate executives had skyrocketed to 14 trillion dollars. This was infuriating to anyone paying attention.

Astonishing things happened as the book progresses. The more I researched and wrote, the more it was apparent we were witnessing the greatest heist ever made. By the last section of the book, history's biggest transfer of wealth -- from the taxpayer to the Banksters -- was taking place. Trillions were being shifted from the responsible to the reckless, from the prudent to the incompetent. It was infuriating -- and you will see as the book progresses my initial academic tone gets replaced with greater snark and anger.

I not only had my ending, I had a new cause -- exposing those who caused this mess, be they Democrat or Republican, Corporate CEO or derivatives trader. I hope the end result is something that will inform and illuminate, while entertaining you along the way . . .
52 of 57 people found the following review helpful
The United States of Bailouts 9 Jun. 2009
By Alex Zhilyakov - Published on
Format: Hardcover
Mr Ritholtz does an excellent job drawing a trendline from the first bailout in 70's to the latest bailouts of 2009. He illustrates how our own government cheer-led us into the Next Great Depression.

What makes this book different from books of other numerous authors?

* The book is written in a plain language an average person can understand
* The book is well-structured and sticks to historical events which led us into the mess
* For all government bailouts, Mr Ritholtz brings focus to their long-term effects rather than short-term ones
* Mr Ritholtz does not try to predict future or give investment advice (thank you)
* Illustrations are hilariously funny

I enjoyed every page, it is very well worth time and money.
32 of 36 people found the following review helpful
An easy explanation for a complicated subject... 7 Jun. 2009
By R. Bohrer - Published on
Format: Hardcover Verified Purchase
It has been said that 'if you can't explain something in simple terms that anyone can understand, you don't understand it well enough yourself.' From the standpoint of that axiom, it is clear that Barry Ritholtz understands well the causes of the Great Financial Crisis of 2008. In plain terms, Ritholtz explains not only what directly led to the Crisis, but the events of the last 30 years which laid the groundwork of moral hazard which allowed the Crisis to occur as it did. Indeed, the events of the last two years were the result of a confluence of things gone wrong, and all sides of the political aisle are culpable, which Ritholtz makes clear in Bailout Nation.

If you are looking for a clear, concise, bias-free explanation in layman's terms of the Financial Crisis and, most importantly, the myriad events which led up to it, then you should read this book. Actually, I think that EVERYONE should read this book, because if the warnings implicit in the book are not heeded very soon, the US will find itself in a situation that will be impossible to recover from intact. Indeed, we may already be there...
24 of 28 people found the following review helpful
The Wall Street Picture, Cropped in a Few Places 9 Nov. 2010
By George Roman - Published on
Format: Paperback
I'm a long-time reader (addict?) of The Big Picture and bought this book when it first came out. Unfortunately (time constraints being what they are) I only had a chance to read it this summer and time to review it now.

I'll start with a brief chapter summary of the book (paraphrasing).

[Chpt 0] Revised Edition. Six bogus principles: 1) Efficient Market; 2) Self-interest prevents recklessness; 3) Markets can self-regulate; 4) Deregulation is always good; 5) Consumers are rational; 6) Compensation is properly aligned. These must be discarded.

Areas we must reform: Campaign finance; Derivatives; Repeal 2004 leverage exemption; Encourage shorting; Remove bank regulation from the Fed; Create a single regulator; Restore Glass-Steagall; Break up "too big to fails"; Hold senior management responsible; Regulate non-bank lenders; Allow full clawbacks; Overturn federal preemption; Educate consumers; Allow SEC whistle-blowers.

[Chpt 1] Intro: $14T mess, lots of bailouts after Lockheed.

[Chpt 2] Need for a single currency. Establishment of Fed and growth of Fed power.

[Chpt 3] (1860 - 1942) Early history of US growth. Govt funds infrastructure projects. Consumers choose winners and losers. Current market crash not as bad as Great Depression. History of home ownership programs (HOLC). Bailout versus Rescue. Timeline of New Deal programs.

[Chpt 4] (1971 - 1995) Corporate welfare is born: Lockheed! Amtrak! Chrysler! Nixon takes US off gold standard, dollar's value falls through the floor. Lesson 1: Short-term pain avoidance yields major long-term future pain. Lesson 2: The organizations that hate the free market the most are large, well-established corporations.

[Chpt 5] (1987 - 1995) Stock Market Bailouts. Black Monday. Fed hell-bent on supporting asset prices (where's the charter for that?) instead of addressing inflation. Wall Street: "Greenspan's got our back!"

[Chpt 6] (1996 - 1999) Irrational Exuberance. More Greenspan asset price tricks: "bubbles cannot be preempted cheaply." LTCM starts imploding and Greenspan, Rubin, and Summers rescue it. Mistake: Greenspan should have stuck to his (supposed) laissez-fair principles and let LTCM fail. That would have taught everyone a valuable lesson. Again: "Greenspan's got our backs!"

[Chpt 7] (2000 - 2003) Tech Wreck. Greenspan says there's a bubble in 1996, but takes no action. Instead, Fed injects $50B liquidity in late 1999 and NASDAQ doubles. Bubble burst and Greenspan cuts rates in desperate attempt to shore up asset prices. 9/11 was final confirmation of Greenspan policy. Not good: ultra-low rates can cause many problems.

[Chpt 8] Backwards, Rate-Driven Economy. 2002 - 2007 housing cycle fueled by low rates and exotic instruments. Job creation very weak. Stagnant wages => House-as-ATM. Stock buy-backs the new rage. Mtgs: ability to pay succumbs to ability to securitize.

[Chpt 9] Scramble for Yield. Low Fed rates generate mad rush for "safety" of MBS yields. Huge growth in MBSs, CMOs, CDOs, CDSs. Rating agency payola.

[Chpt 10] Subprime Machinery. Abdication of all lending standards begins in early 2000s, driven by Wall St demand. Sleazy mortgage lenders with 90-day warranties were paid by loan volume, not quality. Fraud in appraisals, referrals, applications, mortgages, lending, and builder incentives. Bizarre "innovative" loans. Regulation was virtually non-existent. Washington helped in myriad ways.

[Chpt 11] Radical Deregulation, Nonfeasance. Reagan started deregulation, and it snowballed. Compensation systems encouraged short-term profits. Glass-Steagall, CFMA, Gramm nepotism, Enron. Self-regulating markets don't work. The "Bear Stearns Rule:" 2004 leverage exemption.

[Chpt 12] Unintended Consequences. Clear Channel: cannibalizes own market! Securities Litigation Reform Act of 1995: accounting fraud explodes! Boskin Commission: lying about CPI. Bear bailout encourages Lehman arrogance? CFMA triggers AIG. Lockheed -> Chrysler -> SUVs!

[Chpt 13] Moral Hazard. Greenspan and LTCM. Chrysler: encouraged Big 3 to lobby rather than innovate. Table of "Smart Money" disasters. Housing Collapse Anatomy graphic.

[Chpt 14] Suicide by Democracy. Bear implodes, JPM picks up pieces. Random, knee-jerk reactions from Treasury. Bush went AWOL. Nice Bailout Tally table.

[Chpt 15] Bear. Heavy fixed-income focus, heavy leverage. Crisis of confidence and competence. Cayne, Schwartz, and Spector. Lehman: mark-to-make-believe. Feds think Bear is the only bailout they should make; Lehman expects otherwise. Bear Lessons: Go Big; Go First; Threaten Counterparties; Risk the Economy; Incompetence, Not Arrogance; Balance Sheets Matter; Unintended Consequences.

[Chpt 16] Dot-Com Envy. Overcompensation originated in dot-com days. If startups could do it, so could Wall St execs. Just lever up! Problem: they were betting with pension money. Mutual funds dropped the ball on oversight. Good table on executive pay.

[Chpt 17] Year of Bailout, part 1: AIG. Financial Products managers kept 32% of up-front profits on $3.26B (2005) in revenue. Massive risk (Bloomberg: $587B). More "mark-to-make-believe." Real reason for AIG, Freddie, and Fannie nationalization: to protect counterparties.

[Chpt 18] Year of Bailout, part 2: Too Big to Succeed. Citi a victim of Glass-Steagall greed; used accounting gimmicks (SIVs) to move troubled assets off its books; ballooned into a monster. Despite gross incompetence, Treasury delivers sweetheart deal. BofA buys Countrywide (oops), and then overpays for Merrill. TARP is a one-page receipt for $700B from headless chicken Paulson, but is merely a coverup to hide Citi's bankruptcy. PPIP a bad joke and Congressional end-around.

[Chpt 19] Casting Blame. Long list of culprits with Greenspan/Fed, Gramm, and Ratings Agencies at the top. Rubin opposed Brooksley Born on CDS regs, along with Greenspan and Summers.

[Chpt 20] Misplaced Fault. Mtg Interest Deduction. Naked Shorts. CRA. Fannie & Freddie.

[Chpt 21] Foreclosure Virtue. The market needs to correct but the govt is preventing this. Foreclosures need to happen.

[Chpt 22] Casino Capitalism. Follow the Swedes, not the Japanese. Nationalize the losers.

[Chpt PS] Advice to Obama. Education! Ideas from other Wall St vets.

Here's what I think is missing. Somewhere on these Amazon review pages Ritholtz says that there are three "But For" causes of the crisis, one of which is the ratings agencies. (I.e. "But For" these three, the crisis would not have occurred.) I couldn't agree more. These government-granted monopolists made out like bandits as they passed off toxic waste to pension fund managers as holy water. The ratings agencies abused their privileged status and shirked their responsibility to provide accurate ratings -- all in the name of short-term profits.

Yet in this 300 page book, Ritholtz devotes all of five pages (total) to covering the rating agencies!

I think readers would have appreciated learning how the NRSRO nightmare came about, and how their business model changed around the time the NRSRO designation was established. In particular, I think that not mentioning the fact that Securities Act Rule 436 protected the rating agencies from liability is a large hole in the book.

Another hole: why is there no coverage of the foreign bailouts of the 90s? Wasn't Goldman a leading underwriter of Mexican equities and bonds in the early 90s? And what Wall Street banks welcomed the Asian bailout? Or the Russian or Brazil bailouts? These are excellent examples of Wall Street learning that they can pocket profits while socializing risks.

Also, readers who are looking for the complete "Big Picture" on the housing meltdown will need to keep reading. The holes mentioned above notwithstanding, Ritholtz covers the Wall Street angle exceptionally well. What you won't get is an account of how lending standards became so relaxed; the role politicians and bureaucrats played (except for a couple of Phil Gramm bills); the overall market hype that was in play at the time; and all the amazing stories of fraud at every level in the housing chain.

In particular, Ritholtz seems to reject any notion that there's an ideology that says "Housing Is an American Right." Yet I think it is this ideology that was the catalyst for the development of "innovative mortgage products" and provided the pressure on regulatory agencies to relax standards so banks could make more loans. In my mind, this ideology shares responsibility for the boom with the "Markets Can Self-Regulate" ideology: they both work to corrupt oversight of the market.

Finally, there's an awesome quote by Thomas Jefferson on page 15:

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

which Snopes says is bogus.

In spite of all this, I enjoyed reading this book. It provides a highly accessible description of the history of direct government support of the markets, the mistakes of Greenspan and the Fed, the market environment leading up to the crisis, and the major Wall Street players' mistakes. Especially good are the closing chapters 21 and 22, where Ritholtz discusses the virtues of foreclosure and nationalization. There's also an excellent "What If Chrysler Went Bankrupt" section in chapter 4 that should be mandatory reading for all poly sci majors.

Hopefully there will be an updated version that might address some of the issues above (and skewer the so-called reform bill?). In the meantime, if you haven't checked out The Big Picture blog, you're missing out.
7 of 8 people found the following review helpful
Fills a need for understanding the fiasco 24 Mar. 2011
By Dave Kuhlman - Published on
Format: Paperback
A good critique of the changes in regulations, laws, and oversight that resulted in the
financial crash of 2008.

We also need more help with what to do going forward. But, since we (in the U.S.) seem to
lack the political will and coherence needed to take the needed steps, perhaps that does
not matter anyway.

In a perverse way, it's a fun read. If we can't put the perpetrators of this disaster in
jail, at the least we can assign blame. Ritholtz does that in a chapter titled "Casting
blame". Alan Greenspan tops the list. (How *does* that man sleep at night.) But, The
Federal Reserve (for failing in its supervision duties); ex-senator Phil Gramm (for
pushing through the Gramm-Leach-Bliley deregulation act); Moody's Standard & Poor's, and
Fitch rating agencies (for blessing such atrocious loans and investment instruments with
high ratings); and The Securities and Exchange Commission (also for failing in its duty to

There's plenty to learn from this book also. Some of that is fundamental theory of
banking and money. A few examples:

- The net capitalization rule limits the amount of money that a bank can loan on a given
amount of capital. When the SEC granted exemptions to this rule to specific large
investment firms, specifically Bear Stearns, Lehman Bros., Merrill Lynch, Morgan
Stanley, and Goldman Sachs, doing so open the door to disaster and said, "walk right

- An explanation for the most destructive change in mortgage lending: the shift banks and
loan originators made from investigating the ability and likelihood of the borrower to
repay to repackaging and selling loans at a way to reduce the risk of suffering as a
result of defaults by borrows. When that happened, they shifted the consequences of
failure to pay to someone else, removed an aversion to risk and loss (something banks
were formerly quite serious about), and eventually dropped the terrible losses on all of

- A description of the "machinery" of the subprime loan industry, how that process changed
from more conservative lending times, and how the supply chain, from originators
(mortgage brokers, nondepository mortgage originators) to banks to investment firms.

- Moral hazard -- We can blame those at the major banks and investment banks for trashing
the financial system, but if you set up a system where participants can take high risks,
make huge profits, and suffer no adverse consequences, then you have to expect them to
do that. As comedian Flip Wilson's Geraldine character would have said, "What you see
is what you get".

Ritholtz is a proponent of the "Swedish solution" for failing banks, specifically: (1)
temporarily nationalize the bank; (2) fire the management (it happened on their watch;
they were driving when the wreck happened); (3) wipe out stockholders (brutal, but after
all they made a bad investment); (4) give bondholders a haircut and force them to take
part ownership in exchange (the pain must be shared somewhere); (5) separate good and
bad/toxic assets and ... (OK, I admit that I really don't understand how this last piece

I side with those who say that we have not done what is necessary to prevent the next
financial disaster. Still, if we do not continue trying to understand what happened during the
current fiasco, we have no hope of preventing or, at least, delaying or, at the very
least, mitigating the next one.
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