This week a government committee is investigating the cause of the financial crisis by interrogating bank titans what exactly went wrong. Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable by Mark Gilbert is exactly what these government officials need to read to learn what went on in the last few years to cause the debacle. Here are some of what I learned from the book.
The book described the myriad of derivative investments that bankers essentially created out of thin air. As long as these derivatives were selling, the bankers were pocketing huge bonuses and their bosses did not care how they made the profit. It was also a strange period where all investments including stocks, commodities, and real estate were going up. As long as everything went up and money rolled in no one seemed to inquire how it was possible.
While this was happening regulators did not really do much to stop anything. In fact, the Glass-Steagall laws established during the Great Depression which separated investment banking and commercial banking was dismantled during the Clinton era. This allowed commercial banks that takes deposits to take much larger risks than they could previously. Bankers took on too much risk with too little capital, and this was described by the author as an "inverted pyramid". Basically the real assets backing all the derivative products was much too small, and just a small portion of the real investments going bad caused many more multiples of that money to evaporate.
This book basically reads like many news reports from the last few years put into chapters and categories. If you want to understand why a small fraction of bad mortgages could have caused so much damage, then you should read this book. The last chapter of the book offers some advice and prescriptions on how to avoid this in the future. I think my favorite part from that chapter is where the author suggested that more women should be hired as banking executives to perhaps soften the risk hungry "macho culture" in finance.
In conclusion, I think this book is a great objective view of what went on in the financial industry and government that caused the crisis to be so devastating. If you are a news junkie or a history buff then you would love this book.
Disclosure: I received a free advanced reading copy of this book and this post contains an affiliate link to the book.
As it did not mention the fact that the Government basically forced the Bankers to perform these machinations.
Barney Frank should be on the FBI's 10 most wanted list for the great fraud he single handedly perpetrated on the American people.
But he won't be, and he will be re-elected and we will see more demonizing those Evil bankers and then when they are done blaming bankers, they will find a new group to demonize. Maybe a group that you belong to.
I love this, another "Barney Frank conspired with poor people to bring down the U.S. economy" theory. This sounds like one of the many whacked out theories coming out of the tea party movement's great think tank. So I guess a bunch of Ivy league educated wall street gurus were bamboozled and had their hands forced by Barney Frank and his evil poor uneducated minorities. Wow didn't realize the poor and uneducated were so cunning. Give me a break. When are people going to stop defending greedy wall street bankers. While you're railing against Barney Frank, wall street continues to hand out huge bonuses. If there was any "government forcing" it was done by the right wing Bush administration that cow-towed for 8 years to the fat cats on wall street. You're scapegoat is in Crawford, TX not Massachusetts.
Having only read this post, not the book, I agree with what the book seems to be saying. However I want to make one distinction; The type of capitalism these bankers were practicing gives true, good capitalism a bad name.
Capitalism overall seems to be under attack right now, but in reality true honest capitalism is one of the only things that makes America what it is.
There is nothing wrong with striving to grow your company and compete with business rivals as long as it's done honestly and within limits. It sounds like what these bankers did was not honest and within limits, and those bankers should somehow be punished.
I just feel that we should all be more willing to look at the individual cases, instead of condeming capitalism altogether.
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I have just found the whole credit crisis to be so interesting and have been trying to follow the news as close as I can, this book definitely looks like a must read.
I have to agree with Nick. The banks raked in billions in profits and that is why they did what they did. They did it because the government let them not because the government made them.
The best part of this review is the note that the book is an *objective* view of the crisis.
If we can't get beyond "Barney Frank did it!" and "Greedy bankers did it!" and realize that all of us, every single American who had a job, invested in 401Ks, bought a house, a car, even an ice cream cone on a credit card played a part in or benefited from the financial structures that lead to the disaster, we will never learn how to prevent it.
DC's point is valid, but we need to understand that these "bankers" did NOT break the law, they played by the rules of capitalism. Capitalism is good, but a free market economy can be manipulated - legally and ethically - by smart people with disastrous results. Contrast the Enron situation - in that case, people violated regulations and laws. That is not what happened here. The SEC makes regulations based on what happens in the markets. Sometimes it gets things wrong. Was it wrong to relax many regulations (and there were many more than cited in the review) during the Clinton and Bush eras? Probably.
As for the "bankers" (which, by the way, really includes investment bankers, hedge fund managers, venture capitalists, fund managers, lawyers...) vast numbers of them have lost their jobs and the money they invested along with everyone else.
