I recently finished reading Roger Lowenstein’s When Genius Failed. It makes a wonderful companion piece to Liar’s Poker, by Michael Lewis, a classic of modern finance lit.
When Genius Failed documents the implosion of the hedge fund known as Long Term Capital in 1997. Their demise, as it has turns out, is a sort of harbinger of what we face today. Defaults and deriviatives are mixing it up like Ali and Frazier- with the crowd is busily placing lots of side bets with under-funded bookies (I’m looking in your direction Ambac and MGIC). Many of the same players involved in that debacle are still around (it’s only been ten years). Still fictionalizing numbers, still making bonus, still shuffling paper to make it look like work, still believing they have the swingingest dicks.
Liar’s Poker takes us back to those ancient days, way, way back in the 80’s (that makes me feel so old), indeed to the very creation of, the very first mortgage backed secutities at Salomon Brothers. At it’s best it humorously describes the wanton destruction of customers capital by Quotron cowboys and might manage to leave you numb when you realize you, I and practically everyone we know may have entrusted our pensions and 401(k)’s to the Wall Street equivalent of chicken processors at a Tyson plant in Arkanasas.
In addition, Mr. Lowenstein has a very good article in last weekend’s NYT where he is allowed into the abbatoir to witness Moody’s make sausage, i.e. see first hand how mortgage backed paper gets rated before it is sold on from a bank or lender to us suckers investors.
So if you want to learn about the magic that happens everyday which converts a subrpime loan into a high grade investment vehicle (and I don’t mean SUV), you can’t do better.
If like me you can’t get your hands on enough material taking account of our current, seemingly overwhelming, economic predicament (in order to better understand what a mess this country is trying to ignore confronting), stay tuned. I am anxiously anticipating, and indeed have pre-ordered, Mr. Lowenstein’s (he’s one busy boy) new book, While America Aged, which is subtitled How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis and visits San Diego County, Californiato witness the unfolding of a sordid (but true!) tale of shady backroom dealing involving employee pensions and city budgets and might not be so unique. It comes out May 1.
Which gives me just enough time to finish Connie Bruck’s Predator’s Ball, the final volume in this bond(age) troika.