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.