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95 of 101 people found the following review helpful
5.0 out of 5 stars Insight into the human drama
This is the first properly considered book about the financial crisis to be published. Gillian Tett is well known as a financial journalist (working for the FT in London). Accordingly, you might think this book has been rushed out to simply rehearse the emerging consensus view on the causes of the financial crisis. Not so! This is a very impressive volume. To start with -...
Published on 8 May 2009 by Tim Scott

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49 of 51 people found the following review helpful
2.0 out of 5 stars Mea non culpa
The subtitle could have been: 'How the Unrestrained Greed of Everyone Else Corrupted J.P.Morgan's Dream, Shattered Global Markets and Unleashed a Catastrophe: How a Saintly Band of Bankers Rewrote the Rules of Finance and Unleashed an Innovation Storm that they can't be Blamed for.

If you were to take a walk past J.P.Morgan's mid-town offices, I wouldn't be...
Published on 3 May 2010 by Chuck E


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49 of 51 people found the following review helpful
2.0 out of 5 stars Mea non culpa, 3 May 2010
By 
Chuck E (UK) - See all my reviews
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The subtitle could have been: 'How the Unrestrained Greed of Everyone Else Corrupted J.P.Morgan's Dream, Shattered Global Markets and Unleashed a Catastrophe: How a Saintly Band of Bankers Rewrote the Rules of Finance and Unleashed an Innovation Storm that they can't be Blamed for.

If you were to take a walk past J.P.Morgan's mid-town offices, I wouldn't be surprised if you were to see employees from the PR Dept. handing out copies of this book to passers-by. Although it gives a fairly decent, if superficial, run through of events, it is hampered by its partial perspective - seen exclusively through the prism of a team of J.P.Morgan bankers who claim most of the credit for the financial innovations that ultimately wrecked the world economy, but little of the blame - which is, at least partly, dumped at the door of those dastardly regulators for not breaking up the party when it was in full swing and Chuck Prince was still dancing.

This small band of fun-loving, ambitious, and moreover, idealistic financial geniuses discovered that, if they could dice up various debt products and sell them on, and then 'insure' the risk of default by selling cover even to those not holding that risk - 'exposures could be transferred to the most efficient holders of that risk'. Alternatively, it could be transferred more efficiently to those unaware of what those risks really were - particularly if it could be rubber-stamped as AAA by agencies paid by the sellers of those products. At no point is there the suggestion of any awareness that dislocating the originators of loans from the risk of default might not be an unalloyed boon.

All that was needed was to convince the regulators that these new product markets could be self-policing. It didn't have to be a hard sell, given that the man they had to sell it to was Alan Greenspan - an admirer of Ayn Rand's peculiar brand of economic individualism, and a fervent believer in the ideal of free markets. His acolytes, drawn through the revolving door that connects Wall St. to the Treasury, via the Fed, didn't need much arm-twisting.

As a result mortgage brokers were able to pile up billions of dollars worth of junk (i.e. `sub-prime') loans and, with the rating agencies seal of approval, pass them on to `efficient' holders of that risk (otherwise known as mugs). Thus the short-term returns were divorced from the longer-term risk of default. Ironically, what did for the major players was holding on to the `super-senior' tranches because they were considered too risk-free to give the kind of returns investors were getting used to. Apparently, it didn't occur to the PhD/MBA-rich quants that a general fall in house prices would ripple through the whole sector and therefore wasn't in the models.

When the proverbial hits the fan, the recurrent refrain from the Morganites is: 'How could this happen?' - which is either disingenuous or naive in the extreme (Tett suggests the latter). 'Nobody knew how it happened' reels one innovator. And it is this blank incomprehension that highlights the paradox at the heart of the story. How bankers who preach the virtues of free markets, which depend on transparency could develop a system so hidebound with opacity that no-one had a clue what anyone else was doing. Unless the lip-service paid to free markets is simply a rationalisation of self-interest aimed at short-circuiting regulation while, in the real world, the emphasis is on creating asymmetries of information from which profits can be made: the more complex the products, the higher the returns. This helps explain the resistance to some kind of exchange which would have revealed a true market price, in favour of the over-the-counter contracts - and why nobody knew what anything was worth - even on their own books. The proliferation of off balance sheet SIVs simply complicated this process further - and all in the name of `free and open markets'!

Drawing an analogy, one Morganite complains that you can't blame the cars (financial products), when it is the drivers (individual bankers) who are at fault - but if the traffic regulations are inadequate, it's only a matter of time before there's a pile-up (which will involve the careful as well as the reckless). The idea that regulation actually benefits market participants by restricting the excesses of the boy-racers isn't entertained.

Astoundingly, though, the regulators get a good kicking for doing the bankers bidding! In fact, they are damned if they do and damned if they don't. When a failed attempt at knocking heads together to forestall a crisis comes to nothing, one participant chides the Treasury for having the gall to intervene: `If we were to bill the US Treasury for that wasted time, the bill would be huge', he notes of the failure of JPMorgan, Citi and BofA to create a superfund to stave off losses. Further down the line however, pontificating from the confines of the Davos ski resort/bunker, the company's CEO complains: `Where were the regulators?' in the style of a petulant teenager, standing amid the wreckage of his parents' house, wondering why they'd let him invite his friends to a party. For Gillian Tett, however, this epitomises his `courage to speak up and stand out'.

At points, the narrative descends into unintentional comedy, as we hear that the old-school bankers were too busy raising funds for the victims of Darfur to pick up on the more rapacious activities of their less enlightened colleagues. The protestations of shock and outrage and claims of ignorance - even as some JPM Old Boys make a killing out of the downturn - stretch credulity. It's a common fallback position from inside the industry: these brilliant individuals hand-picked and handsomely remunerated for their perspicacity suddenly turn into tongue-tied ingénues, perplexed by the machinations going on around them (even as the K-Street lobbyists fight any significant reform). Although the author does add a postscript, which accepts the likelihood of some kind of retrenchment, the overall impression is that a pure and idealistically driven effort to free the world of risk has been ignobly corrupted by a few unnamed miscreants - something that couldn't possibly have been foreseen.

While Tett spends some time charting the career of Blythe Masters, one of the few women to rise through the ranks, the name of Brooksley Born, another high-flying woman, whose warnings about the possible dangers of credit derivatives fell on deaf ears, is conspicuous by its absence. One suspects that would have undermined the narrative. I'll leave her with the last word: "I think we will have continuing danger from these markets and that we will have repeats of the financial crisis -- [they] may differ in details but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over, until we learn from experience."

If you want a bankers-eye view of the crisis, rather than a critical analysis, this fits the bill.
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7 of 7 people found the following review helpful
3.0 out of 5 stars Lighting a cavern with a 40 watt bulb, 9 Dec 2011
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This review is from: Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe (Paperback)
I bought this book because I am always very impressed by Gillian Tett when she appears on Newsnight which she frequently does. So I was expecting a trenchant analysis of how bankers' greed caused the credit crisis and a laying bare of all the machinations which would switch on the lightbulb of true understanding. Sadly, I don't really think you get this, although the title leads you to expect that you will.

I could be wrong, but I see the hand of the publisher in this narrative. It concentrates on the personalities (or at least some of them, principally those at J.P. Morgan) behind the boom in derivatives, at the expense of the mechanisms. But even these personalities are only sketched with broad brushstrokes - we know little about the characters and nothing about their lives outside the bank. We don't know for example how big their bonuses were, although that might have been enlightening. The office politics of banking aren't particularly interesting and frankly, no one could care less when they lose their jobs in power struggles and takeovers. As a human interest story, it doesn't work.

But equally, it disappoints slightly from a technical analysis. This is because not only are derivatives beyond simple options often opaque - and this is the tale of the invention of the most opaque derivatives imaginable - but because banking itself is completely opaque to the layman (and one increasingly suspects, to bankers too). It would have been good to understand how banks actually make the prodigious sums they do and how the alchemy works whereby simple deposits of real money from people and businesses are multiplied many times over into stranger and stranger loans. The book tells us nothing about this. It is also not clear how the simple mortgages in one country, the US, came to represent trillions of dollars which infected the entire financial system.

Fools Gold, the title, implies huge criticism of the banking industry, but there isn't really that much criticism; the book doesn't maintain that the bankers were greedy fools. Indeed, in as much as they earned massive salaries and bonuses while they fiddled in the house they themselves had set alight, it is hard to see them as the real fools in this story. I think that Gillian Tett could do better than this, with a little less narrative and a little more explanation and criticism. She tells us about her studies in anthropology in the introduction but then doesn't use this prism throughout the book, sadly. So what we end up with is a good and readable book, but nothing like the definitive analysis of the banking crisis that we might have hoped for.
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8 of 8 people found the following review helpful
3.0 out of 5 stars a biased account..., 29 Sep 2010
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This review is from: Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe (Paperback)
Gillian Tett's book reads easily and is informative to the layman. However, the account is one-sided and omits to mention many pertinent points. My guess is that the author, being a professional journalist, did not want to raise the hackles of the very people on whom she depends for an inside track. Therefore, there is little mention of the short term incentives (i.e. bonuses) of the bankers who are the 'heroes' of her story. These as much as anything were the driving force for the 'unrestrained greed' within the banking community. Nor is there enough talk about how bankers oppose transpareny as this would cut into their ability to charge exorbitant fees and huge bid-offer spreads... in short this is an account which does not dig deep enough into the reasons why...
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95 of 101 people found the following review helpful
5.0 out of 5 stars Insight into the human drama, 8 May 2009
By 
Tim Scott (London, UK) - See all my reviews
(REAL NAME)   
This is the first properly considered book about the financial crisis to be published. Gillian Tett is well known as a financial journalist (working for the FT in London). Accordingly, you might think this book has been rushed out to simply rehearse the emerging consensus view on the causes of the financial crisis. Not so! This is a very impressive volume. To start with - Gillian Tett knows the spider's web of complex structured products at the heart of this story well enough to be able to describe it simply. That is the mark of true mastery. What is best about this book, however, is the way it tells the human story. That is the story of the innovators at J.P. Morgan who created these products and realised at an early stage that they left behind a kind of nuclear waste that needed to be properly contained - particularly so in relation to derivatives based on residential mortgages (the default pattern of which was essentially unknowable until recently). Other banks didn't realise this (or didn't care) and just left that waste sitting on their balance sheets, or worse, shifted it to quasi-subsidiary vehicles where it was hidden and supported by short-term funding that quickly evaporated at the first sign of trouble. Ultimately, the book shows that financial innovation is not a problem per se - it's the use to which such innovation was put that created problems.

Overall - this is a very informative and interesting read which has clearly been in the planning for some time. A well considered book.
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15 of 16 people found the following review helpful
4.0 out of 5 stars Tett offensive, 1 Jun 2010
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I've now read no fewer than seven excellent books detailing the financial atrocities of 2007-9. Each takes a different spin.

British broker Philip Augar covers the historical perspective; hedge fund manager and amateur philosopher George Soros looks to epistemology; former Federal Reserve Chairman Alan Greenspan provides a wide-ranging survey aimed more or less at self-exculpation; former Goldman Sachs chief and US Treasury secretary Hank Paulson breathlessly covers the regulator's perspective; New York Times journalist Andrew Ross Sorkin impressively covers the CEO's perspective and Michael Lewis writes from the perspective of those motley few who not only saw the crash coming (as we all did!) with hindsight, but bet on it happening ahead of time.

Now Gillian Tett, an excellent writer for the Financial Times, provides the credit structurer's perspective. Surveying the economic and intellectual environment which lent the tools and opportunity for these sub-prime backed products to get off the ground, Tett tells the story through the prism of the J. P. Morgan structuring desk from whose "BISTRO" transactions ("bank of international settlements total rip-off" indeed!) all of this started, but who still never fell for the mortgage-backed kool-aid which overwhelmed the rest of the market. The house of Morgan (Jean Strouse's reverent tome is well recommended) has a venerable tradition that even Goldman Sachs would envy; its performance over the last three years has burnished that reputation in a way that Goldman certainly ought to.

Tett's curiously titled book is, for the most part excellent, entertaining and novel. She does a better (and certainly more balanced) job of explaining the engineering of a CDO than Lewis (though in fairness, his is the only other entry to even have a go), and the J. P. Morgan angle is a clever narrative to lay over the goings on.

So much so that when Tett loses her focus on Morgan in the closing stages - her attention switches to the much larger field of conflict as the financial world blew up - the book suffers: Tett's treatment Bear, Lehman, AIG, and others is (of necessity) cursory, and those who are interested should seek out Sorkin's extraordinary survey, which is far more thorough.

Tett does pull it all back together again in her epilogue by re-focussing on the Morgan diaspora in a where-are-they-now summary, and she provides a stark and assertive personal perspective. Her background is social anthropology which she says (and I fully agree) provides a valuable perspective on how this could all have happened, and how it might happen again, that you won't find in Hayek or Friedman. But this is added as an afterthought rather than a spoke of the central thesis, which is a pity. For me that's the real story: the herd mentality, the group-think, the social and anthropological hierarchies that persist (and on which our financial and political institutions, frankly, are built) which tend to neuter the checks and balances which classical market theory says ought to be provided by the market. Curiously, George Soros gets closest to this, in his otherwise rather idiosyncratic (and a bit premature) book.

Tett's missed opportunity here is compounded when she misinterprets the metaphor of Plato's cave: The participants who look at only the shadows projected on the wall aren't at fault for failing to look at the "perfect forms" whose outlines create the shadows: Plato's point is they *can't* ever see them: it is the human condition to be stuck with the shadows. That ought to lead, therefore to a different conclusion: not that we should turn around to look at the projector - for that will surely blind us - but that we need at all times to maintain a healthy scepticism for what we are seeing. The fatal mistake is to suppose it is the truth.

If we can devise a way of building that impulse - a will to contingency, if you like - into our institutions, we'll be on the way to fixing this.

Fat chance, I suspect.

Olly Buxton
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68 of 74 people found the following review helpful
3.0 out of 5 stars She should have called it: The story of the J.P. Morgan CDO desk, 9 Sep 2009
The book's content is less ambitious that its titles suggests. It is about how a team of derivative experts at J.P. Morgan contributed to the development of the securities, including credit default swaps and options, which led to the financial crisis. That's reasonably interesting, but it's a fairly narrow perspective on what happened. The collapse of Lehman is covered in a few pages. She doesn't even mention that the major banks were manipulating Libor. At points it sounds like she is writing to protect her sources. There is a lot about what a great CEO Jamie Dimon is at JP Morgan chase. She says the JPM team shouldn't be blamed for other banks misusing the derivatives they created. I've never heard anyone blame them for it.
There are a few mistakes: the internet bubble of 1999 was equity driven, not debt fueled. She uses acronyms too often, and there are no anecdotes explaining why the subprime default rates were so high. Indeed, she is very light on what happened in the subprime sector. The corruption there could have really livened up her book, and illuminated the causes of the crash. I learnt more about the crisis from the introduction to Niall Ferguson's Financial History of the World.
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3 of 3 people found the following review helpful
4.0 out of 5 stars Excellent book and a very good read, 19 Nov 2009
By 
Bernard Smith (Somewhere, Europe) - See all my reviews
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Gillian Tett is an assistant editor of the Financial Times and oversees the global coverage of the financial markets. So we can assume that she has a reasonably insight into the way financial markets work, a good nose for a story, and a certain skill with words. This book is evidence of the fact that she possesses all three qualities.
She follows the story of the recent bank meltdown by following the team in the investment bank J.P.Morgan. The initial chapters (part 1 entitled Innovation) lay a solid foundation in understanding the origin of derivatives. I found it a bit "slow", but still necessary background to parts 2 and 3. Part 2 - entitled Perversion - watches as the basic idea of derivatives is adopted by all the other banks, and in many cases "highjacked" to make increasingly complex products designed (at least initially) to re-package and distribute risk. Part 3 - entitled Disaster - described the fact that all the products had (still have?) a "common failure mode", an underlying correlation that simply put meant that risk was not in fact being distributed. Tett manages to take this complex situation and make it both understandable and interesting to the layman. She focuses more on the people working in the banking system, rather than simply creating a chronology of events. However I would have liked more facts and figures to support the overall story.
As an outsider what shocked me in this story was the fragility of all the models, and shortsightedness of both those developing them as tools and those blindly using them without understanding their limits. I have never had a high opinion of the intellectual capabilities of investment bankers, and this book amply supports my statement. However, even more shocking was the way both the banks ignored good practice and the regulators failed to do their job. Financial innovation is inevitable and good, but clearly banks were shortsighted and driven often by amoral greed. Regulators simply did not do the job we pay them for (and I include government as the ultimate regulator).
Overall, easy to read and an excellent description of the recent crisis.
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4 of 4 people found the following review helpful
2.0 out of 5 stars A good technical account of the financial crisis of 2007 / 08, 17 Feb 2013
By 
D. Black (Scotland, UK) - See all my reviews
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This is a good technical and historical account of the events leading up to the financial crisis of 2007 / 08 - and events thereafter. However, if fails totally in addressing / describing any criminal or moral fault (the title is misleading) - giving me the impression that she has been sponsored by the banking fraternity. Matters that are not even mentioned are: "The Fed" is privately owned and, in fact, controlled by Wall Street. Also not mentioned is the extraordinary influence that Goldman Sachs has in Government. No mention of the moral hazard of the banks being bailed out with public money, 100 cents on the dollar - absolutely incredible. No mention of the disgraceful bonuses they continued to pay themselves WITH PUBLIC MONEY. Disgraceful - still needs to be addressed.
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21 of 23 people found the following review helpful
5.0 out of 5 stars Heads they win, Tails we lose, 4 July 2009
By 
J. M. Goldthorpe (UK) - See all my reviews
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This is a gripping read from an author who is sure of her facts and can tell the true story of the banking crisis clearly and dramatically. Because she was one of the first to forecast financial disaster she has become a pundit on the subject and there is rarely a day when Gillian Tett is not on television or radio. Thanks to a useful glossary the reader is guided through the murky world of what Vince Cable dubbed "casino banking" with explanations of "Credit Default Swaps", "Mortgage-Backed Bond Security", the surreal sounding "Gaussian Copula" and the like. What started out as a well-thought out investment strategy turned into a glorified pyramid selling spree in order to generate bank profits, and therby bonuses. The author has a degree in anthropology and this gives the book a human interest beyond the world of high finance. Highly recommended for anyone wanting to understand the greatest economic trauma of our times.
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2 of 2 people found the following review helpful
5.0 out of 5 stars A complete systemic meltdown, 18 Dec 2013
By 
Luc REYNAERT (Beernem, Belgium) - See all my reviews
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This review is from: Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe (Paperback)
This book analyzes the worldwide financial crisis of the first decade of the 21st century from the point of view of one of the major market participants who created and sold complex financial products, J.P. Morgan.

The elite and its ideology
As G. Tett rightly states, `in most societies, elites try to maintain their power not simply by garnering wealth, but by dominating the mainstream ideologies.' The ideology of the financial elite is `free markets'. Their gospel pretends `that market prices are always right' and that `markets can correct excess far better than any government.' This gospel was translated in deregulation (repeal of Glass-Steagall), in poor bank and mortgage regulations and also, importantly, in accountancy rules, like `mark-to-market.'

The magic formula: leverage
Monstrous leverage means `potential' monstrous returns (unfortunately, also negative ones) and potential monstrous bonuses for the top management.
But, how to create monstrous leverage in banks where the capital/asset ratio is limited? First, by creating new products like derivatives - CDSs (credit default swaps) and CDOs (collateral debt obligations) based on all sorts of credits and mortgages; secondly, by putting these products in off-shore and off-balance vehicles, like SIVs (Structured Investment Vehicles); thirdly, by financing long term loans with short term debt.
The Fed chairman was against the regulation of derivatives because he believed that they made markets more efficient. A maestro stroke.

Profit hunger
All over the world, banks could not get enough of CDOs and their fat profit margins. But, the number of households that could afford prime mortgages was limited. No problem, give those who can't afford it, `sub prime' mortgages and give every new CDO a slice of them as long as they can get a triple A rating from the rating agencies. The reasoning behind it was that the US housing market would in any case not go down.
When the holders of sub prime debt could not reimburse their loan anymore, the CDO market simply imploded. (Most) Banks were confronted with heavy losses. All became suspicious (where are the losses sitting?) and refused to lend cash balances to one another. Lehman Brothers went bankrupt. The government (the taxpayer) had to step in massively. `The altar of free-market ideals was ripped apart.'

No basic fairness
Millions of ordinary families have suffered shattering financial blows. On the other hand, the fat bonus regime for the top management came back, but only because governments stand firmly behind the financial system, although it is still, for most part, in private-sector hands.
This situation is `totally inconsistent with any vision of market capitalism and basic fairness. While taxpayers were (and are) shouldering the risks, bankers and bank shareholders were (are) receiving most of the gains.'

This book is a very worthwhile read.
One of the best books on the financial crisis is `The Big Short' by Michael Lewis with its perfect summary: free money for the capitalists, free markets for everyone else.
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