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Exile on Wall Street: One Analyst's Fight to Save the Big Banks from Themselves Hardcover – 11 Nov 2011

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Product details

  • Hardcover: 208 pages
  • Publisher: John Wiley & Sons; 1 edition (11 Nov. 2011)
  • Language: English
  • ISBN-10: 1118115465
  • ISBN-13: 978-1118115466
  • Product Dimensions: 16 x 2 x 23.6 cm
  • Average Customer Review: 2.0 out of 5 stars  See all reviews (1 customer review)
  • Amazon Bestsellers Rank: 770,372 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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Mike Mayo is an old–style bank analyst thorough, independent, honest who never pulls his punches, whatever icons, public or private, may be wounded."
Paul A. Volcker, former chairman of the Federal Reserve

"Exile on Wall Street offers Wall Street′s rarest commodity: the truth about our nation′s largest banks and how they almost toppled capitalism. If you want to know the sickening truth about the largest banks, read Mike Mayo′s exposé."
Harry Markopolos, author of No One Would Listen

"Mike Mayo is one of the best financial analysts on Wall Street. He brings clarity to a world full of uncertainty."
Maria Bartiromo, leading financial commentator

Mike has long advocated for the investor. If only directors of business corporations with the legal and moral obligation to their shareholder base would emulate his diligence on their behalf, then good corporate governance would be restored. Every public company director ought read his book!
Thomas Garrott, ex–CEO of National Commerce bank and an ex–director of SunTrust

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Boring . Didn't even finish it
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68 of 80 people found the following review helpful
Problem identified, solution avoided 6 Nov. 2011
By Alan F. Sewell - Published on
Format: Hardcover Verified Purchase
This book is important because it goes to the heart of one of the great tragedies of our generation, the financial collapse of 2008. The big "money center" banks were the epicenter of the financial meltdown. If the government had not infused these banks with nearly a trillion dollars of public money the financial system would have failed and we would have regressed to a stone age economy.

Most of the TARP money has since been repaid, but the wreck and ruin the big banks inflicted on this country lingers. Eight million jobs were destroyed in 2008. Even now three years later we are creating only 1/3rd as many jobs as are needed to absorb the entry of young workers into the labor force. The banks spread their toxic web of mortgage derivatives across the financial markets, wiping out tens of millions of retirement accounts. The banks enticed non-creditworthy customers to take out mortgages and home equity loans that were impossible to service after the economy went bust, wrecking the housing market with a flood of foreclosures.

The big banks caused tens of millions of Americans to lose their jobs, their pensions, and their homes. They have devastated our economy as surely as would a nuclear war. They have stolen the wealth of a generation.

Author Mike Mayo, who made a career as a Fed regulator and financial analyst, identifies three primary causes of the financial collapse.

First is the incestuous relationship between the big banks and the political parties. Both political parties have tried to sweep the financial fiasco under the rug because both were complicit in enabling it. The big banks provide much of the funding for both parties' political campaigns. Presidents from both parties draw their financial advisors from these banks, whether it is Hank Paulson advising President Bush or Tim Geithner advising President Obama. During the 1980s and 1990s these banks lobbied Congress to REPEAL vital regulations like the Glass-Steagall Act that were enacted during the Great Depression to prevent the banks from defrauding their customers. As soon as Glass Steagall was repealed the bankers went right back to their old ways of taking their depositors' money and gambling it away with reckless speculations.

Mayo explains how the big banks dominate congresses and presidents:

Bloomberg Businessweek ran a March 2011 profile of the chairman of Citigroup, Dick Parsons, which included some quotes about the events of the financial crisis. As Parsons described it, "Timmy Geithner would say, 'Call me directly because this is too important an institution to go down.'" You read that right: Parsons called the Secretary of the Treasury "Timmy" in an interview, which does not exactly acknowledge the authority of the Secretary, a post once occupied by Alexander Hamilton. He also talked about why the government had to bail Citi out, by describing the likely consequences if the company had been allowed to go under: "You wouldn't be able to buy a loaf of bread or clear a check," Parsons said. "It would be like Egypt. People would be out on the streets." Can that really be true? Citigroup's continued existence is the only thing separating the United States and Egypt?

What comes across in the profile is a sense of arrogance and insider access. It was the equivalent of flipping the bird at shareholders, the Treasury, and the country at the same time. I get frustrated with banks--I get furious at times--because they should hold themselves to a higher standard. Irresponsible actions by these institutions have put our economy and our entire capitalist system at risk, and the rest of the world has noticed. In August 2011, the Russian prime minister, Vladimir Putin, said that the United States is "living like parasites" off the global economy.

Even after the shortcomings exposed during the crisis, banks still show aggressive accounting and opaque disclosures. Even after CEOs of failed companies walked away with eight-figure paychecks, compensation is still rigged in favor of senior management. Even after big banks used their power to get rules changed that helped their companies--or, really, their senior managers (after all, most of the rank and file at banks are more like Main Street than Wall Street)--the companies use their power to block actions that would allow for better checks and balances. Lumped together, all of these actions lead you to wonder: "How did they get away with it? And how is it still happening?"

As if we needed any more examples, we have a breaking scandal this very day (November 5, 2011) in the collapse of M.F. Global, yet another financial firm wrecked by a political insider, a former New Jersey Governor and Senator. This banker-turned-politician-turned-banker is alleged to have used his influence to persuade government regulators to refrain from doing their jobs of regulating his fund. The result: another bankrupt financial company with $630,000,000 of customers' money gone missing. How much more of this do we have to put up with?

Mayo says that the second problem is the corrupt relationship between banks and their auditors. The banks pay their auditing firms hundreds of millions of dollars, so why SHOULD the auditors be honest in auditing the banks' books? The banks auditors have been corrupted so as to bless the bankers' accounting scams in the same way that Arthur Anderson was corrupted by Enron, giving Enron a clean audit just before Enron blew up with the most outrageously bogus accounting fraud since Charles Ponzi opened his "bank" in Boston in the early 1900s.

The third problem, says Mayo, is that the banks' Boards of Directors are generally non-financial types who don't understand the financial industry. One suspects that the boards are selected BECAUSE of their ignorance, so that the banking executives can run their scams without being questioned by competent board members who understand the business.

Although Mayo nails the problems that caused the financial collapse, his proposed solutions are nebulous. He's not in favor of more regulations, but wants the existing regulations that are already on the books to be better enforced. He wants a more competent government regulatory staff, more competent auditing firms, and more honest stock market analysts who are not afraid to cry "sell" when they suspect the banks are cooking the books. He says "Let the free market work."

I've lived through too many banking scandals to believe that any of these half-measures are going to be effective. I was in Chicago when Continental Illinois Bank failed in 1984. That was the biggest bank failure of its time, requiring the FDIC to pay billions of taxpayer money to make the depositors whole. This was the bank that originated the term "too big to fail" which we heard repeated all too often in 2008. Then there was the "S&L Crisis" of the early 1990s when hundreds of corrupt Savings and Loans failed and cost taxpayers hundreds of billions more. Then came the failures of Enron, Arthur Anderson, Worldcom, and Healthsouth in the early 2000s. Then came the failure of the entire financial industry in 2008. And now we have the M.F. Global scandal, yet another financial institution destroyed by bankers and politicians colluding to nullify and evade the banking laws!

Let's face the brutal reality: too many bankers are greedy and corrupt. They will never respect the law until they are made to feel the sting of being personally prosecuted. The Sarbanes-Oxley laws are SUPPOSED to hold corporate executives and their boards of directors PERSONALLY LIABLE for financial fraud AND for failure to implement the auditing controls that are necessary to prevent fraud. Why not enforce the Sarbox laws already on the books and let the indictments fly? Of course the answer is that the financial industry owns the White House and Congress.

IMO only one thing will convince bankers to respect the law, and that is to break their control of government. We need to be electing honest and independent-minded people to Congress and to the White House. In response to the financial crisis of 2008 there was no difference at all between the Republicans and Democrats in Congress or between President Bush and President Obama. They may disagree about everything else, but they were as united as a band of brothers in bailing out the banks with our taxpayer money and in suppressing calls for the prosecution of corrupt bankers.

I generally vote Republican, but I'd vote for ANY CANDIDATE of ANY PARTY who pledged to break the corrupting influence of the money-center banks. Let's ask Congress to reinstate the Glass Steagall Act, which prevents banks from diverting their depositors' money into toxic mortgage derivatives. Let's elect presidents who will appoint attorney generals who aren't afraid to prosecute corrupt bankers. And let's do some old fashioned trust-busting so as to fragment those "too big to fail" banks back into smaller units that can't pose a threat to the economy.

Let me add that I am not an anti-business fanatic. I earn my living as a small business person and investor in stocks, including many financial companies. I am grateful to have investment opportunities with honest lenders. I do business with regional banks in Florida and Michigan that have the highest standards of integrity and are frequently mentioned favorably in the financial press. These banks never took a penny of TARP money, never speculated in toxic derivatives, and never made a "zero interest loan" that later had to be foreclosed on. I am not at all against banks per se, just the corrupt ones.

I rate this book four stars. Mayo identifies the problem but seems reluctant to provide effective solutions to prevent a recurrence. Even so, this is a fascinating book that provides an insider's view of the details that led to the banking collapse. Perhaps we should dedicate ourselves to understanding these failings as Mayo does and then go one step further by doing what we can to break the bankers' stranglehold over our presidents and congresses. Only then, when they are held as accountable to obeying the law as any other citizens, will bankers began to operate honestly. Until that day comes we are living under the threat of another financial collapse.

btw. just the other day the government fined American Airlines $900,000 for holding their passengers on the tarmac for three hours. But what bank or bank executive has EVER been held accountable for destroying their businesses and the livelihoods of millions in the larger economy whose employment was wiped out in the banking collapses. Just last week MF Global wiped out another $630,000,000 of customer money and put 1,600 people out of work. Will any of their executives be held accountable? Don't bet on it. We fine the airlines because they inconvenience their passengers, but we allow bank executives to destroy the largest financial institutions in the country and undermine the entire nation's economy, and then the government rewards them with multimillion-dollar bonuses paid for by taxpayer bailout money! I guess we know who owns the government, and it is surely not the people.
19 of 20 people found the following review helpful
Another Book Review from the Aleph Blog 15 Nov. 2011
By David Merkel - Published on
Format: Hardcover
Why do you do what you do? Do you do it for money? Many do. Do you do it because you love it? Some get to do that. Do you do it because you think you have the truth, and want to make it known? Few do that.

Mike Mayo seems to be one who works for the latter two reasons, and that made him unusual on Wall Street. As an analyst of bank stocks on Wall Street, Mike Mayo was not always right, but he was right more often than not. He had a strong desire to tell what he saw to be the truth, which did not win him friends amid general overleverage in the banking sector (the banks lent too much).

Wall Street does not exist to make the buyers of the securities rich, rather, Wall Street exists to help companies get financing; the large profits of Wall Street come from the creation of stocks, bonds, and other securities to institutions and individuals.

There may be a question, though: if Wall Street does not exist to enrich the buyers of securities, then why do they employ analysts who try to point out value to potential buyers? Even today, it is because Wall Street wants to make money off of the underwriting of future securities. After all there is no money to be made in the secondary trading of ordinary securities anymore.

That is why the opinions of analysts still remain roughly 65% bullish, 30% neutral, and 5% bearish. Their posture reflects the way Wall Street positions itself for those they make money from: securities issuers, not securities buyers.

And similar to rating agencies, it has to be that way, because only the securities issuer has a concentrated interest in the issuance of a security, and for bonds, the rating.

So what happens when a rare smart truth-teller, Mike Mayo, comes along, and does not care about the revenue generation potential of his opinions? He gets a good reputation from institutional investors, but often loses his job inside investment banks, because he was not profitable for them. Some clever investment bankers would use a negative opinion from Mike Mayo to sell products to fix the problems of the bank in question, but that was rare.

Book Structure

This book is part autobiography, and part a financial economics text. We learn about those who raised Mike Mayo, and those who influenced him in his career development. We also learn about the economics of Wall Street, as I have described above. But behind all of it is the nagging question, "Why do you do what you do?" In an area rife with ethical conflicts, where money goes more rapidly to those who will be cheerleaders and promoters rather than truth-tellers, asking the questions that disturb the soul are uncommon, but affected the author.

In short, the book tells of his life, and how he came to be a bank analyst. It goes through his successes, and some of his failures. It spends too much time on his correct analyses of Citi (Citigroup). It shows him learning how to be professional, and take the emotion out of issuing opinions, and reactions to opinions.

It takes us through three phases of his opinions: mixed, bullish (1994-1998), and bearish (1998+). He was willing to be bearish and lose credibility in the short run. Of course, what do we call someone who is wrong in the short run? We call them wrong, though those who are patient may still benefit.

After that, the book offers his opinions on what is wrong with finance, which he summarizes as ABC: fix the Accounting, put insolvent banks into Bankruptcy, and reduce the Clout of banks. All salutary suggestions I think.


Though he spent time on some of his failures, he should have spent more time there. That said, I am impressed by his determination.

Saving the big banks from themselves still seems to be an afterthought rather than a goal, despite all of his efforts.

Who would benefit from this book: Most investors would benefit from this book. It will make you skeptical of investment banks; it will teach you how Wall Street thinks. Beyond that, you might enjoy the story of someone who tweaked the nose of Wall Street, and survived (for now).
8 of 8 people found the following review helpful
A very basic intro to 'the sell side problem' 5 April 2012
By Mark F. Pfeifer - Published on
Format: Hardcover Verified Purchase
Exile on Wall Street is an easy reading introduction to the world of the (sell side) Wall Street analyst over the past twenty years, both for those starting out (or wanting to) in the business and for readers interested in a valuable `how the world really works' addition to their investment reading. I would not recommend it for industry professionals who are already all too familiar with the issues and challenges at hand.

As a risk manager and analyst who has been evaluating financial institutions for twenty years, I found the book a welcome addition to a wide body of work, from Liar's Poker and Barbarians at the Gates to The Big Short. On the other hand, I was hoping for a wider range of anecdotes and incidents supporting Mike's underlying thesis: how difficult their employer makes it for a sell side analyst to be professional and objective in evaluating a company for investors, especially where bad news is concerned. In particular the underlying revenue driven reasons why and the complexity and contradictions of the business model. As an internal cop who rarely had to bother with placating the management of companies I was analyzing my approach is more reflective of Steve Eisman's adage: Always assume they are lying to you.

Perhaps because of his early experience he describes working at the Fed, Mike has what I view as an overly evolved regard for regulators and the Fed. In particular, like a previous reviewer I would remind Mike that the Too Big To Fail doctrine was first established by the bailout of Continental Illinois in 1984, with the approval of then chairman Paul Volcker, a man some of us refer to as the General Grant of central bankers. It's not meant as a compliment. As the partner who had to face an electorate, Reagan both supported Volcker in public and took the brunt of the fallout from the brutal recession that resulted from the `death to inflation at all costs' policy at the Fed. The regulators historical track record going back forty years plus is more tarnished than he implies, though there were heroes like the late Bill Seidman and the heroic and currently besieged Ed DeMarco who prove his point.

Throughout the book he seems to evince a touching naivety in the rectitude and capabilities of both regulations and regulators that I find perplexing. Based on the evidence that he alone presents, Mike should know that Sarbanes-Oxley was a waste of time and effort. If he had ever visited the unglamorous bowels of a bank or broker, he might have more sympathy for the thousands of people in IT, Operations, Audit, Compliance, Risk and other functions who waste week upon week meeting the mind numbing paperwork requirements for these laws when they could be doing their jobs. And to what end? MF Global. And Dodd Frank is likely to prove far worse. Because Mike is basically what is referred to as `Front Office,' I don't necessarily fault him for this omission.

Mike points out rightly that not a single executive who ran one of these banks into the ground has gone to jail, and that most of the culprits who failed the country and investor community are either still in place or have moved up the food chain. Along with the `titans of industry' I would suggest another Exhibit A: Tim Geithner. Meanwhile, the SEC was handed Madoff and Sanford on a platter, and did nothing.

The author is another in a long line of those who lament the role of the repeal of Glass-Steagall as an enabler in the crisis. We have yet to see a single major example of exactly how the repeal of Glass-Steagall led to the failure of a financial institution, either on the IB side (Bear, Lehman, Merrill) or commercial bank side (WaMu, Countrywide, IndyMac, Wachovia, Nat City). Despite the lack of empirical evidence, this baseless canard continues to pollute the debate over how to fix a broken TBTF system.

And by the way, the only result of the so-called Volcker rule will be to produce entities such as, oh say, Long Term Capital Management (r.i.p. 1998), the TBTF hedge fund that last took us to the edge of the cliff. And Glass-Steagall prevented this how?

But these are matters about which respectable analysts will differ based on their experiences. Nevertheless I have tremendous respect for Mike for pointing out one of the key, if not major flaw in Wall Street research that still haunts us twelve years after the research settlement: the lack of objective research and the willingness to apply a sell rating or call a dog a dog. But the author is also honest enough to acknowledge those cases where he dropped the ball, as in the case of Lehman. In his defense, who didn't?

The uninitiated will find a few valuable insights here as to how the world works and how deals get done, not just in the financial services industry. I cannot overemphasize the importance of this lesson for new entrants into the business and potential investors and suggest more advanced reading. Another sad but tragic truth about getting into the business is described early on as we read about Mike's epic struggle to get hired by an elitist culture that is all too willing to hand the job to the person with the right school credentials, rather than the fundamental, technical and ethical chops to do the job as it should be done.

Mike touches on several intractable problems best summed up under the rubric of conflict of interest. If sell side analysts, auditors and rating agencies all operate under some kind of conflict of interest in that they are paid by the very executives who they are evaluating, that calls into question the very infrastructure upon which efficient markets and investors depend for decision making. And the author rightly identifies it as a major impediment to a cleansing and repair of the system. In contrast to other reviewers, I wish to emphasize that there is a difference between conflict of interest and corruption. Buyer beware.

Exile is largely focused on the financial analysis and Machiavellian workings of the I-banks and big banks themselves. For a fuller and more complete understanding of the roots and evolution of the housing crisis itself and how it infected the financial system, the reader should pick up Gretchen Morgenson and Joshua Rosner's superb Reckless Endangerment. (In addition, they name the guilty - in detail.) Then go read The Big Short, by Lewis.

Frankly, his two chapters covering Citi alone are a pretty good read, covering not only the past few years but offering a short survey of the company's history as `the Zelig of financial recklessness.' Priceless (sorry, I disagree with a previous reviewer on this subject. Examples are always useful to prove a more general point, and there is no finer example than Citi.). It surprised even me to read that in 2008, a year in which one of the `leading financial institutions in the world' was cited not once but twice by two separate regulators for having inadequate risk management systems, saw its net worth go to zero, and was on its way to implosion and repossession by the taxpayers yet again, the CEO was paid $38 million.

Indeed here the author seems to second my own view regarding useless regulations when he writes: "If Sarbanes Oxley does not apply here, then it's not clear when it would apply, or what the hundreds of millions of dollars spent on compliance efforts by Citi and other public companies is actually supposed to accomplish." Bingo.

Near the end, the author offers some very basic suggestions to policy makers that could go some way toward improving the transparency and accuracy of the financial information analysts and investors could use to better evaluate the industry. Frankly, I think some of them ring a bit naïve and simplistic even based on the evidence he alone has just offered, but we have to start somewhere. Even better, he also nominates a bank that shines a light on how to do it right: M&T in Buffalo. Anybody in Washington listening?

I have little doubt that, had he been retired instead of still working on the street, Mike would have pulled the trigger for the other barrel and produced a fuller book. I look forward to it when the day comes. Mike Mayo is a superior financial analyst who has produced a readable and valuable contribution to what seems like our never ending debate over the Gordian Knot of Wall Street reform. As this week's news about the recent IPO Groupon suggests, there is still so much more of his work left to do.
3 of 3 people found the following review helpful
More interesting for those who don't work in the financial industry 2 April 2012
By Marcelo Bahia - Published on
Format: Hardcover
This book is not a bad one, but delivered less than I expected.

Chapters which explain the 2008 crisis and afterwards make suggestions for future improvements in the industry do not contain anything different from what's already out there. The parts I liked the most were the biographical ones in the beginning of the book, from the Fed period to the first years as a sell-side analyst. Stories like the private jet trip with the bank's CEO are not surprising for somebody who works in the industry, but are really enjoyable to read, coming directly from the perspective of the analyst involved.

I would recommend this book for somebody who's curious about the way the financial industry really works and the 2008 events, but not for somebody who's already in the field and has professionally lived through the crisis.
3 of 3 people found the following review helpful
Right on Point 27 Nov. 2011
By Daniel - Published on
Format: Hardcover
Fair and balanced in my opinion, despite the fact that the book was written by a wall street insider. The book offers a lot for both those currently on the street as well as aspirants. Mayo's experience in its entirety paints an accurate portrait of culture prevalent on the street as well as how it has evolved since the early 90's. I was quite impressed by his insights on the structural problems that still plague our financial system, even 3 years after the crisis. Forget Dodd Frank. Mayo's ABC solution does a far better job in my opinion!! A must read!!
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