Kazira

Book Review of “A Colossal Failure of Common Sense” and “Too Big to Fail”

This blog posting is a review of two books. I don’t need to remind anyone, especially those who are serious about investing, as to what transpired in the last couple of years. The whole world came to its knees … US went bankrupt, Dubai went bust, world went into deep recession. During this fiasco, all I strived to understand is how the hell did things come to this? Who should be blamed for this mess? What can we learn out of this? And, most important of all – how do we make money from this when it comes around again before I die? I have come to expect that this phenomenon of boom and bust is inherent into the existing financial system. This has already been hammered-into my head by the two great books that I’ve previously reviewed on Kazira, “The Black Swan” by Nassim Taleb and “A new paradigm for the financial markets” by George Soros.

Markets in the “Extremistan” (borrowing terms used by Nassim) are bound to exhibit the boom-bust pattern of growth and contraction. The ones we have seen in the recent past are – 

a.  Savings and loan fiasco in the 80s.
b.  Long Term Capital Management hedge fund bust in the 90s.
c.  Housing and the sub-prime bust in the 2000s.

And the government intervened in all the three cases listed above to save the world from financial calamity. The point is, if I were head of an investment bank or a commercial bank – I would be keeping an eye on who the next Treasury Secretary is going to be – who the next chairman of the federal reserve is going to be – Wine them, dine them, take exotic vacations with them – Get everyone on the bandwagon of Deregulations - Then invest crazily while heavily leveraging yourself (all the way touting the virtues of “regulation free” Capitalism) – Earn like a SOB – and when the time comes for the payment – Plead ignorance and ask for the government bailout of my company (Embrace Socialism all the way to the bank) – Fed opens the short term window to all who screwed up and we all live happily ever after. That is exactly what has happened in the three major fiascos that I noted above. So, folks, here’s a model for you to get insanely rich. Just leave your morals home.

But Lehman, poor Lehman… Got the short hand of the stick since the CEO Fuld was not in bed with Paulson (Then Treasury Secretary) and rest of the Wall Street "families". How difficult is it to be like JP Morgan Chase or Bank of America? Give the big bosses (the Fed Chairman and the Treasury Secretary) the pleasure treatment when he/she most desires .. (I hope you notice that I wanted to be cruder here but refrained myself). You could be given "Jamie Deal" for Bear-Stern and some kind of deal for Merrill-Lynch. But no! Lehman brothers, you just had to do things your way. You couldn't play nice in the sandbox when asked (LTCM bailout by private sector) - Well, then you go down and take a part of the system down as well. You were worse than AIG - at least those bastards survived and the employees and customer investments were preserved.

Who got left holding the bag? You and I, along with shareholders of these unfortunate companies. We were the ones who received the short end of all the sticks. Our money, taxes, given away to these greedy investment houses as presents on Christmas. We, on the other side are left with no jobs, no loans, nothing. Merry Christmas to you all.

So, here are two books to take you inside the minds of the movers and shakers on the Wall Street and Washington DC. Their personal traits and tribulations.

The first book – “A Colossal Failure of Common Sense” by Patrick Robinson – – is written by an ex-Lehman executive. It provides a good insight on the inner workings of Lehman (When it was still sailing towards the iceberg). It provides a great day to day workings, rivalries, and company history before and during the meltdown. It also provides a good explanation for all complex financial tools (Refered to as “Financial Weapons of Mass Destruction” by Warren Buffet) for non-finance-savvy readers. It alsi gives the reader a good feel of how the tradings really get done and the energy that is present on the trading floors. But accept it, the author got fired from Lehman and so some of that bias does creep in when he is describing the working methodology of upper echelons at Lehman.

The second book – "Too Big To fail" by Andrew Ross Sorkin – 
picks up on the subject left by the first author and expands it to the whole financial markets and Washington DC. If you want to know all critical movers and shakers on the Wall Street and Washington DC, and wish to know their characters, interconnections, and behind-the-scene trials and tribulations – This the book for you. It has background on JP Morgan Chase, Morgan Stanley, Bear Sterns, Lehman Brothers, AIG, Goldman Sachs, Morgan Stanley, and Merrill Lynch. Individually it describes the background of larger than life personalities such as Jamie Diamond, Richard Fuld, Timothy Gietner, Henry Paulson, Ben Bernanke, among others. The book starts at the point where the financial Tsunami starts to the point where Paulson nationalizes all the major banks in the US. The book raises several important social, political, and philosophical questions and leaves you thinking. Was Lehman collapse intentional? Why Bear, AIG, and others and not Lehman? Was Paulson thinking of his buddies at Goldman more than the people of the US?

I would STRONGLY recommend: TOO BIG TO FAIL” over the “A colossal Failure of Common Sense” – simply because it contains way more details (on Lehman and beyond) about various different players and various different perspective; in addition to depth of reporting and less personal history of the author.