Saturday, August 18, 2012

Book Review: The End of Wall Street


 The End of Wall Street
by Roger Lowenstein
I am slowly but surely making my way through books about the financial crisis. Having had a view from, well, if not the front row then at least the bleachers I find reading multiple accounts interesting in order to compare characterizations and conclusions.
Roger Lowenstein has been writing books about high finance for a while and one might expect that his book about the financial crisis would be his masterpiece. Yet, although I did like this book, The End of Wall Street is not the best book on the crisis-it's not even the best book on the crisis written by Lowenstein, but that statement takes some explanation.
Lowenstein's book is great in the early going. He nails the causes and consequences of the subprime crisis. His descriptions of the mania, greed, and silliness of the whole housing bubble wil make you see red. But then End of Wall Street begs a question that is very hard to answer: did the subprime crisis cause the financial crisis? Was it a necessary condition or merely a sufficient one? Or was it not a cause at all, but a result of bigger trends happening on Wall Street that would necessarily, sooner or later, find their way into the one large asset class that most Americans hold?
At some level, it's unfair to expect Lowenstein or any other author to answer all of these questions just yet. And in terms of the raw information of the story, it's all there in the book. But that's part of the problem. Having read Andrew Ross Sorkin's Too Big to Fail Which is 900 pages on just the direct events of the meltdown, Lowenstein's final chapters on the great bailout of '08 seems both abbreviated and too dense. Sorkin gives us the human story of Wall Street and the government, Lowenstein has a much harder time fitting in the characters, facts, and explanations of financial esoterica in the small space he reserved for the denouement. For this reason, I stalled out about 2/3ds of the way through the book. Lowenstein isn't the zippiest writer anyway, but it is hard to imagine a short summary of the crisis reading like anything other than a newspaper article. There's a reason Sorkin needed his 900 pages; this thing was epic.
Yet oftentimes epics can be encapsulated in smaller stories, even anecdotes, There was a precursor to this crisis, and that was the collapse of the hedge find Long term Capital Management in the late 1990s. Lowenstein's book on that episode, "When Genius Failed" is the book I'm thinking of when I say he's written a better account of the 2008 crisis. I've already reviewed that book so I won't rehash everything but the takeaways are striking. Wall Street demonstrated a decade before this crisis that it was willing to stake system-destroying amounts of borrowed money on flawed-mathematical-modeled trades. And government showed it would step in if needed. LTCM seemed like a major crisis at the time but in retrospect it was just a prelude.
And so, in a sense, maybe Lowenstein's first book on LTCM answers the question his book on the 2008 crisis does not. Subprime loans were a debacle all there own to be sure. But Wall Street was heading down a path of destruction that would inevitably wend its way past tech stocks, Russian bonds, and Asian currencies into our very homes. We were warned.

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