Posts Tagged ‘JPMorgan’

The Great Read-cession, Part VI

All the Devils are HereWe’re up to Part VI, which means we’re over halfway through the breakdown of financial crisis literature. Today John S looks at what might be the best book about the crisis, and what might be the most fun.

All the Devils Are Here: The Hidden History of the Financial Crisis

by Bethany McLean and Joe Nocera, 2010

 

If I had to recommend just one book about the financial crisis, it would probably be All the Devils Are Here. It’s not necessarily the best-written or most thrilling book on the subject, but it’s the most comprehensive, and perhaps the only book that captures just how nuanced the causes of the crisis were. Instead of focusing on one bank or one cause or one period of time, McLean and Nocera trace the origins of the crisis back decades, and examine precisely how things evolved.

One thing they illustrate well is how Wall Street tends to create something useful, and then, in the course of trying to find new ways to make money off it, turns it into a weapon of wealth destruction. In the 1980s, for example, mortgage-backed securities seemed like a great idea. Grouping mortgages together into one security allowed investors to introduce capital to the industry without being subjected to the inefficiencies or risks inherent in one mortgage or even one region. They also helped the GSEs’ bottom lines, of course.

But as time went on, these securities changed the mortgage market itself. Wall Street’s demand for mortgages to securitize lowered lending standards and increased shady lending practices, like ARMs and NINJAs. Continue reading

The Great Read-cession, Part V

House of CardsThe Great Read-cession is back! Today John S looks at two books that focus on banks that are no longer with us. Pour one out for Bear Stearns and Lehman Brothers, then read this…

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

by William D. Cohan, 2010

 

William D. Cohan* is a banker-turned-writer who has by now written three histories of different Wall Street firms: His first book was about Lazard Freres, his former employer, and his latest is about Goldman Sachs. House of Cards, though, is the tale of Bear Stearns, the first investment bank that was taken down by the crisis.

*Duke alum!

Bears Stearns’s collapse occupies an odd place in the narrative of the 2008 crash, having occurred in March, six months before the fall of Lehman Brothers, the subsequent panic, and the passage of TARP. At that time, nobody quite knew the enormity of the problem facing Wall Street, and there was hope that Bear Stearns’s collapse would be the nadir of the problem. The firm was the smallest of the major Wall Street investment banks—if there was going to be a casualty, it would make sense for it to be Bear Stearns.

So how does a Wall Street bank go bankrupt? Well, the same way Mike Campbell did: Gradually, then suddenly. The seeds of Bear Stearns’s collapse go back several years—and possibly, Cohan implies, several decades—but the proximate cause was the sudden grip of panic that seized the firm in March of 2008.

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