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Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy
An engaging look at what led to the financial turmoil we now find ourselves in Bailout Nation offers one of the clearest looks at the financial lenders, regulators, and politicians responsible for the financial crisis of 2008. Written by Barry Ritholtz, one of today's most popular economic bloggers and a well-established industry pundit, this book skillfully explores how the United States evolved from a rugged independent nation to a soft Bailout Nation -where financial firms are allowed to self-regulate in good times, but are bailed out by taxpayers in bad times. Entertaining and informative, this book clearly shows you how years of trying to control the economy with easy money has finally caught up with the federal government and how its practice of repeatedly rescuing Wall Street has come back to bite them. Scathing, but fair, Bailout Nation is a voice of reason in these uncertain economic times.
352 pages, Hardcover
First published November 21, 2008
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Displaying 1 - 30 of 46 reviews
June 6, 2010
This book really helped me synthesize my thoughts about current econ issues. Three factors mainly to blame: easy money (Greenspan), deregulation (phil Gramm, greenspan, actually everyone incl Clinton & Rubin), and moral hazard created by a history of bailouts (Lockheed, Chrysler, Continental IL, Long-Term Capital). And both political parties, of course enabled all this. Really worth reading to help you put it all together.
June 11, 2009
Barry Ritholtz deserves five stars for being right about the root causes of the current "financial crisis," and delivering his wisdom in such a direct and entertaining style. As far back as 2006, you could go to his blog "The Big Picture" to understand that finance was going critical already, and it was only a matter of time before the shit hit the fan. At this point, there have been a lot of words written explaining in depth how the complex jigsaw puzzle of CDS, RMBS, CDO, and just plain greed have caused the near-collapse of the American economy, but Ritholtz is great at pinpointing the why -- what political rules were rewritten and what attitudes prevailed, without delving too far into the technical details. Part of "Bailout Nation" is a delightful tour of collapses and near-misses in late twentieth century America, detailing the cancerous growth of moral hazard and making a fool of anyone who claims "nobody could see it coming." The author could not have made it more clear how every egregiously anti-democratic bailout and unpunished gamble of the past twenty years led to the kind of precedents that would make it all easier and bigger the next time.
So why only four stars? In part, it's because Ritholtz suffers from a common affliction of bloggers turned full-scale authors; "Bailout Nation" offers little added value, and the flow and depth of his arguments have come across much better in blog form. The major flaw is poor organization, with certain points repeated nearly verbatim, and a general sense that the author failed to put certain points in their proper place in the narrative. For example, the section on "Blame" consists of plenty of bullet points about institutions that might well have found their way into more cohesive sections about Bush or Clinton-era ideologies; short anecdotes on the subject of the Office of Thrift Supervision or the dumb anti-CRA arguments might have better served as supporting evidence in a more essay-driven format.
A more minor flaw (so three and a half stars, perhaps) is obvious: there is little prescription on offer in "Bailout Nation," but it's difficult to blame the author because nobody has a good answer on what to do from here on out.
So why only four stars? In part, it's because Ritholtz suffers from a common affliction of bloggers turned full-scale authors; "Bailout Nation" offers little added value, and the flow and depth of his arguments have come across much better in blog form. The major flaw is poor organization, with certain points repeated nearly verbatim, and a general sense that the author failed to put certain points in their proper place in the narrative. For example, the section on "Blame" consists of plenty of bullet points about institutions that might well have found their way into more cohesive sections about Bush or Clinton-era ideologies; short anecdotes on the subject of the Office of Thrift Supervision or the dumb anti-CRA arguments might have better served as supporting evidence in a more essay-driven format.
A more minor flaw (so three and a half stars, perhaps) is obvious: there is little prescription on offer in "Bailout Nation," but it's difficult to blame the author because nobody has a good answer on what to do from here on out.
June 3, 2020
“Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy” by Barry Ritholtz, Aaron Task, and Bill Fleckenstein is an analysis of the credit and housing bubble that burst in 2008, throwing the US economy and much of the world’s economies into a dep mess. The book traces the history of government intervention into businesses during times of crises in the first part of the book and subsequently analyses the causes, effects and possible cures for the foolhardy risky behaviour of the custodians of the peoples savings and pension funds – the likes of Citibank, Bank of America, Goldman Sachs, AIG and such others.
The economic policy followed by USA has been a big joke – but unfortunately many nations including India blindly ape that model. A perusal of US economic history reveals that the economy was regularly subject to business cycles of boom, recession, depression, recovery and once again a boom. My review is only for the twentieth century and the current century.
Surprisingly, all the major defaults , recession, the Great Depression, Insider Trading Scandal, the Housing and Credit Bubble, Dot.com bubble, etc. all occurred under the Presidency of Republican Presidents. This is not an attempt to gloss over the lacuna of the Democratic Presidents, who made no real effort to sort the problem and restore the US economy back to health. And there were quite few who contributed to the aggravation of the problem.
The New Deal of FDR cannot be considered a bailout. It was to revive an economy battered by the Great Depression, and though the benefit flowed to only certain sectors of the industry, it was not company specific.
The first major jolt the economy suffered was in 1907 - referred to as Panic of 1907 – as brokerages, savings trust and small banks failed. Under the leadership of J.P.Morgan, with the blessings of the Republican President Theodore Roosevelt the clearing houses chipped in and prevented a colossal depression. This was the era of gold standard, the world over, and there was no Federal Reserve in the US. The Federal Reserve was established only in 1913.
There were minor hiccups, but the next major jolt was the Great Depression in the late twenties – which effected all the major economies of the world. The Great Depression was building up right after the First World War, but came to fruit during the Republican Presidency of Herbert Hoover. The makings of the Great Depression was in the Republican Era, since from 1921 (Presidential election 1920) till 1933 (election 1932) Warren Harding, Calvin Coolidge and Herbert Hoover were in the White House.
It was in 1971, once again in the Republican presidency of Richard Nixon, that government largesse turned out be bailout of individual entities. In that year the US government utilized $250 million of taxpayer’s money to bailout an individual private entity, not an industry sector as had been done earlier – be it steel, railroad or manufacturers of armaments – a defense equipment producer, from becoming bankrupt due to their miscalculation of the cost of production. Yes, it was the aircraft manufacturer Lockheed Corporation
And this opened the floodgates of individual entity bailouts. The United States abandoned its capitalist roots, and the country has morphed into a Bailout Nation; today almost any large entity that finds itself in trouble feels the government (taxpayers really) should provide financial support. Similarly, homeowners who overextended themselves also feel that they too should be rescued from their mistakes.
Even as the Congress was debating the Lockheed’s bailout, a group of congressmen were working on a rescue package for Penn Central Railroad – the largest railroad company in the country. In the end, Congress provided $125 million in loan guarantees to Penn Central’s creditors and spent $7 billion in direct federal operating subsidies for Conrail, which Congress created in 1976 from the carcass of Penn Central and five other struggling East Coast rail lines.
The next big bailout was Chrysler Corporation of Detroit in 1980. This bailout was, however, under the stewardship of Democrat President Jimmy Carter. The terms of the Chrysler loan guarantees required an additional $2 billion in commitments or concessions from “its own owners, stock-holders, administrators, employees, dealers, suppliers, foreign and domestic financial institutions, and by State and local governments.” It left the company with the same management team, the same union contracts, the same pension obligations, and the same health care coverage; all the bailout did was buy the company a few more years. Indeed, the pre-bailout industry looked almost identical to the post-bailout industry. None of the Detroit automakers, Chrysler included, received any long-term benefits from the bailout.
In the 1980 Presidential Election Ronald Regan won and then began the new Laissez Faire mantra – no regulations on any business. In 1987 Fed had a new Chairman Alan Greenspan. In his nearly twenty-year tenure Greenspan contributed to the weakening of US Capitalism, ruin of the dollar and an universal economic mess. He reduced the interest rates to almost zero and held it there, advised and presided over the repeal of the 1933 Glass-Stegall Act that restricted depository banks from participating in brokerage securities trading, and acting as investment banks. Depository banks are supposed to be managed in ways that limit risk. In contrast, investment banks by definition embrace risk. The repeal was signed into law in 1999 during the Democratic presidency of Bill Clinton (probably a closet Republican). It’s worth recalling that the 1987 crash came mere months into Greenspan’s tenure. The rookie Fed chairman earned high praise for his handling of the situation. There were reports of a mysterious trader entering the S&P futures pits in Chicago to make a large buy order, which helped finally stem the decline; whether that person was an agent of the federal government or just part of Wall Street mythology remains a mystery. But the truth is enough people believed Greenspan’s Fed would approve such an intervention that it helped restore confidence in the markets.
Indeed, one can make a case that Greenspan learned early on that the solution to every problem was to throw money at it — liquidity in the parlance of central bankers — even though doing so ultimately leads to bigger problems down the road.
Philosophically, the politics, economics, and financial analysis of bailouts have shifted dramatically since the 1970s. What makes this so ironic is the rightward political shift of the same era. Since Ronald Reagan was elected president in 1980, Republicans have ascended to power at the federal and state levels. The GOP won the White House in five of the seven elections from 1980 to 2008. The Republicans controlled Congress from 1994 to 2006. One might imagine that a conservative president and a rightward- leaning Congress would boldly object to bailout after bailout.
One would be disappointed: The TARP plan, the various 2008 bailouts of Bear Stearns, Fannie Mae/Freddie Mac, Citibank, Merrill Lynch, Bank of America, American International Group (AIG), and others all took place during a purportedly conservative Republican administration.
The only event in American history that even comes close to matching the cost of the credit crisis is World War II: In 1940 dollars, it cost the Treasury $288 billion. Adjust that for inflation, and it is $3.6 trillion.
The mindset of deregulation that was championed by Federal Reserve Chairman Alan Greenspan in the wake of the Long-Term Capital Management (LTCM) bailout in 1998 is partially responsible for the massive overleveraging of nearly the entire financial system in the United States.
The thought process behind the CFMA — really more of a religious belief — was that self-interested, rational market participants would not endanger themselves or their firms. No one, went the thinking, would knowingly engage in self-destructive, reckless behaviour. Markets are perfectly efficient, humans are rational (not emotional), and financial firms and markets can self-regulate. In theory, Adam Smith’s invisible hand keeps the worst impulses of bad players in check. In the real world, however, things operated quite differently. Perfectly rational humans and perfectly efficient markets exist only in economics textbooks. In reality, this belief system is sheer, unadulterated nonsense. Compensation systems can get out of alignment with shareholder interests. Short-term profits often trump longer-term sustainability. Complexity is often ignored; risk is poorly understood.
In 2004, the five biggest investment banks — Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley — got their wish. Led by Goldman Sachs CEO Hank Paulson — the future Treasury Secretary/bailout king — the SEC acquiesced to grant them (and only them) a special exemption. At the time, it was (ironically) called “the Bear Stearns rule.” The firms with a market capitalization over $5 billion would no longer be governed by 12-to-1 net cap rules.
As soon as this exemption was passed, the collection of brainiacs that ran the five big firms promptly levered up 30, 35, even 40 to 1. You read that right — after 30 years of effective risk management, at the first opportunity they whacked up the leverage as far as they could.
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers’ debt-to-net-capital ratio to 12-to-1. You couldn’t make this stuff up if you tried.
Complaints about regulating markets are actually objections to proscribing the worst behaviours of the people who operate in those markets. We want markets to operate intelligently, but not run roughshod over us. Blame the radical free-market extremists who insist on replacing representative government with the so-called wisdom of markets. This has proven to be misguided.
What the actual result of market-based decision making does is to eliminate those pesky human voters from exercising their will through a representative government. Ultimately, the free-market zealots are not only antiregulation, they are antidemocracy and anti-representative government. Taken to illogical extremes, they would create a market-based dictatorship.
In the concluding chapter the author states: “These past 300 or so pages have criticized, castigated, and even castrated many of the worst citizens of Bailout Nation…….” And then proceeds to evaluate the advise of bankers, economists and others to the new President Barack Obama on how to prevent a recurrence of such messes and steps to restore confidence in the banks, government regulations and the Fed.
Very well written, with excellent commentary on the pitfalls of Laissez Faire without any regulation and the hash of the ideas of Adam Smith. A recommended reading for people interested in the workings of national economy and in securities markets.
The economic policy followed by USA has been a big joke – but unfortunately many nations including India blindly ape that model. A perusal of US economic history reveals that the economy was regularly subject to business cycles of boom, recession, depression, recovery and once again a boom. My review is only for the twentieth century and the current century.
Surprisingly, all the major defaults , recession, the Great Depression, Insider Trading Scandal, the Housing and Credit Bubble, Dot.com bubble, etc. all occurred under the Presidency of Republican Presidents. This is not an attempt to gloss over the lacuna of the Democratic Presidents, who made no real effort to sort the problem and restore the US economy back to health. And there were quite few who contributed to the aggravation of the problem.
The New Deal of FDR cannot be considered a bailout. It was to revive an economy battered by the Great Depression, and though the benefit flowed to only certain sectors of the industry, it was not company specific.
The first major jolt the economy suffered was in 1907 - referred to as Panic of 1907 – as brokerages, savings trust and small banks failed. Under the leadership of J.P.Morgan, with the blessings of the Republican President Theodore Roosevelt the clearing houses chipped in and prevented a colossal depression. This was the era of gold standard, the world over, and there was no Federal Reserve in the US. The Federal Reserve was established only in 1913.
There were minor hiccups, but the next major jolt was the Great Depression in the late twenties – which effected all the major economies of the world. The Great Depression was building up right after the First World War, but came to fruit during the Republican Presidency of Herbert Hoover. The makings of the Great Depression was in the Republican Era, since from 1921 (Presidential election 1920) till 1933 (election 1932) Warren Harding, Calvin Coolidge and Herbert Hoover were in the White House.
It was in 1971, once again in the Republican presidency of Richard Nixon, that government largesse turned out be bailout of individual entities. In that year the US government utilized $250 million of taxpayer’s money to bailout an individual private entity, not an industry sector as had been done earlier – be it steel, railroad or manufacturers of armaments – a defense equipment producer, from becoming bankrupt due to their miscalculation of the cost of production. Yes, it was the aircraft manufacturer Lockheed Corporation
And this opened the floodgates of individual entity bailouts. The United States abandoned its capitalist roots, and the country has morphed into a Bailout Nation; today almost any large entity that finds itself in trouble feels the government (taxpayers really) should provide financial support. Similarly, homeowners who overextended themselves also feel that they too should be rescued from their mistakes.
Even as the Congress was debating the Lockheed’s bailout, a group of congressmen were working on a rescue package for Penn Central Railroad – the largest railroad company in the country. In the end, Congress provided $125 million in loan guarantees to Penn Central’s creditors and spent $7 billion in direct federal operating subsidies for Conrail, which Congress created in 1976 from the carcass of Penn Central and five other struggling East Coast rail lines.
The next big bailout was Chrysler Corporation of Detroit in 1980. This bailout was, however, under the stewardship of Democrat President Jimmy Carter. The terms of the Chrysler loan guarantees required an additional $2 billion in commitments or concessions from “its own owners, stock-holders, administrators, employees, dealers, suppliers, foreign and domestic financial institutions, and by State and local governments.” It left the company with the same management team, the same union contracts, the same pension obligations, and the same health care coverage; all the bailout did was buy the company a few more years. Indeed, the pre-bailout industry looked almost identical to the post-bailout industry. None of the Detroit automakers, Chrysler included, received any long-term benefits from the bailout.
In the 1980 Presidential Election Ronald Regan won and then began the new Laissez Faire mantra – no regulations on any business. In 1987 Fed had a new Chairman Alan Greenspan. In his nearly twenty-year tenure Greenspan contributed to the weakening of US Capitalism, ruin of the dollar and an universal economic mess. He reduced the interest rates to almost zero and held it there, advised and presided over the repeal of the 1933 Glass-Stegall Act that restricted depository banks from participating in brokerage securities trading, and acting as investment banks. Depository banks are supposed to be managed in ways that limit risk. In contrast, investment banks by definition embrace risk. The repeal was signed into law in 1999 during the Democratic presidency of Bill Clinton (probably a closet Republican). It’s worth recalling that the 1987 crash came mere months into Greenspan’s tenure. The rookie Fed chairman earned high praise for his handling of the situation. There were reports of a mysterious trader entering the S&P futures pits in Chicago to make a large buy order, which helped finally stem the decline; whether that person was an agent of the federal government or just part of Wall Street mythology remains a mystery. But the truth is enough people believed Greenspan’s Fed would approve such an intervention that it helped restore confidence in the markets.
Indeed, one can make a case that Greenspan learned early on that the solution to every problem was to throw money at it — liquidity in the parlance of central bankers — even though doing so ultimately leads to bigger problems down the road.
Philosophically, the politics, economics, and financial analysis of bailouts have shifted dramatically since the 1970s. What makes this so ironic is the rightward political shift of the same era. Since Ronald Reagan was elected president in 1980, Republicans have ascended to power at the federal and state levels. The GOP won the White House in five of the seven elections from 1980 to 2008. The Republicans controlled Congress from 1994 to 2006. One might imagine that a conservative president and a rightward- leaning Congress would boldly object to bailout after bailout.
One would be disappointed: The TARP plan, the various 2008 bailouts of Bear Stearns, Fannie Mae/Freddie Mac, Citibank, Merrill Lynch, Bank of America, American International Group (AIG), and others all took place during a purportedly conservative Republican administration.
The only event in American history that even comes close to matching the cost of the credit crisis is World War II: In 1940 dollars, it cost the Treasury $288 billion. Adjust that for inflation, and it is $3.6 trillion.
The mindset of deregulation that was championed by Federal Reserve Chairman Alan Greenspan in the wake of the Long-Term Capital Management (LTCM) bailout in 1998 is partially responsible for the massive overleveraging of nearly the entire financial system in the United States.
The thought process behind the CFMA — really more of a religious belief — was that self-interested, rational market participants would not endanger themselves or their firms. No one, went the thinking, would knowingly engage in self-destructive, reckless behaviour. Markets are perfectly efficient, humans are rational (not emotional), and financial firms and markets can self-regulate. In theory, Adam Smith’s invisible hand keeps the worst impulses of bad players in check. In the real world, however, things operated quite differently. Perfectly rational humans and perfectly efficient markets exist only in economics textbooks. In reality, this belief system is sheer, unadulterated nonsense. Compensation systems can get out of alignment with shareholder interests. Short-term profits often trump longer-term sustainability. Complexity is often ignored; risk is poorly understood.
In 2004, the five biggest investment banks — Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley — got their wish. Led by Goldman Sachs CEO Hank Paulson — the future Treasury Secretary/bailout king — the SEC acquiesced to grant them (and only them) a special exemption. At the time, it was (ironically) called “the Bear Stearns rule.” The firms with a market capitalization over $5 billion would no longer be governed by 12-to-1 net cap rules.
As soon as this exemption was passed, the collection of brainiacs that ran the five big firms promptly levered up 30, 35, even 40 to 1. You read that right — after 30 years of effective risk management, at the first opportunity they whacked up the leverage as far as they could.
Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules that had existed for decades, limiting broker-dealers’ debt-to-net-capital ratio to 12-to-1. You couldn’t make this stuff up if you tried.
Complaints about regulating markets are actually objections to proscribing the worst behaviours of the people who operate in those markets. We want markets to operate intelligently, but not run roughshod over us. Blame the radical free-market extremists who insist on replacing representative government with the so-called wisdom of markets. This has proven to be misguided.
What the actual result of market-based decision making does is to eliminate those pesky human voters from exercising their will through a representative government. Ultimately, the free-market zealots are not only antiregulation, they are antidemocracy and anti-representative government. Taken to illogical extremes, they would create a market-based dictatorship.
In the concluding chapter the author states: “These past 300 or so pages have criticized, castigated, and even castrated many of the worst citizens of Bailout Nation…….” And then proceeds to evaluate the advise of bankers, economists and others to the new President Barack Obama on how to prevent a recurrence of such messes and steps to restore confidence in the banks, government regulations and the Fed.
Very well written, with excellent commentary on the pitfalls of Laissez Faire without any regulation and the hash of the ideas of Adam Smith. A recommended reading for people interested in the workings of national economy and in securities markets.
March 24, 2010
You can learn something from this book if you know when the author is being deceptive and when he is being informative. I found he was deceptive about the net capital rule. I also know he exaggerated the effects of repealing Glass-Steagall. The few other regulations he cites are probably exaggerated at best. His primary point is that lack of government regulation caused the financial crisis. The only lack of regulation he mentioned that didn't contribute was that of Fannie and Feddie, and that should tell you a lot about the author.
Read the last chapter. If it makes sense, you'll probably like the book. If you laugh at it, you shouldn't read the book. The last chapter is not a summary of the book, it's a description of the solutions he considers workable. You can save a couple hours by reading the last chapter first.
The book wasn't a total waste of my time. I've always wanted the pro regulation crowd to be specific. Ritholtz was, and I learned how disingenuous these arguments can be.
Read the last chapter. If it makes sense, you'll probably like the book. If you laugh at it, you shouldn't read the book. The last chapter is not a summary of the book, it's a description of the solutions he considers workable. You can save a couple hours by reading the last chapter first.
The book wasn't a total waste of my time. I've always wanted the pro regulation crowd to be specific. Ritholtz was, and I learned how disingenuous these arguments can be.
January 5, 2010
I bought this book because I really enjoy reading the author's blog, and although I have read many of his thoughts about the ultimate causes of the financial crisis I wanted to see all of it laid out in a coherent form because his blog, while informative and entertaining, is a bit disorganized.
I got most of my wish, but unfortunately the book is itself a little bit haphazard. Ritholtz repeats himself frequently (it feels almost like several chapters are almost standalone articles because they overlap a lot). But the writing is quite entertaining and in the end you do end up with a good feel for his arguments, which to me seem to be the most logical ones that I have read on the subject.
I got most of my wish, but unfortunately the book is itself a little bit haphazard. Ritholtz repeats himself frequently (it feels almost like several chapters are almost standalone articles because they overlap a lot). But the writing is quite entertaining and in the end you do end up with a good feel for his arguments, which to me seem to be the most logical ones that I have read on the subject.
June 19, 2011
An account that is both excellent and infuriating (so much so, I was provoked to start an "infuriating" shelf on goodreads) about how greed and deregulation joined together to produce a monster child--the recent financial crisis. I swear, every time I read one of these books (see also, The Big Short), the line of people I want to slap silly just gets longer and longer.
July 31, 2024
A STRONG CRITIQUE OF WALL STREET GREED
Barry Ritholtz is a blogger and director of an online "quantitative research firm."
He suggested that in 1998, "Long-Term Capital Management was the dress rehearsal for the great credit crisis of 2008---and a missed opportunity to prevent the ongoing tragedy." (Pg. 74) Later, he adds, "Had Long-Term Capital Management been allowed to fail, it's quite possible the worst of the current credit crisis, regulatory fecklessness, and speculatory recklessness could have been avoided. Instead, there was a massive, cascading systemwide failure. At every point along the way, from home purchases in Stockton, California, to Iceland's fiscal demise, things went awry. So much for the lessons learned." (Pg. 164)
He observes, "With so much cheap money liquefying the system, the new mantra seemed to be to borrow freely. There was no need to worry about the debt or leverage---the day of reckoning was far, far off in the future. Or so it seemed." (Pg. 99) He notes that in 2004 "The SEC waived its leverage rules. Previously, broker-dealer net capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. This 2004 exemption allowed them to exceed this leverage rule. Only five firms---Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley---were granted this exemption; they promptly leveraged up 20, 30, or even 40 to 1." (Pg. 132)
He states, "Following the Bear (Stearns) bailout in March 2008, Lehman (Brothers) management may have assumed that the Fed and Treasury would come to its rescue if it ran into real trouble... One cannot help but imagine: But for the Bear Stearns bailout, would Lehman CEO Dick Fuld have been as arrogant? One has to think he expected policy makers would give Lehman the same treatment as his smaller rival." (Pg. 154-155)
He wryly comments, "Bear wasn't allowed to fail for fear of damaging [JPMorgan Chase]; Lehman was allowed to fail, but no one considered letting AIG fend for itself. Rather than wait for Citigroup to fail, Treasury acted preemptively, rescuing the giant money center bank before it was on the verge of collapse. Discern any pattern here? Me neither." (Pg. 178)
Highly critical, this is also a very fact-filled and perceptive perspective on the financial crisis
Barry Ritholtz is a blogger and director of an online "quantitative research firm."
He suggested that in 1998, "Long-Term Capital Management was the dress rehearsal for the great credit crisis of 2008---and a missed opportunity to prevent the ongoing tragedy." (Pg. 74) Later, he adds, "Had Long-Term Capital Management been allowed to fail, it's quite possible the worst of the current credit crisis, regulatory fecklessness, and speculatory recklessness could have been avoided. Instead, there was a massive, cascading systemwide failure. At every point along the way, from home purchases in Stockton, California, to Iceland's fiscal demise, things went awry. So much for the lessons learned." (Pg. 164)
He observes, "With so much cheap money liquefying the system, the new mantra seemed to be to borrow freely. There was no need to worry about the debt or leverage---the day of reckoning was far, far off in the future. Or so it seemed." (Pg. 99) He notes that in 2004 "The SEC waived its leverage rules. Previously, broker-dealer net capital rules limited firms to a maximum debt-to-net-capital ratio of 12 to 1. This 2004 exemption allowed them to exceed this leverage rule. Only five firms---Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley---were granted this exemption; they promptly leveraged up 20, 30, or even 40 to 1." (Pg. 132)
He states, "Following the Bear (Stearns) bailout in March 2008, Lehman (Brothers) management may have assumed that the Fed and Treasury would come to its rescue if it ran into real trouble... One cannot help but imagine: But for the Bear Stearns bailout, would Lehman CEO Dick Fuld have been as arrogant? One has to think he expected policy makers would give Lehman the same treatment as his smaller rival." (Pg. 154-155)
He wryly comments, "Bear wasn't allowed to fail for fear of damaging [JPMorgan Chase]; Lehman was allowed to fail, but no one considered letting AIG fend for itself. Rather than wait for Citigroup to fail, Treasury acted preemptively, rescuing the giant money center bank before it was on the verge of collapse. Discern any pattern here? Me neither." (Pg. 178)
Highly critical, this is also a very fact-filled and perceptive perspective on the financial crisis
March 22, 2025
Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy by Barry Ritholtz provides a critical analysis of the 2008 financial crisis, examining the systemic issues that led to it. The traditional Chinese version of the book is named as “The Downpour of Money” which reminds me of throwing money from helicopter.
The book explores how decades of deregulation, easy monetary policies, and repeated government bailouts created a culture of moral hazard, when check-and-balance did not get implemented strongly, financial institutions tend to took reckless risks knowing they would be rescued by taxpayers during crises.
History has told us that greed will not change, and the tendency for a sovereign to issue more money than products and services they could really produce has caused more harms than good.
Ritholtz traces the history of corporate bailouts in the U.S., from Lockheed in the 1970s to the 2008 crisis, showing how these interventions set dangerous precedents.
The book names key figures like Alan Greenspan and Phil Gramm, holding them accountable for policies that fueled economic instability.
Despite its complex subject, Ritholtz delivers his insights in an engaging and often irreverent tone, making it suitable for both finance professionals and general readers.
While scathing in its critique, the book offers solutions to prevent future crises, emphasizing accountability and regulatory reform.
The book explores how decades of deregulation, easy monetary policies, and repeated government bailouts created a culture of moral hazard, when check-and-balance did not get implemented strongly, financial institutions tend to took reckless risks knowing they would be rescued by taxpayers during crises.
History has told us that greed will not change, and the tendency for a sovereign to issue more money than products and services they could really produce has caused more harms than good.
Ritholtz traces the history of corporate bailouts in the U.S., from Lockheed in the 1970s to the 2008 crisis, showing how these interventions set dangerous precedents.
The book names key figures like Alan Greenspan and Phil Gramm, holding them accountable for policies that fueled economic instability.
Despite its complex subject, Ritholtz delivers his insights in an engaging and often irreverent tone, making it suitable for both finance professionals and general readers.
While scathing in its critique, the book offers solutions to prevent future crises, emphasizing accountability and regulatory reform.
August 9, 2019
Barry Ritholtz is disgusted with the leaders at the pinnacle of American finance, in this book published at the bottom of the market in 2009. Ritholz convincingly makes the case that we can have a free market, but the people inside it need to be regulated. The book chronicles the scope creep of the Federal Reserve and how Alan Greenspan made Fed policy about asset prices, which redounded against the US market in 2001 and again in 2008. Ritholz's worst fears about the bailouts of 2008 bankrupting America have not come true--with the benefit of 10 years of hindsight we know the taxpayer made some profit off all that preferred stock in the banks. But yes, we have a system where capitalists gain the upside and get bailed out on the downside if their businesses are big enough. That's a problem that populists have latched onto since, often with far less economic acumen than Ritholz.
November 30, 2019
This book didn't age well. I give Ritholtz credit for clear foresight of the 2008 crisis and criticism of the bailouts. However, the financial implications of the bailouts turned out to not only be far, far less costly than he claims/predicts in this book, they were largely profitable to the taxpayer. Perhaps he wouldn't be as critical of the Federal Reserve, Treasury Department, etc in 2019 given the benefit of hindsight.
September 30, 2020
A wonderful account of the misadventures of the financial institutions in the world's great economy. We now understand that the greed and folly of few can drain the sap of the economy to the detriment of the poor taxpayer and the shareholders.
January 1, 2024
Good book from 2009 about the Great Financial crisis, written by a Wall Street wealth manager. Great perspective, and very critical and factual about Wall Street's negligent behavior and causes. Also criticizes government.
February 17, 2012
There are some other books that cover the GFC better,
but this is an OK effort.
He mentions how the SEC in 2005 let investment banks increase leverage from 12 to 1 to 40 to 1!!!
And how the Boskin commission in 1995 gutted how the CPI was calculated,
letting the FED think there isn't much inflation,
when there really is.
In the middle of a book full of snarky writing, he even had a joke:
"This has been even worse than my first divorce,
I've lost half my net worth but I still have my wife."
He shows how stock options corrupt management.
And he gives a list of who is most responsible for the GFC,
starting with idiot savant Greenspan,
Senator Phil Gramm
and the 3 rating agencies.
Some of his ideas are half baked,
he doesn't appreciate how replacement cost and rental income are more important
in determining whether housing is over or under priced,
than young people's income.
I think all of the reading I've done the last few years about the GFC
has paid off, the stock market is paying better than ever.
At an intellectual level, I'm outraged at how rotten this country is,
but emotionally, I feel warm and happy.
but this is an OK effort.
He mentions how the SEC in 2005 let investment banks increase leverage from 12 to 1 to 40 to 1!!!
And how the Boskin commission in 1995 gutted how the CPI was calculated,
letting the FED think there isn't much inflation,
when there really is.
In the middle of a book full of snarky writing, he even had a joke:
"This has been even worse than my first divorce,
I've lost half my net worth but I still have my wife."
He shows how stock options corrupt management.
And he gives a list of who is most responsible for the GFC,
starting with idiot savant Greenspan,
Senator Phil Gramm
and the 3 rating agencies.
Some of his ideas are half baked,
he doesn't appreciate how replacement cost and rental income are more important
in determining whether housing is over or under priced,
than young people's income.
I think all of the reading I've done the last few years about the GFC
has paid off, the stock market is paying better than ever.
At an intellectual level, I'm outraged at how rotten this country is,
but emotionally, I feel warm and happy.
July 10, 2009
Barry Ritholtz is best known for writing "The Big Picture," a candid and frequently snarky blog about economics and finance. His style translates well to this book-length treatment of the current financial crisis.
Never once to mince words, Ritholtz names names and passes harsh judgment while clearly explaining the various contributors to the recent financial meltdown. Without getting too technical, Ritholtz offers a good summary of both the products and practices that, while appealing in the short term, led to the most severe economic decline in the past fifty years. He also uses historical examples to explaining the inherent problems with government-sponsored bailouts of private industry and somewhat changed my view of the current debacle in the process.
The know-it-all tone and constant derision of certain public figures can get a cloying, well-founded as it might be. Still, it seems unlikely that there will be a better or more accessible discussion of the meltdown of 2008 than Bailout Nation.
January 29, 2011
Pretty heavy on financial jargon which I am personally not accustomed to. Repeats some key points over and over again. The book did give me a bit more insight in what is happening today in the US and world economy. This is a good book if you know what he is talking about, or take the time to find more information about the jargon and what it means. A few mentions of non US countries where made (including my home country's rabobank) which economies where impacted by the US housing bubble and bust. No information about how they handled themselves though, so I'll need another book telling me about the impact on Europe and what the European nations and union did about it. It would be an interesting read to read about bailing out entire countries instead of just financial corporations like is happening in Europe with Greece and Ireland right now.
December 13, 2011
At this stage so much has been written about the financial crisis that the next book you read about it is likely to be redundant. I thought this was strongest in describing the pattern and history of corporate bailouts. I agreed with most of the discussion of factors contributing to the crisis. There was, in my view, a silly attack on the Boskin commission that advanced the use of hedonic or quality adjustments in the US Consumer Price Index. That was a bit of a clue that the economic analysis underpinning this aren't the strong point.
On the whole I thought it was shrill. Ritholtz maintains a sneer, much of the time justified, about those who made policy choices; and conveys that someone with his smarts and without the delusion brought on by self-interest, would have made all the differencee.
On the whole I thought it was shrill. Ritholtz maintains a sneer, much of the time justified, about those who made policy choices; and conveys that someone with his smarts and without the delusion brought on by self-interest, would have made all the differencee.
November 12, 2010
Written engagingly, though with a rushed style (frequently repeating himself and writing as if from an outline), Ritholtz tells the amazing story of America's capitalist transformation into a failing statist-financial wealth transfer organization. Many bad actors get insightful treatment. What I missed here were any clear explanation of the effects of trillions of dollars new debt, rampant quantitative easing, etc. What, in economic terms, does this mean for individuals, small businesses, established corporations, the state and its services? Just a vague evocation of Japan's predicament doesn't help much: I've been watching that unfold now for 20 years. I look to Ritholtz and other bloggers for practical interpretation and insight yet they mostly only point out how messed up things are.
January 7, 2015
Superb book. One of the best there is about the financial crisis, it can be a little "wonky" but ironically uses lots of blunt wording, humor (sometimes mildly profane and blue but hey, Ritholtz IS a Wall Street guy). It should be understandable to most people, albeit perhaps boring, but I found his writing style engaging, funny, well informed but easy to relate to.
This book does an amazing job setting up the premise: That "bailouts" cause more bailouts, each larger and costing more money. Starting from the 70s to now. He also talks greatly about the Greenspan Era and his role in the crisis, deregulation, really a TON of topics. It's never overwhelming though.
Fascinating book for anyone who wants a well informed, nuanced, and very non ideological look into all our mess.
This book does an amazing job setting up the premise: That "bailouts" cause more bailouts, each larger and costing more money. Starting from the 70s to now. He also talks greatly about the Greenspan Era and his role in the crisis, deregulation, really a TON of topics. It's never overwhelming though.
Fascinating book for anyone who wants a well informed, nuanced, and very non ideological look into all our mess.
October 6, 2009
I'm not a financial wizard and it was a good introduction to wall street. The book was a little dry at parts but bearable. The author was a little over the top when it came to criticizing those he felt were at fault for the current economical down turn. So I'm taking his criticism with a grain of salt because I feel that he is probably exaggerating and not telling the complete picture in some cases to prove his point. He does tend to repeat himself but that was only a minor annoyance. I found his solutions very refreshing at the end of the book and definitely wish we would have taken that path instead of the bailout solution we chose.
September 30, 2009
Blame Greenspan!
This book makes the case for more regulation and does a good job of explaining why the banks and wall street suck (repackaging and securitizing risky mortgages and then having them rated AAA is a bad idea).
BUT- the book is filled with a lot of economic jargon, which lost me since I haven't read economics for dummies yet. Still, even without having a strong background in economics and banking, I could still pick up enough of what Ritholtz was talking about to feel like I "got it"
This was good to read after Sowell's "The Housing Boom and Bust" because they have very different views on the need for regulation
This book makes the case for more regulation and does a good job of explaining why the banks and wall street suck (repackaging and securitizing risky mortgages and then having them rated AAA is a bad idea).
BUT- the book is filled with a lot of economic jargon, which lost me since I haven't read economics for dummies yet. Still, even without having a strong background in economics and banking, I could still pick up enough of what Ritholtz was talking about to feel like I "got it"
This was good to read after Sowell's "The Housing Boom and Bust" because they have very different views on the need for regulation
January 3, 2014
as a big fan of the big picture blog, this has been sitting on the to-read pile for longer than i care to admit. ritholtz delivers here. a no BS, straightforward explanation of the situations, behaviors and events that brought us the great recession. equally disturbing is a look at how many of the folks responsible for these events are still driving the economy today and/or deeply involved with setting policy.
if you've been looking for a simple overview of how we got to the great recession, this is a highly recommended read. if you're concerned that it will lean one way or another politically, fear not, ritholtz delivers ample skewering on both sides of the aisle.
if you've been looking for a simple overview of how we got to the great recession, this is a highly recommended read. if you're concerned that it will lean one way or another politically, fear not, ritholtz delivers ample skewering on both sides of the aisle.
April 2, 2012
As a follower of Barry Ritholtz blog, I was not surprised to find the book a tad wonkish. Although I feel he did cut to the chase on the causes of the economic collapse, the final nail in the coffin of Glass-Steagall in 1999, Greenspan's laissez-fare attitude at the Fed, there were way too many charts and graphs for my liking. I do agree with his premise and felt vindicated about my thoughts on the collapse. Michael Lewis, however, is a far more entertaining writer and reaches much of the same conclusions. Lewis, however, is a better storyteller.
November 14, 2013
Privatized profits and socialized losses. The basic premise of this book is that the markets are being regulated for the benefit of financial firms and not for the good of the economy or the people.
You don't need to be into finance to get a lot of value out of this book. It's definitely good for laymen (of which I'm one). Similar in content to books by Satyajit Das. It makes you wonder why it was allowed to happen because everyone seemed to know it was going to fall apart.
You don't need to be into finance to get a lot of value out of this book. It's definitely good for laymen (of which I'm one). Similar in content to books by Satyajit Das. It makes you wonder why it was allowed to happen because everyone seemed to know it was going to fall apart.
October 30, 2014
Great history of bailouts showcasing the progression of the growing negligence of the US Treasury Secretaries, Federal Reserve Chairmen, and Presidents. Full view of the depletion of moral hazard for the large US banks, and the issues that will plague the US economy moving forward. Barry Ritholtz is a powerful critic of recent fiscal and monetary policy and he has the data and smarts to back it up. Great book.
April 8, 2015
Overall it was a good read (especially for someone who didn't live through all the events described) up until you get to the point when things are being repeated at the end of the book.
I wasn't sure if this was suppose to be a history of bailouts in US (which was rather weak) or a description of 2008 crises, which wasn't very deep, too.
A lot of repetition in the book, but from what I noticed, this is how Barry's style is, including his blogposts, podcasts, etc.
I wasn't sure if this was suppose to be a history of bailouts in US (which was rather weak) or a description of 2008 crises, which wasn't very deep, too.
A lot of repetition in the book, but from what I noticed, this is how Barry's style is, including his blogposts, podcasts, etc.
March 23, 2011
Another book where I struggle - 3 or 4 stars? It would get 4 stars for the thesis and his point of view (which I thoroughly agree with) but only 3 for quality of writing. He repeats almost full sentences (data and all) in a few places which is distracting. But I really like his point of view on the subject.
May 11, 2011
Ritholtz is a very bright guy, but he's no writer, he's a blogger.
That said, he knows what he's talking about and more than most books on the subject has a very clear grasp of what went wrong during the Financial crisis of 2008.
He needed an editor to get him to focus and not repeat himself, but don't let the messenger deter you from learning what he has to offer. You'll learn a lot.
That said, he knows what he's talking about and more than most books on the subject has a very clear grasp of what went wrong during the Financial crisis of 2008.
He needed an editor to get him to focus and not repeat himself, but don't let the messenger deter you from learning what he has to offer. You'll learn a lot.
Read
March 1, 2010This book has an interesting premise, however, while I do enjoy politics and learning about our financial system it only piques my interest for so long. I only read the first 1/4 of the book, which I enjoyed but not overly so.
April 13, 2010
a must read - for an in depth and understandable explanation of the financial crisis of 2008, etc., the too big to fail banks, etc. by an very knowledgable and angry man... He tears into both Republicans and Democrats, the goverment, the banks, Wall Street, etc.
January 10, 2011
Bailout Nation provides a very entertaining and informative look at the history of bailouts in the US- of both corporations and financial markets- as well as solid analysis of the credit crisis and housing bust. I highly recommend it.
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