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.

Book Review: The Ascent of Money

This is another book I started to review and then didn't finish.  I enjoyed this book a lot, I remember that clearly.  But now that I'm a year or more away from it, I can't remember much else about it.  Of course, that's why I write these book reviews in the first place, so it's not really fair to the book.  But at the same time, I do remember being a bit underwhelmed by it.  Ferguson's books are all now done in conjunction with the BBC for televisions specials.  And so each chapter reads a bit like a little episode of a show.  "Today: the Dutch Tulip Bubble!"  Still, it's fun stuff, even if at times he used some fairly technical jargon without explaining it.  Perhaps I'll have to just watch the show and review that instead.  Or, dear reader, you could read the book and post a comment reminding me of why I liked it.

Book Reviews: The Age of Turbulence and The Age of the Unthinkable

This is a review of two books by two authors each trying, grandly, to define an "Age." One is an 80 year old who has decades of experience in economics, business, and at the highest levels of government. The other is by younger man without the benefit of so much experience and so many lived-through crisis who is nevertheless attempting a revolutionary manifesto. One book demonstrates wisdom and nuance, and has an underlying current of thought that says that we can never be too sure of things. The other lays out a far-reaching and comprehensive global world-view that leaves no real room for doubt or second guessing.

Of course, it's probably not a surprise that the older man is not the one demonstrating wisdom, but rather the straightjacket of ideological precepts he faithfully served for 40 years. But it is still striking how it seems as though Alan Greenspan has written a book of anti-wisdom. His book is a faithful catalog of ideas that ruled the world for decades and now, still, lies shattered.

Greenspan's book, the Age of Turbulence, came out before the Great Recession. Even his prologue to the paperback edition came out before the worst hit. And so, his book is confident and breezy. This is a nice touch as he describes his life. I can confirm what all the reviews I read said: the first, biographical, half of the book is quite enjoyable. But the second half, his take on the world and his prescriptions for it, is like watching an particularly painful episode of Seinfeld or Curb Your Enthusiasm. Sure enough, right there on page 230, Greenspan mentions exotic mortgages. His take is that, "the typical American household ended up with a more valuable home and better access to the wealth it represented." Sure we took on more debt and there might be a bubble but hey, we'll all recover nicely. He does have one concern about the boom years though: all that income inequality. But never fear, better education will take care of that.

OK, at some level, this isn't really fair to Greenspan. He's been brutally honest about the failings of his ideology and the concerns he expresses are real and legitimate. From everything I can tell he's a decent guy who tried to serve his country well, and for 18 years at the Fed had no indication that he was doing less than a superb job. But sometimes, the messenger gets shot when the message is bad enough. The Age of "Turbulence" ended with a massive gust of wind shear that damn near took the whole country down. His book reads as if Mikhail Gorbachev had written a testament to the majesty of Communism in 1989.

Joshua Cooper Ramo, who, as a partner in Kissinger & Associates, ought to be kinder to 80-something ex-government types takes it to Alan Greenspan quite often in his book, The Age of the Unthinkable. And rightly so. Ramo, like Malcolm Gladwell, illustrates ideas with vignettes. He tells about the success of Hezbollah (which is quite remarkable considering the Israeli army and intelligence services they are up against); about drug-resistant tuberculosis; about a man who got a fundamental flaw in the internet fixed without revealing the problem (because it would have allowed the hackers to take things down before the patches could be applied). In short, he writes about all kinds of complex and unpredictable systems that take down men like Greenspan and Gorbachev. As he puts its, complex systems can, "demolish poor Alan Greenspan's hope that even 40 years of experience is a reliable guide to the future."

The best example Ramo gives in his book is an experiment done by dropping grains of sand onto a plate, one at a time. Slowly, without any human intervention, the grains of sand will form a pyramid. They form a structure that, for all the world, looks supremely well-managed and stable, even though no outside force is doing the managing or stabilizing (anyone else thinking of the Invisible Hand?). But then, suddenly and without warning, one single grain will be the straw that breaks the camel's back. It will send the whole pyramid crashing down. And here's the craziest part: no one can predict which grain of sand will be the one that causes the crash. Over and over scientists have done this experiment and we still cannot predict the future. Even 40 years of experience is not a reliable guide to the future.

Ramo's solution is to fight fire with fire. If Al Qaeda is using decentralized cells, then perhaps the State Department and intelligence community should be radically decentralized. He provides a fascinating example of a Brazilian company that gave so much power to its workers during the 1990 hyperinflation that its owner no longer even knows what all the company does or how many employees it has. Another example is that the South African government's resistance to handing out AIDS drugs led to a grass roots people-power movement that has succeeded remarkably at quelling AIDS, while the government's multimillion dollar tuberculosis program resulted in people stopping medication too early leading to drug resistant forms of the disease.

According to Ramo we need to be resilient not just defensive. The sandpile is coming down sooner or later and we'd better be ready for it. By contrast, Greenspan is trying to describe what keeps the sandpile up so we can continue to build it higher and higher. I don't know about you, but after this last decade I'm afraid I have to side with Ramo. And to highly recommend his book--the first three or four chapters get you there if you're in a hurry. But we all need to start thinking about the sandpile on which we're living.