05 Jul The End of Wall Street
Roger Lowenstein’s When Genius Failed: The Rise and Fall of Long-Term Capital Management is one of the best books I have ever read about the history of modern finance. So, when I saw that Lowenstein had joined the list of authors chiming on the financial crisis of 2008, I was quite excited. Unlike some highly anticipated books from well-known authors, he did not disappoint.
Lowenstein does one thing that Simon Johnson did in his atrocious 13 Bankers – he blasts Alan Greenspan. But unlike Johnson, Lowenstein actually blasts him for the right reason. Johnson sticks to the script about Greenspan’s deep ideology of free market capitalism and deregulation being the essence of the crisis; Lowenstein identifies the maestro’s “unmistakable legacy to stretch the boundaries of tolerance, to permit a greater easing of credit than any central banker had before.” And while Lowenstein pays some lip service to the modern orthodoxy – that laissez-faire capitalism was the cause of the crisis – he does a thorough job unpacking what this whole escapade really was.
The book is far more historical than it is ideological, and that is where Lowenstein shines as an author. He laments what became of the once great Wall Street firms who were done in by their myopia and greed. He is merciless in identifying the role Fannie and Freddie played in the crisis. And he writes (as a non-economist) with a far more impressive grasp of modern finance than many of his peers. Though he does not present it as a major thesis of his book, he explains in more understandable terms than many who have written about the financial crisis the difference between a crisis of liquidity and a crisis of solvency. Readers of the book will understand why capital is king in a deleveraging cycle, and how so many actors in this mess (Wall Street executives, central bankers, and government policymakers) confused the two. Perhaps one of the biggest compliments I could pay the book is his even-handedness: He does not let Morgan Stanley off the hook for its excessive leverage, but he does not dismiss the undeniable fact that short-sellers broke the law to try and bring it down. He does not become a Goldman apologist, but he is not afraid to explain why Goldman did not need AIG to pay it in full for Goldman to be just fine (a fact conveniently ignored or distorted by too many people who do know better). A certain aura of fairness and clarity permeates the book.
It is refreshing to read a book on the crisis that is so dramatic, so thorough, and so captivating, yet does it all without a screaming agenda. Lowenstein does not seek to solve all the problems the crisis created, but he does a fine job reviewing the problems that caused the crisis, and setting the stage for a discussion on where we must go from here. Lowenstein’s title, The End of Wall Street, is wishful thinking for some, and historical description for others. For all of our sake’s, let’s pray that this crisis will prove to be the beginning of the end of a lot of things.