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Origins of the Crash: The Great Bubble and Its Undoing Paperback – Dec 2004

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Product details

  • Paperback: 288 pages
  • Publisher: Penguin Books; Reprint edition (Dec. 2004)
  • Language: English
  • ISBN-10: 0143034677
  • ISBN-13: 978-0143034674
  • Product Dimensions: 13.6 x 1.5 x 20.2 cm
  • Average Customer Review: 4.7 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Bestsellers Rank: 833,537 in Books (See Top 100 in Books)

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Origins of the Crash This definitive account of the dot-com boom and bust is offered by "one of the best financial journalists there is" ("The New York Times Book Review"). Full description

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In the 1970s, a candidate for president advanced the novel proposition that the money in the Social Security system should be funneled into, of all places, the stock market. Read the first page
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Most Helpful Customer Reviews

13 of 13 people found the following review helpful By Olly Buxton on 20 Feb. 2004
Format: Hardcover
First off, disclosure: Penguin sent me a copy of this book to read & review for free based on an earlier review I wrote of one of Roger Lowenstein's books on this site. So I have a theoretical conflict of interest, though I am doing my best not to allow it to affect - positively or negatively - my view of this book. That being said, it is a somewhat ironic marketing tactic for Penguin to use in this particular case (but one which I heartily encourage, by the way) since Lowenstein's main theme is the mischief arising from conflicts of interest suffered by research analysts when covering the stocks of companies to whom their firms are pitching for investment banking business.
Be that as it may, I've disclosed it now, so you're warned.
Origins of the Crash covers much the same ground as Frank Partnoy's Infectious Greed and John Cassidy's Dot Con. As usual, Partnoy can't resist hopping on his moral high-horse, or mentioning 10+ year old derivatives scandals that have nothing to do at all with the recent market turmoil; Cassidy is more measured but restricts himself very much to the Dot Com phenomenon (but never makes the case that there was any deception, thus rendering his clever-dick title meaningless), adding an interesting history of the internet and computers in finance.
Lowenstein deals with the spinning, laddering and corporate governance scandals of the early part of this decade but doesn't really add much that you wouldn't know had you been reading the papers for the last few years.
Also, as he was with his book on LTCM, he is good at wisdom after the fact and retains a weakness for the cute aphorism, though he is more circumspect with it here and doesn't allow the neat turn of phrase to undermine his argument in quite the same way.
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9 of 9 people found the following review helpful By Donald Mitchell HALL OF FAMETOP 500 REVIEWERVINE VOICE on 15 July 2004
Format: Hardcover
Roger Lowenstein is one of the best financial reporters around, and he has done a fine job of taking the public information about stock market influences since the 1970s and connecting them to the 2000-2002 stock market crash in the United States.
I know of no book that touches on so many subjects including:
-Retirement money moving into mutual funds
-LBOs creating pressure on CEOs to get their stock prices up
-Leveraging of public companies to improve stock price
-The rise of free market economics as a policy influence
-401(k) plans creating a chase for fast results
-CEO stock options rising through the roof
-Michael Jensen and Joel Stern providing arguments in favor of excessive payments to executives
-Rise of the CFO as a "profit engineer" to produce most of company earnings results
-Lack of e.p.s. hit for stock options
-CEO pay skyrockets in the absence of performance due to lax consultants and boards
-New stock options being granted after stocks drop
-Cozy boards that inappropriately keep CEOs in place
-Managed earnings (especially by GE and Coca-Cola)
-Reduced disclosure
-Special Purpose Vehicles (to keep losses and debt hidden from investors)
-Security analysts having conflicts of interest
-SEC didn't do enough
-Accounting firms have conflicts of interest
-Derivatives are too unregulated
-Too much money to Venture Capital funds
-IPO boom
-Pro forma earnings
-Overinvestment in telecommunications
-Unrealistic expectations for the Internet and Internet companies
-Fraud by Enron, WorldCom and others.
Mr.
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1 of 1 people found the following review helpful By JPM on 26 Sept. 2010
Format: Hardcover Verified Purchase
Roger Lowenstein is a great author and it reflects in this book....just like his previous books viz. When Genius Failed (this rise and fall of LTCM), Buffet (the making of an American Capitalist)
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Most Helpful Customer Reviews on Amazon.com (beta)

Amazon.com: 46 reviews
40 of 42 people found the following review helpful
Outlining the Causes of the Stock-Market Crash of 2000-2002 19 Feb. 2004
By Donald Mitchell - Published on Amazon.com
Format: Hardcover
Roger Lowenstein is one of the best financial reporters around, and he has done a fine job of taking the public information about stock market influences since the 1970s and connecting them to the 2000-2002 stock market crash in the United States.
I know of no book that touches on so many subjects including:
-Retirement money moving into mutual funds
-LBOs creating pressure on CEOs to get their stock prices up
-Leveraging of public companies to improve stock price
-The rise of free market economics as a policy influence
-401(k) plans creating a chase for fast results
-CEO stock options rising through the roof
-Michael Jensen and Joel Stern providing arguments in favor of excessive payments to executives
-Rise of the CFO as a "profit engineer" to produce most of company earnings results
-Lack of e.p.s. hit for stock options
-CEO pay skyrockets in the absence of performance due to lax consultants and boards
-New stock options being granted after stocks drop
-Cozy boards that inappropriately keep CEOs in place
-Managed earnings (especially by GE and Coca-Cola)
-Reduced disclosure
-Special Purpose Vehicles (to keep losses and debt hidden from investors)
-Security analysts having conflicts of interest
-SEC didn't do enough
-Accounting firms have conflicts of interest
-Derivatives are too unregulated
-Too much money to Venture Capital funds
-IPO boom
-Pro forma earnings
-Overinvestment in telecommunications
-Unrealistic expectations for the Internet and Internet companies
-Fraud by Enron, WorldCom and others.
Mr. Lowenstein also goes on to describe the current reform efforts including Reg FD and the Sarbanes-Oxley legistlation, and finds that we have not really cured the problem. We will inevitably have another bubble and crash ahead. I agree with that view.
At bottom, Mr. Lowenstein understands very well that too much financial incentive for executives is bad for everyone. The temptation is simply too great to bend the line . . . or to cross way over it. The average compensation in major public companies is excessive now, so the ultimate cause of inappropriate behavior is still in place. As a consultant, I have repeatedly seen honorable people make lousy decisions when the size of their bonus and stock option potential was larger than they could deal with in an unemotional way.
The book's main weaknesses come in two areas. First, Mr. Lowenstein views from the problem as an outsider and gets almost all of his information from the media. As a result, he doesn't give you the real pulse of what was going wrong in the companies. It would have been helpful if he had contrasted the Enrons and WorldComs with companies that were led by executives who have done an outstanding job running their companies during the same years (while being exposed to the same temptations and conflicts) such as Michael Dell, Tom Golisano, James Morgan, Jake Gosa, Bob Swanson, and Bob Knutson.
Second, he is sometimes careless about details. Joel Stern's Economic Value Added (EVA) is described as "Equity Value Added." The Innovator's Dilemma by Professor Clayton Christensen is described as being a bad influence on Citicorp by discouraging executives from improving their existing operations (nothing could be further from the truth).
In the end, I was impressed by his understanding that feeding greed with unlimited incentives is a bad idea. That's the bottom line on this crash.
As I finished the book, I was left wondering how we can cure this tendency to provide too many financial incentives to do the wrong thing. Simply policing those who are provided with the incentives more closely will probably not work by itself.
16 of 17 people found the following review helpful
Competent coverage but not a great deal more 18 Feb. 2004
By Olly Buxton - Published on Amazon.com
Format: Hardcover
First off, disclosure: Penguin sent me a copy of this book to read & review for free based on an earlier review I wrote of one of Roger Lowenstein's books on this site. So I have a theoretical conflict of interest, though I am doing my best not to allow it to affect - positively or negatively - my view of this book.
That being said it is a somewhat ironic marketing tactic for Penguin to use n this particular case (but one which I heartily encourage, by the way) since Lowenstein's main theme is the mischief arising from conflicts of interest suffered by research analysts when covering the stocks of companies to whom their firms are pitching for investment banking business.
Be that as it may, I've disclosed it now, so you're warned.
Origins of the Crash covers much the same ground as Frank Partnoy's Infectious Greed and John Cassidy's Dot Con. As usual, Partnoy can't resist hopping on his moral high-horse, or mentioning 10+ year old derivatives scandals that have nothing to do at all with the recent market turmoil; Cassidy is more measured but restricts himself very much to the Dot Com phenomenon, adding an interesting history of the internet and computers in finance.
Lowenstein manages deals with the spinning, laddering and corporate governance scandals of the early part of this decade, but as many of the reviewers here have noted, doesn't really add much that you wouldn't know had you been reading the papers for the last few years.
Also, as he was with his book on LTCM, he is good at wisdom after the fact and retains a weakness for the cute aphorism, though he is more circumspect with it here and doesn't allow the neat turn of phrase to undermine his argument in quite the same way. Certainly, Lowenstein writes well; the book moves at a nice clip, and you never really get the chance to be bogged down.
For all that, I thought Origins of the Crash was a far more measured work than Partnoy's Infectious Greed (though not quite so comprehensive), and a better overview of the whole situation than Cassidy's Dot Con, but ultimately short on new insight or analysis.
If you're looking for an entertaining overview, though, this might just be the book for you.
42 of 51 people found the following review helpful
Sadly Derivative 26 Jan. 2004
By "justforawu" - Published on Amazon.com
Format: Hardcover
I agree with much of what has been said in the other reviews; particularly, that most of what is said here as already been said by others, often more lucidly and without the vitriol. I much preferred reading the Times' coverage. The book also seemed pretty quickly put together; there were a couple of obvious factual errors, and other sections looked like they were thrown in at the last minute. The overall impression that I received was of a book desperately done on a deadline, which affected both the tone (righteous) and substantive content (often derivative) of the text. I would have much preferred the book had Lowenstein taken the time to do this book right, with a fresh approach and a least a little new insight.
I know that Lowenstein has many loyal readers who would happily declare "brilliant" anything he writes. I like his stuff too, usually. But this book is just not up to standards. I know he could do better if he tried, but he just didn't do so here. And that's the harsh but accurate truth about this book.
15 of 17 people found the following review helpful
The Naked 90's 24 Jan. 2004
By J. Michael Gallipo - Published on Amazon.com
Format: Hardcover
In Origins of the Crash, Roger Lowenstein has written a fascinating account of the late 90's stock market bubble and subsequent collapse. The overriding theme of the book is that the culture of "shareholder value" was twisted from creating true long-term value into an obsession with the daily ups and downs of the companies' stock prices. It's an interesting way to view things and should prove thought provoking to many. Lowenstein makes a compelling case that the scandals of the past several years are not the work of just a few bad actors, but rather were symptomatic of widespread failures throughout all levels of business, government and the public. The cast of villains is extensive including the now common ones like Ken Lay (along with Skilling and Fastow), Jack Grubman, Bernie Ebbers (and Scott Sullivan) and Henry Blodget, but also includes the complicity of weak boards (and overall lax corporate governance), conflicted accountants and lawyers and an investing public (both individual and professional) that was too busy making money to worry about any of it.
I am not sure how much new reporting there is in this book... much of it is pulling together various stories that have been widely reported on. But it is put together artfully into a compelling narrative. It was fascinating to watch Michael Jensen, who was one of the earliest advocates of the use of stock options, eventually turn on his own creation. The section on Enron, while obviously not as extensive as some of the works devoted to the subject, is one of the best condensed accounts I have seen.
I do have a few quibbles with the book though. First, it winds up being something of a polemic. Reading Mr. Lowenstein's book, you get the distinct impression that there was not a single positive thing that happened at any time during the 90's. I found myself wondering if any companies managed to get it right... and if so, how and why? Second, in highlighting the abuses of options at the executive level, I think Mr. Lowenstein gives short shrift to the positive effects they can have on the lower levels of an organization. In the same way, he glosses over that there are some justifiable reasons for not expensing options. Finally, I question some of his comments about deregulation. He argues that the deregulation of telecom went to far or was perhaps even a bad thing. And yet, the purpose of regulation is not to protect the value of companies, it is to ensure access at the most reasonable costs possible. By that standard, deregulation of telecom should be seen as a success. Sure, lots of capital was destroyed and many companies failed, but it is not the government's job to prevent that.
But those issues aside, the book will stand as one of the more definitive accounts of the excesses of the 90's and Mr. Lowenstein's case against the culture of shareholder value will hopefully inspire some new thinking amongst executives, boards and investors. In short, I would highly recommend this book to anyone interested in recent market/business history.
12 of 14 people found the following review helpful
Fine reporting on what led to the evaporation of $7 trillion 14 Feb. 2004
By Craig Matteson - Published on Amazon.com
Format: Hardcover
Roger Lowenstein does a fine job of reporting the changes in the culture of investment that ended in the evaporation of seven trillion dollars investment valuation. Much of that was real money invested by ordinary folks trying to make money available for their needs later in life. (Not all of it was real money because when on person buys one share of Cisco for $100 then ALL the shares are valued at $100 even if you had purchased yours at $20 - so the $80 added to your invested funds may or may not be available when you try to sell your shares. If they are not you didn't realize a gain, but you didn't lose your investment until the price drops below $20.)
I think that anyone who is invested in or is thinking about investing in equities ought to read this book. It is written concisely and with a pretty good sense of what the responsibilities of a proper corporate management is. That way you can look for good companies with good management and not be blinded by the hype machines in the media that are back at work today as if the past couple of years never happened. It always amazes me that folks are investing significant sums of money into the markets having done less research than they did when they purchased their last refrigerator or car.
My only quibble with the book, and it isn't enough to make me less enthusiastic about recommending it strongly, is that the author tends to throw the baby out with the bath water. He talks as if all public companies had management teams like Enron or Tyco. It isn't true. If he had taken a few pages and shown some management teams still doing it right I think it would have made his case stronger. And though Mr. Lowenstein does place some blame with the investor, I think he lets them off the hook too easily. The reason "The Greater Fool Theory" works is that far too many investors volunteer for the role of fool.
I do not want to let any of the bad and criminal behavior go without punishment. However, I remember that when Yahoo was valued at over $200 BILLION dollars and, at the time, that was more than GM, Ford, and Chrysler TOGETHER. I asked some friends who were rhapsodizing about that and other boom stocks, if they would rather have all the assets of Yahoo or all the auto companies. They all chose Yahoo. I pointed out that with the auto companies they would have real property, machines, buildings, and more that could all be sold. I pointed out that personal transportation is something humans are going to always want. Yahoo is some software that runs on some servers that could be made obsolete tomorrow. (And notice today's power of Google which did not exist at that time.) It made not a dent in their enthusiasm. Such invincible ignorance deserves to be punished rather than protected.
Anyway, this is a fine book and has a useful index. Read it and learn some lessons from this book more than there were some criminals running some big companies and you will be amply rewarded!
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