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Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down . . . And Why They'll Take Us to the Brink Again
You know what happened during the financial crisis … now it is time to understand why the financial system came so close to falling over the edge of the abyss and why it could happen again. Wall Street has been saved, but it hasn’t been reformed. What is the problem?
Suzanne McGee provides a penetrating look at the forces that transformed Wall Street from its traditional role as a capital-generating and economy-boosting engine into a behemoth operating with only its own short-term interests in mind and with reckless disregard for the broader financial system and those who relied on that system for their well being and prosperity.
Primary among these influences was “Goldman Sachs envy”: the self-delusion on the part of Richard Fuld of Lehman Brothers, Stanley O’Neil of Merrill Lynch, and other power brokers (egged on by their shareholders) that taking more risk would enable their companies to make even more money than Goldman Sachs. That hubris—and that narrow-minded focus on maximizing their short-term profits—led them to take extraordinary risks that they couldn’t manage and that later severely damaged, and in some cases destroyed, their businesses, wreaking havoc on the nation’s economy and millions of 401(k)s in the process.
In a world that boasted more hedge funds than Taco Bell outlets, McGee demonstrates how it became ever harder for Wall Street to fulfill its function as the financial system’s version of a power grid, with capital, rather than electricity, flowing through it. But just as a power grid can be strained beyond its capacity, so too can a “financial grid” collapse if its functions are distorted, as happened with Wall Street as it became increasingly self-serving and motivated solely by short-term profits. Through probing analysis, meticulous research, and dozens of interviews with the bankers, traders, research analysts, and investment managers who have been on the front lines of financial booms and busts, McGee provides a practical understanding of our financial “utility,” and how it touches everyone directly as an investor and indirectly through the power—capital—that makes the economy work.
Wall Street is as important to the economy and the overall functioning of our society as our electric and water utilities. But it doesn’t act that way. The financial system has been saved from destruction but as long as the mind-set of “chasing Goldman Sachs” lingers, it will not have been reformed. As banking undergoes its biggest transformation since the 1929 crash and the Great Depression, McGee shows where it stands today and points to where it needs to go next, examining the future of those financial institutions supposedly “too big to fail.”
Suzanne McGee provides a penetrating look at the forces that transformed Wall Street from its traditional role as a capital-generating and economy-boosting engine into a behemoth operating with only its own short-term interests in mind and with reckless disregard for the broader financial system and those who relied on that system for their well being and prosperity.
Primary among these influences was “Goldman Sachs envy”: the self-delusion on the part of Richard Fuld of Lehman Brothers, Stanley O’Neil of Merrill Lynch, and other power brokers (egged on by their shareholders) that taking more risk would enable their companies to make even more money than Goldman Sachs. That hubris—and that narrow-minded focus on maximizing their short-term profits—led them to take extraordinary risks that they couldn’t manage and that later severely damaged, and in some cases destroyed, their businesses, wreaking havoc on the nation’s economy and millions of 401(k)s in the process.
In a world that boasted more hedge funds than Taco Bell outlets, McGee demonstrates how it became ever harder for Wall Street to fulfill its function as the financial system’s version of a power grid, with capital, rather than electricity, flowing through it. But just as a power grid can be strained beyond its capacity, so too can a “financial grid” collapse if its functions are distorted, as happened with Wall Street as it became increasingly self-serving and motivated solely by short-term profits. Through probing analysis, meticulous research, and dozens of interviews with the bankers, traders, research analysts, and investment managers who have been on the front lines of financial booms and busts, McGee provides a practical understanding of our financial “utility,” and how it touches everyone directly as an investor and indirectly through the power—capital—that makes the economy work.
Wall Street is as important to the economy and the overall functioning of our society as our electric and water utilities. But it doesn’t act that way. The financial system has been saved from destruction but as long as the mind-set of “chasing Goldman Sachs” lingers, it will not have been reformed. As banking undergoes its biggest transformation since the 1929 crash and the Great Depression, McGee shows where it stands today and points to where it needs to go next, examining the future of those financial institutions supposedly “too big to fail.”
416 pages, Hardcover
First published January 1, 2010
41 people are currently reading
397 people want to read
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August 9, 2020
Not to put too fine a point on it, but does the world *really* need another book about The Meltdown That Ate Our Jobs? Do we *really* have anything left to learn about these greedy so-and-sos whose pursuit of their own profits gifted us with a huge expansion of the Federal debt?
In a word, yes.
Suzanne McGee (a good friend of mine) assumes that her readers are smart, savvy, and plugged in, so she hits only the highlights of the WHAT about the crisis. Her brief, as the subtitle of the book "How the Masters of the Universe Melted Down Wall Street...and Why They'll Take Us to the Brink Again" makes clear, is analyzing and explaining WHY.
She does this in as honest and non-judmental a way as anyone could. She's not pointing fingers at one person per chapter, she's pointing up the systemic and cultural failings that, quite naturally and seemingly inevitably, led to a culture of no-risk gambling that permeated late twentieth century business. It took until the end of the Aughties for the chickens to come home to roost, but as they always do, they did. And who pays? All of us peons, that's who, which is exactly how the system is set up and remains set up to this day.
Her style is spare, unfussy, and dryly witty. Her story provides its own plot, so I can't say whether she's good at plotting. She knows how to give a telling detail! "'When {the New York Stock} Exchange is public, when people are willing to own it, it's a sign of a stable financial system, argues {a Canadian investment-firm billionaire}, who also owns stakes in publicly traded stock exchanges worldwide, from Europe to Latin America...The kind of push that come from shareholder-investors to become more competitive and efficient is the best way to make sure an organization is as effective as possible, he adds." (p137, ARC edition) This comes in a book that traces "efficiency" as the principal author of the megadisaster of 2008...and does anyone remember May 2010, when the "efficient" robo-trading powerslide of the Exchange caused systemic fantods?
McGee states, makes, and supports her points throughout this book with a lifetime's reportorial experience and a skeptic's "prove it" attitude. She's done the financially semi-literate a huge and signal service in writing this book. It's a good, involving, and deeply frightening read. Recommended to all who still think deregulation of any industry is a good idea.
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.
In a word, yes.
Suzanne McGee (a good friend of mine) assumes that her readers are smart, savvy, and plugged in, so she hits only the highlights of the WHAT about the crisis. Her brief, as the subtitle of the book "How the Masters of the Universe Melted Down Wall Street...and Why They'll Take Us to the Brink Again" makes clear, is analyzing and explaining WHY.
She does this in as honest and non-judmental a way as anyone could. She's not pointing fingers at one person per chapter, she's pointing up the systemic and cultural failings that, quite naturally and seemingly inevitably, led to a culture of no-risk gambling that permeated late twentieth century business. It took until the end of the Aughties for the chickens to come home to roost, but as they always do, they did. And who pays? All of us peons, that's who, which is exactly how the system is set up and remains set up to this day.
Her style is spare, unfussy, and dryly witty. Her story provides its own plot, so I can't say whether she's good at plotting. She knows how to give a telling detail! "'When {the New York Stock} Exchange is public, when people are willing to own it, it's a sign of a stable financial system, argues {a Canadian investment-firm billionaire}, who also owns stakes in publicly traded stock exchanges worldwide, from Europe to Latin America...The kind of push that come from shareholder-investors to become more competitive and efficient is the best way to make sure an organization is as effective as possible, he adds." (p137, ARC edition) This comes in a book that traces "efficiency" as the principal author of the megadisaster of 2008...and does anyone remember May 2010, when the "efficient" robo-trading powerslide of the Exchange caused systemic fantods?
McGee states, makes, and supports her points throughout this book with a lifetime's reportorial experience and a skeptic's "prove it" attitude. She's done the financially semi-literate a huge and signal service in writing this book. It's a good, involving, and deeply frightening read. Recommended to all who still think deregulation of any industry is a good idea.
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.
February 7, 2015
Very little new material, long, bloated, and boringgg.
I keep hoping to get some more insight into the crisis of 2008,
but the story is pretty much the same from book to book to book.
People on Wall st are greedy, stupid, and grossly overpaid.
It is unfortunate that MS & GS weren't put in bankruptcy like Lehman bro.
Raising money for corporations, their original purpose is a minor activity now.
Does America really need a couple of gamblers who are too big to fail?
The author recycles the Thomas Hobbs "quote"
life is short, nasty and brutish.
NOT TRUE
What Hobbs said was:
When man goes to war with man,
every man becomes the enemy of every man...
& life becomes, solitary, short, nasty and brutish.
He put that in a very tight context.
I doubt if more than 2% of the people in amerika
have been in a combat zone,
so this "quote" has no meaning for the other 98%.
My guess is that for at least 80% of americans
life is long and sweet.
I've wondered why so many authors misquote Hobbs
and it led me to check some popular
"Famous Quotation" books.
None of them have the first part of the quote
so it appears that none of these writers
ever read Hobbs,
they just thumbed through a "Famous Quotation"
book,
or they remember someone else saying it & just
repeat without verification.
Sloppy writing.
I now have a new bookshelf,
Idiotic Quotations,
it'll include poorly written books like this one.
I keep hoping to get some more insight into the crisis of 2008,
but the story is pretty much the same from book to book to book.
People on Wall st are greedy, stupid, and grossly overpaid.
It is unfortunate that MS & GS weren't put in bankruptcy like Lehman bro.
Raising money for corporations, their original purpose is a minor activity now.
Does America really need a couple of gamblers who are too big to fail?
The author recycles the Thomas Hobbs "quote"
life is short, nasty and brutish.
NOT TRUE
What Hobbs said was:
When man goes to war with man,
every man becomes the enemy of every man...
& life becomes, solitary, short, nasty and brutish.
He put that in a very tight context.
I doubt if more than 2% of the people in amerika
have been in a combat zone,
so this "quote" has no meaning for the other 98%.
My guess is that for at least 80% of americans
life is long and sweet.
I've wondered why so many authors misquote Hobbs
and it led me to check some popular
"Famous Quotation" books.
None of them have the first part of the quote
so it appears that none of these writers
ever read Hobbs,
they just thumbed through a "Famous Quotation"
book,
or they remember someone else saying it & just
repeat without verification.
Sloppy writing.
I now have a new bookshelf,
Idiotic Quotations,
it'll include poorly written books like this one.
Read
February 1, 2021I read an interesting article in Rolling Stone magazine online a while back that laid out the role that the investment bank Goldman Sachs played in bringing the U.S. to its knees in financial crisis in 2008. Ms. McGee mentions that article later on in her book, and seems to take a less tinfoil hat view of what came to pass during the meltdown, referring to it at times as "the perfect storm."
One of the points I'd never really considered before was the idea that investment banks like Sachs, Morgan, Lehman Brothers, and Merrill Lynch actually fulfilled the role of being a financial utility, providing businesses with access to capital to operate and expand, among other things, much like AT&T provides communication services, or Edison provides power. People who operate utilities tend to run their businesses in a very stable, risk-averse manner, so as to ensure the availability of their crucial components in our economy, and up until around the 1980s, the investment banks operated in much the same way. The partners in those banks had their own fortunes invested in the business, and would think long and hard before putting too much of it at risk.
As the financial landscape changed over time, so too did the behavior of the investment banks. Because so much of their business has been woven tightly into our entire economic system, they really shouldn't have ever been allowed to escape the bounds of the Glass-Steagal act, which kept commercial and investment banking safely in their respective places.
If you're old enough to remember the dot-com boom of the 90s, you may recall that many of the people stepping up to talk about the New Economy from our government, the Federal Reserve, and investment banks believed that due to the highly technical nature of the internet based businesses, and that intellectual property greatly outweighing the "old" brick and mortar methods of placing value on a business, most of the old rules should no longer apply. In the end, gravity never fails, I'm afraid.
If you weren't involved in buying stocks like Google, Amazon, Pets.com and making a bundle getting in at the IPO and out within the week, you weren't as smart as Wall Street. Greenspan had a phrase for it, "irrational exuberance". As time went by, the investment banks became heavily involved in raising venture capital for anything related to computing and the internet, and putting together public stock offerings for many of these businesses, even before they had posted a single dollar's worth of profit. Goldman and friends became deal-makers and shakers, rather than stodgy old investment bankers, and the profits they made just lured them on to more and more irrational deals. The dot-com bubble came crashing down around us all a few short years later, and everyone vowed never to get taken in by a "bubble" again. How quickly they forgot.
The "bubble" that caused the financial meltdown, without delving too deeply into the financial and technical aspects of derivatives and CDOs, centered around the housing "bubble". Once again, people threw wisdom out the window and believed that things could only get better indefinitely. The government caused a part of the problem when it lowered restrictions on approving mortgages, creating the "subprime" market, and when it also lowered the amount of cash reserves that banks were required to have on hand to offset their in-house loans. The mortgage companies, brokers, and commercial banks were a huge part of the cause when they realized how much money was to be made by financing, re-financing, and re-packaging loans for people who could never have gotten a home loan in the past.
The poor, sweet, duped, innocent people, aka homebuyers, were also responsible for buying homes they knew in their hearts they couldn't afford, and racking up home equity debt by treating their properties like ATMs. And the investment banks couldn't resist taking advantage of the situation by taking those pesky loans off the hands of the loan makers and packaging them as collateralized debt obligations, which they sold off for huge fees to the people who run your pension plans. Ratings agencies, like Moody's, who tell you whether a bond or other investment is risky or not, jumped on the bandwagon, taking fees for classifying the required amount of these investments as AAA. Of course, just like playing blackjack in Reno, you can buy "insurance" to keep from going bust, and one of the biggest companies in that business, AIG, wrote a ton of policies that they conveniently didn't have the cash to back up.
When somebody finally realized that housing prices couldn't really truly go up and up and up forever (what in the world were you smoking, people?), the tinsel was off the tree, and some of the institutions involved began to take big write offs on their balance sheets. Due to the intertwined nature of all of the players in this game, the entire house of cards could have come tumbling down had not the government in its infinite wisdom consented to bail out - with YOUR money - those businesses deemed "too big to fail".
This is a really well written bit of history from Ms. McGee, and she does a great job of tarring all of the players with a big, wide brush, rather than just picking on one particular villain. Worth the read, especially for the cautionary attitude you should gain about that next "bubble" they claim will never come.
One of the points I'd never really considered before was the idea that investment banks like Sachs, Morgan, Lehman Brothers, and Merrill Lynch actually fulfilled the role of being a financial utility, providing businesses with access to capital to operate and expand, among other things, much like AT&T provides communication services, or Edison provides power. People who operate utilities tend to run their businesses in a very stable, risk-averse manner, so as to ensure the availability of their crucial components in our economy, and up until around the 1980s, the investment banks operated in much the same way. The partners in those banks had their own fortunes invested in the business, and would think long and hard before putting too much of it at risk.
As the financial landscape changed over time, so too did the behavior of the investment banks. Because so much of their business has been woven tightly into our entire economic system, they really shouldn't have ever been allowed to escape the bounds of the Glass-Steagal act, which kept commercial and investment banking safely in their respective places.
If you're old enough to remember the dot-com boom of the 90s, you may recall that many of the people stepping up to talk about the New Economy from our government, the Federal Reserve, and investment banks believed that due to the highly technical nature of the internet based businesses, and that intellectual property greatly outweighing the "old" brick and mortar methods of placing value on a business, most of the old rules should no longer apply. In the end, gravity never fails, I'm afraid.
If you weren't involved in buying stocks like Google, Amazon, Pets.com and making a bundle getting in at the IPO and out within the week, you weren't as smart as Wall Street. Greenspan had a phrase for it, "irrational exuberance". As time went by, the investment banks became heavily involved in raising venture capital for anything related to computing and the internet, and putting together public stock offerings for many of these businesses, even before they had posted a single dollar's worth of profit. Goldman and friends became deal-makers and shakers, rather than stodgy old investment bankers, and the profits they made just lured them on to more and more irrational deals. The dot-com bubble came crashing down around us all a few short years later, and everyone vowed never to get taken in by a "bubble" again. How quickly they forgot.
The "bubble" that caused the financial meltdown, without delving too deeply into the financial and technical aspects of derivatives and CDOs, centered around the housing "bubble". Once again, people threw wisdom out the window and believed that things could only get better indefinitely. The government caused a part of the problem when it lowered restrictions on approving mortgages, creating the "subprime" market, and when it also lowered the amount of cash reserves that banks were required to have on hand to offset their in-house loans. The mortgage companies, brokers, and commercial banks were a huge part of the cause when they realized how much money was to be made by financing, re-financing, and re-packaging loans for people who could never have gotten a home loan in the past.
The poor, sweet, duped, innocent people, aka homebuyers, were also responsible for buying homes they knew in their hearts they couldn't afford, and racking up home equity debt by treating their properties like ATMs. And the investment banks couldn't resist taking advantage of the situation by taking those pesky loans off the hands of the loan makers and packaging them as collateralized debt obligations, which they sold off for huge fees to the people who run your pension plans. Ratings agencies, like Moody's, who tell you whether a bond or other investment is risky or not, jumped on the bandwagon, taking fees for classifying the required amount of these investments as AAA. Of course, just like playing blackjack in Reno, you can buy "insurance" to keep from going bust, and one of the biggest companies in that business, AIG, wrote a ton of policies that they conveniently didn't have the cash to back up.
When somebody finally realized that housing prices couldn't really truly go up and up and up forever (what in the world were you smoking, people?), the tinsel was off the tree, and some of the institutions involved began to take big write offs on their balance sheets. Due to the intertwined nature of all of the players in this game, the entire house of cards could have come tumbling down had not the government in its infinite wisdom consented to bail out - with YOUR money - those businesses deemed "too big to fail".
This is a really well written bit of history from Ms. McGee, and she does a great job of tarring all of the players with a big, wide brush, rather than just picking on one particular villain. Worth the read, especially for the cautionary attitude you should gain about that next "bubble" they claim will never come.
January 11, 2016
A great book on the American economy that does not economize on words!
Wall Street is the synonym of America’s financial muscle, where the most lavishly paid bankers and traders in the world decide the direction in which corporate enterprise moves. Occasionally, hiccups arise in the banking community which soon acquire dimensions that the government is forced to intervene in the market to set things right. Such a thing happened in 1929, which led to the Great Depression that had lasting influence on the further course of world history. Minor crashes and failures occur often, but an event that nearly matched the cataclysm of 1929 happened in 2008 when all on a sudden, major investment banks collapsed losing their own and public money. Nobody could see it coming and Wall Streeters found themselves stranded in a situation where liquidity was drained off the market, and calls for repayment of clients’ money were repeatedly made. Lehman Brothers collapsed, while Merril Lynch and Bear Stearns were merged with their competitors who were themselves propped up with federal funds. At no time in history was the free market enterprise of America had to swallow the bitter pill of the government owning major stakes in almost all of the behemoths that ruled over Wall Street till just a few weeks ago. Goldman Sachs, which was the largest corporation, didn’t fail, but was badly wounded in the bloodbath. Suzanne McGee examines the events that led to this sorry state of affairs. It narrates in shocking detail how the companies blindly emulated Goldman Sachs to beat them in their own game of making larger profits and offering greater returns on equity. Wall Street’s basic function was to provide capital for business and to handle mergers and acquisitions. This fundamental objective was ignored by bankers who wanted to make great profit from every transaction and to obtain astronomically high bonuses. This mad chase after Goldman Sachs finally stumbled on the sub-prime mortgage crisis, pulling the national economy itself to the brink of disaster. Being a financial journalist and having written for many Wall Street journals, McGee does a fine job of finding out what went wrong.
A valuable contribution of the book is its neat description of the changes that took place in the U.S. money markets over the decades that finally resulted in the 2008 crash. Even though the story is told backwards, the presentation is appealing and concise. Readers would’ve preferred the normal chronology, but a book on Finance is ought to retain some of the complexity and confusion of the parent field which it tries to open up. Most of the investment banks were operating on partnership basis in the 1950s and 60s. This had its advantages. Managers were very careful before taking big investment decisions, as they were playing with their own money. Such shrewdness was complemented by good work ethics and a cordial customer relationship. But the system put brakes on innovation. Cash was not easy to come by, for quickly finalizing deals and reaping large profits. The commission on trade was fixed across all firms and the companies need only to ensure the volume of trade for assured profit margins. In the 1970s, the stocks crashed and volumes dwindled. Government intervened and the commission on trades was made flexible. The customer was permitted to negotiate with the firms for a deal. This slashed the margins of the investment banks and resulted in cut-throat competition to gain and to retain customers. At this point, they transformed into equity-based companies and shedded their partnership vesture. Their stocks were also traded in the stock exchanges just like their clients’ did.
Becoming a limited liability company was a watershed moment in their history. Infusion of cash, particularly of the investing firms and public, threw away the lid on risk appetite. Managers could take riskier decisions which they were reluctant to pursue when their own money was at stake. At the same time, profitability turned out to be the prime concern. If a firm is unable to pay its stockholders a decent return on equity, its image was tarnished and people moved their investment elsewhere. The age old tools of trade like exchange of shares, leveraging and underwriting fledgling companies were not money-spinning opportunities. It was around the 1990s that first witnessed the emergence of high risk, high yield products such as junk bonds and collateralized debt obligations (CDO) that became popular among banks. All of them wanted to make money quickly. Investors were often kept in the dark about the exposure they were about to make in a high risk investment. In order to tide over the minor correction in the markets at the turn of the millennium, government infused greater liquidity in the market by reducing interest rates. More mortgages and home loans were disbursed, which gave rise to a market in derivatives of the loans such as CDO. More banks followed the leaders in picking up portions of this pie and the American economic system neared the edge of the precipice.
A detailed analysis of what went wrong is followed which rather looks like a post mortem examination. Greed, recklessness and negligence are attributed to be the root causes which acted on unlimited capital, limited liability and incentive compensation. If a surgeon had indulged in as much risk, he would sooner be denied his license and possibly would have had to face criminal charges of negligence. Unlimited funds were allotted for the bankers to sell mortgage backed securities that earned huge profits, but whose quality was very low. Being a public listed company, the liability was limited in case of a flop, but the financial incentives for the individuals and the company in the case of a flip was astronomical. We get to know about bankers who drew incentives which were more than 100 times their annual salary. The regulators were also at fault, as they couldn’t fathom what was going on down under and continued to enjoy the music while it lasted. In a setup like America where the budget of the regulators are sourced from the contributions of the companies they oversee, it is no wonder that the regulators as mute spectators while deals with ever greater profits to the originators made Wall Street a gold mine for the lucky few. There was a strong lobby that called for less regulation and more free trade, who counted on the creativity and innovation of the bankers to set the rules of the game. If the regulating bureaucrat was smart enough to understand the flow of business, he would have quit the government offering a measly pay packet and himself would have joined leading Wall Street firms, they argued logically. But the explanation of the meltdown raises other disturbing questions. If the reason for the catastrophe is the fear of getting behind the competitors and the greed for pecuniary benefits, these are the fundamental instincts of any human being, and how can we rule out the possibility of such a scenario occurring again in the future?
Readers feel that the author could have cut the number of pages by at least a quarter, without losing the force and flow of the argument. This book about economy does not in any way practice economy of words. But the diction is simple yet elegant, though interspersed with American slang. A decent glossary is given, but which is not readily accessible. Attached at the end of the main text, many readers get to know about the presence of glossary only after reading the text in full! It would have been better if it could be incorporated in the beginning of the book. A good index is a must for books of this kind and that which is provided amply serves its purpose.
The book is recommended for followers of the business columns and to laymen who plan to make some money out of the bourses.
Wall Street is the synonym of America’s financial muscle, where the most lavishly paid bankers and traders in the world decide the direction in which corporate enterprise moves. Occasionally, hiccups arise in the banking community which soon acquire dimensions that the government is forced to intervene in the market to set things right. Such a thing happened in 1929, which led to the Great Depression that had lasting influence on the further course of world history. Minor crashes and failures occur often, but an event that nearly matched the cataclysm of 1929 happened in 2008 when all on a sudden, major investment banks collapsed losing their own and public money. Nobody could see it coming and Wall Streeters found themselves stranded in a situation where liquidity was drained off the market, and calls for repayment of clients’ money were repeatedly made. Lehman Brothers collapsed, while Merril Lynch and Bear Stearns were merged with their competitors who were themselves propped up with federal funds. At no time in history was the free market enterprise of America had to swallow the bitter pill of the government owning major stakes in almost all of the behemoths that ruled over Wall Street till just a few weeks ago. Goldman Sachs, which was the largest corporation, didn’t fail, but was badly wounded in the bloodbath. Suzanne McGee examines the events that led to this sorry state of affairs. It narrates in shocking detail how the companies blindly emulated Goldman Sachs to beat them in their own game of making larger profits and offering greater returns on equity. Wall Street’s basic function was to provide capital for business and to handle mergers and acquisitions. This fundamental objective was ignored by bankers who wanted to make great profit from every transaction and to obtain astronomically high bonuses. This mad chase after Goldman Sachs finally stumbled on the sub-prime mortgage crisis, pulling the national economy itself to the brink of disaster. Being a financial journalist and having written for many Wall Street journals, McGee does a fine job of finding out what went wrong.
A valuable contribution of the book is its neat description of the changes that took place in the U.S. money markets over the decades that finally resulted in the 2008 crash. Even though the story is told backwards, the presentation is appealing and concise. Readers would’ve preferred the normal chronology, but a book on Finance is ought to retain some of the complexity and confusion of the parent field which it tries to open up. Most of the investment banks were operating on partnership basis in the 1950s and 60s. This had its advantages. Managers were very careful before taking big investment decisions, as they were playing with their own money. Such shrewdness was complemented by good work ethics and a cordial customer relationship. But the system put brakes on innovation. Cash was not easy to come by, for quickly finalizing deals and reaping large profits. The commission on trade was fixed across all firms and the companies need only to ensure the volume of trade for assured profit margins. In the 1970s, the stocks crashed and volumes dwindled. Government intervened and the commission on trades was made flexible. The customer was permitted to negotiate with the firms for a deal. This slashed the margins of the investment banks and resulted in cut-throat competition to gain and to retain customers. At this point, they transformed into equity-based companies and shedded their partnership vesture. Their stocks were also traded in the stock exchanges just like their clients’ did.
Becoming a limited liability company was a watershed moment in their history. Infusion of cash, particularly of the investing firms and public, threw away the lid on risk appetite. Managers could take riskier decisions which they were reluctant to pursue when their own money was at stake. At the same time, profitability turned out to be the prime concern. If a firm is unable to pay its stockholders a decent return on equity, its image was tarnished and people moved their investment elsewhere. The age old tools of trade like exchange of shares, leveraging and underwriting fledgling companies were not money-spinning opportunities. It was around the 1990s that first witnessed the emergence of high risk, high yield products such as junk bonds and collateralized debt obligations (CDO) that became popular among banks. All of them wanted to make money quickly. Investors were often kept in the dark about the exposure they were about to make in a high risk investment. In order to tide over the minor correction in the markets at the turn of the millennium, government infused greater liquidity in the market by reducing interest rates. More mortgages and home loans were disbursed, which gave rise to a market in derivatives of the loans such as CDO. More banks followed the leaders in picking up portions of this pie and the American economic system neared the edge of the precipice.
A detailed analysis of what went wrong is followed which rather looks like a post mortem examination. Greed, recklessness and negligence are attributed to be the root causes which acted on unlimited capital, limited liability and incentive compensation. If a surgeon had indulged in as much risk, he would sooner be denied his license and possibly would have had to face criminal charges of negligence. Unlimited funds were allotted for the bankers to sell mortgage backed securities that earned huge profits, but whose quality was very low. Being a public listed company, the liability was limited in case of a flop, but the financial incentives for the individuals and the company in the case of a flip was astronomical. We get to know about bankers who drew incentives which were more than 100 times their annual salary. The regulators were also at fault, as they couldn’t fathom what was going on down under and continued to enjoy the music while it lasted. In a setup like America where the budget of the regulators are sourced from the contributions of the companies they oversee, it is no wonder that the regulators as mute spectators while deals with ever greater profits to the originators made Wall Street a gold mine for the lucky few. There was a strong lobby that called for less regulation and more free trade, who counted on the creativity and innovation of the bankers to set the rules of the game. If the regulating bureaucrat was smart enough to understand the flow of business, he would have quit the government offering a measly pay packet and himself would have joined leading Wall Street firms, they argued logically. But the explanation of the meltdown raises other disturbing questions. If the reason for the catastrophe is the fear of getting behind the competitors and the greed for pecuniary benefits, these are the fundamental instincts of any human being, and how can we rule out the possibility of such a scenario occurring again in the future?
Readers feel that the author could have cut the number of pages by at least a quarter, without losing the force and flow of the argument. This book about economy does not in any way practice economy of words. But the diction is simple yet elegant, though interspersed with American slang. A decent glossary is given, but which is not readily accessible. Attached at the end of the main text, many readers get to know about the presence of glossary only after reading the text in full! It would have been better if it could be incorporated in the beginning of the book. A good index is a must for books of this kind and that which is provided amply serves its purpose.
The book is recommended for followers of the business columns and to laymen who plan to make some money out of the bourses.
May 17, 2017
This is an excellent recap of the mortgage bubble and crash of 2008 which gives the history and underlying causes without getting bogged down in the details. I've read other books about the 2008 meltdown and found that McGee approaches the problem by examining the risk taking behaviors of Wall Street and why risk is so integral to the operations of the big investment banks.
In my private rants about the whole 2008 meltdown I have complained that risky trades shouldn't be allowed for publicly traded companies like the investment bankers have become. Reading McGee's book explained to me that the firms main goal was increasing return on equity in order to keep their shareholders happy. And return on equity had to increase every year, which led to riskier in riskier investments and the growth of the CDO market. All of this means that these publicly traded firms will be chasing the next "new new thing" that some quant figures out and putting all our retirement savings at risk again in a few years.
Since this was published in 2010 it's not up to date as far as the current regulations are concerned, but since those are probably about to change anyway under the Trump/Mnuchin administration, that's not a real problem. The real value of this book for me was the look inside the minds of Wall Street traders; I now have a better idea of why they did what they did.
In my private rants about the whole 2008 meltdown I have complained that risky trades shouldn't be allowed for publicly traded companies like the investment bankers have become. Reading McGee's book explained to me that the firms main goal was increasing return on equity in order to keep their shareholders happy. And return on equity had to increase every year, which led to riskier in riskier investments and the growth of the CDO market. All of this means that these publicly traded firms will be chasing the next "new new thing" that some quant figures out and putting all our retirement savings at risk again in a few years.
Since this was published in 2010 it's not up to date as far as the current regulations are concerned, but since those are probably about to change anyway under the Trump/Mnuchin administration, that's not a real problem. The real value of this book for me was the look inside the minds of Wall Street traders; I now have a better idea of why they did what they did.
August 1, 2024
AN EDITOR OF BARRON'S LOOKS AT ONE OF THE MAJOR SURVIVING BANKS
Suzanne McGee is a contributing editor at Barron's. She wrote in the Introduction to this 2010 book, "Instead of just rehashing every detail of WHAT happened to Wall Street, I'll take you behind the scenes and show you just WHY our financial system came so close to falling over the edge of the abyss... this book... will explain just how and why Wall Street drifted away from its core intermediary function and morphed from utility to casino, under pressure from those running Wall Street firms and from their investors." (Pg. 4-5) She adds, "The story is told through the eyes of those who lived it..." (Pg. 12)
She notes that Citigroup CEO Charles Prince "may have been worried, but he wasn't going to show it. Instead, he told the Financial Times, 'as long as the music is playing, you've got to get up and dance.' And, he added, Citigroup was 'still dancing.'" (Pg. 15) Later, she observes, "across Wall Street, investment banks as well as banking giants such as Citigroup began to wonder how they could get a bigger slice of the pie for themselves. Wouldn't the best way to maximize profits for their own restless shareholders be to just become their own clients?" (Pg. 122)
She states, "Wall Street itself was doing whatever it could to keep the mortgage machine chugging along." (Pg. 160) Then she adds, "But in their mania to generate ever higher returns on equity, Wall Street institutions had succeeded in distorting the financial grid beyond all recognition... There was no possible reason for any banker to create a CDO-cubed, as bankers acknowledge... 'But we did it anyway,' one former Citigroup banker admits somewhat sheepishly." (Pg. 162) She recounts, "Everyone involved in creating, launching, and marketing the CDOs knew that the size of their bonus depended on keeping the machine humming as rapidly as possible. There was no incentive to holler stop." (Pg. 179)
She points out, "Main Street's tolerance for Wall Street's riches has always been a bit more fragile than is the case in the entertainment industry, sports, or even the rest of the business world, perhaps because so few people understand why packaging up mortgages and redistributing them is worth so much money... the value of their services is harder to grasp for anyone outside Wall Street's magic circle." (Pg. 186-187)
She says about Shiela Bair (former FDIC chief), "Bair's warnings, and her subsequent contributions to the debate over Wall Street's future, identify her as perhaps one of the most prescient Wall Street regulators of the last quarter century... Bair ... was able to do what Wall Street's best and brightest minds couldn't: envisage a day when the future might not be as rosy as the present." (Pg. 245) But in general "Regulators didn't attempt to keep up with the pace of innovation on Wall Street, the growth in its use of and reliance on leverage, and its growth in size and reach." (Pg. 274)
This is one of the most insightful books on the 2008-2009 fiscal crisis.
Suzanne McGee is a contributing editor at Barron's. She wrote in the Introduction to this 2010 book, "Instead of just rehashing every detail of WHAT happened to Wall Street, I'll take you behind the scenes and show you just WHY our financial system came so close to falling over the edge of the abyss... this book... will explain just how and why Wall Street drifted away from its core intermediary function and morphed from utility to casino, under pressure from those running Wall Street firms and from their investors." (Pg. 4-5) She adds, "The story is told through the eyes of those who lived it..." (Pg. 12)
She notes that Citigroup CEO Charles Prince "may have been worried, but he wasn't going to show it. Instead, he told the Financial Times, 'as long as the music is playing, you've got to get up and dance.' And, he added, Citigroup was 'still dancing.'" (Pg. 15) Later, she observes, "across Wall Street, investment banks as well as banking giants such as Citigroup began to wonder how they could get a bigger slice of the pie for themselves. Wouldn't the best way to maximize profits for their own restless shareholders be to just become their own clients?" (Pg. 122)
She states, "Wall Street itself was doing whatever it could to keep the mortgage machine chugging along." (Pg. 160) Then she adds, "But in their mania to generate ever higher returns on equity, Wall Street institutions had succeeded in distorting the financial grid beyond all recognition... There was no possible reason for any banker to create a CDO-cubed, as bankers acknowledge... 'But we did it anyway,' one former Citigroup banker admits somewhat sheepishly." (Pg. 162) She recounts, "Everyone involved in creating, launching, and marketing the CDOs knew that the size of their bonus depended on keeping the machine humming as rapidly as possible. There was no incentive to holler stop." (Pg. 179)
She points out, "Main Street's tolerance for Wall Street's riches has always been a bit more fragile than is the case in the entertainment industry, sports, or even the rest of the business world, perhaps because so few people understand why packaging up mortgages and redistributing them is worth so much money... the value of their services is harder to grasp for anyone outside Wall Street's magic circle." (Pg. 186-187)
She says about Shiela Bair (former FDIC chief), "Bair's warnings, and her subsequent contributions to the debate over Wall Street's future, identify her as perhaps one of the most prescient Wall Street regulators of the last quarter century... Bair ... was able to do what Wall Street's best and brightest minds couldn't: envisage a day when the future might not be as rosy as the present." (Pg. 245) But in general "Regulators didn't attempt to keep up with the pace of innovation on Wall Street, the growth in its use of and reliance on leverage, and its growth in size and reach." (Pg. 274)
This is one of the most insightful books on the 2008-2009 fiscal crisis.
February 22, 2017
As the seemingly perpetual performance leader, Goldman Sachs became the one others had to follow.
This author offers a different angle on a well narrated story about the recent financial collapse. Nonetheless and despite my high familiarity with the subject, the author succeeds at sharing unique insights missing from other books.
A fun read.
This author offers a different angle on a well narrated story about the recent financial collapse. Nonetheless and despite my high familiarity with the subject, the author succeeds at sharing unique insights missing from other books.
A fun read.
December 22, 2020
Good broad sweep book on how Wall Street got to be the way that it is.
March 7, 2014
Suzanne McGee is a contributing editor to "Barron's" who worked for thirteen years as a staff writer for the "Wall Street Journal." "Chasing Goldman Sachs" is not a history of the financial crisis that messed up the American economy; other authors have covered that ground. This book is directed more at the underlying cultural reasons that caused Wall Street's banks to go out of control by 2008. The problem is rooted in the change of mission of Wall Street financial institutions from what McGee calls the "utility" function of generating capital to the role of self-serving structures.
One of the key changes causing the eventual calamity was the decisions made in the mid-1970's to chuck out fixed commissions for stock trading. This introduced the concept of introducing ever new investment products for a company to compete with. By the 1990's, the traditional partnerships became publicly traded companies. Firms increasingly felt the need to take higher risks and pressured to maximize the profits of their investors, even if that meant undermining the profits of their trading clients. Goldman Sachs became the leading practitioner in this new era, with firms such as Bear Stearns, Merrill Lynch and Morgan Stanley, suffering from "Goldman Sachs envy" constantly trying to compete in the effort to maximize profits to shareholders and Return on Equity. The main goal on the Street became the need to make more deals to generate more fees. Then-Citigroup CEO Charles "Chuck" Prince verbalized a metaphor which describes how signs of trouble were ignored in this pre-2008 atmosphere when he said:"as long as the music is playing, you've got to get up and dance." (p. 15). If any nay-sayer at a firm warned against extending risk too far, they were labeled as killjoys and didn't last long in their employment.
For a while, Wall Street flew high with its Credit Default Swaps and other risky mortgage practices, and its increasingly complex investment instruments. Underlying, and abetting, these practices, was the lax government regulation of the industry, thanks to our elected representatives. The banks' reckless disregard for the overall financial system was matched by our federal government's lack of concern for the financial well-being of its citizens. Eventually, of course, Lehman Brothers and Merrill Lynch would meet with disaster. Inequalities in wealth would deepen, the country's investment wealth would be diverted from making and building things to financing defective and overly complicated schemes, and the middle class would be left to fend for itself. Some big concerns have survived and became more prosperous while the underlying economy has hit a brick wall. The management of the surviving "too big to fail" firms have no guilt for their complicity in this financial meltdown while some of the Street's leading players in the last decade became high officials in the OBama administration.
You won't finish this book with a clear idea of how Wall Street's problems will be fixed, because there is no "easy" button to push in this regard. Government can make rules, for instance, to limit the risk that banks can take in their transactions, especially concerning the dominant role claimed by the up-to-now lightly regulated hedge funds. But how much can you require firms to simplify their financial products to the point where they must divulge proprietary processes to competitors? There are a million potential pitfalls to devising new regulations, and the process is entrusted to a Congress which doesn't give a shit for any action which does not produce any immediate gratification to their chances for reelection. You don't need to read a book to understand the outrage of the growing throngs of protesters who have been demonstrating at the financial downtowns of American cities, starting with Wall Street, but the nature of this activity only confirms, in 2011, McGee's 2010 documentation of systemic failures.
One of the key changes causing the eventual calamity was the decisions made in the mid-1970's to chuck out fixed commissions for stock trading. This introduced the concept of introducing ever new investment products for a company to compete with. By the 1990's, the traditional partnerships became publicly traded companies. Firms increasingly felt the need to take higher risks and pressured to maximize the profits of their investors, even if that meant undermining the profits of their trading clients. Goldman Sachs became the leading practitioner in this new era, with firms such as Bear Stearns, Merrill Lynch and Morgan Stanley, suffering from "Goldman Sachs envy" constantly trying to compete in the effort to maximize profits to shareholders and Return on Equity. The main goal on the Street became the need to make more deals to generate more fees. Then-Citigroup CEO Charles "Chuck" Prince verbalized a metaphor which describes how signs of trouble were ignored in this pre-2008 atmosphere when he said:"as long as the music is playing, you've got to get up and dance." (p. 15). If any nay-sayer at a firm warned against extending risk too far, they were labeled as killjoys and didn't last long in their employment.
For a while, Wall Street flew high with its Credit Default Swaps and other risky mortgage practices, and its increasingly complex investment instruments. Underlying, and abetting, these practices, was the lax government regulation of the industry, thanks to our elected representatives. The banks' reckless disregard for the overall financial system was matched by our federal government's lack of concern for the financial well-being of its citizens. Eventually, of course, Lehman Brothers and Merrill Lynch would meet with disaster. Inequalities in wealth would deepen, the country's investment wealth would be diverted from making and building things to financing defective and overly complicated schemes, and the middle class would be left to fend for itself. Some big concerns have survived and became more prosperous while the underlying economy has hit a brick wall. The management of the surviving "too big to fail" firms have no guilt for their complicity in this financial meltdown while some of the Street's leading players in the last decade became high officials in the OBama administration.
You won't finish this book with a clear idea of how Wall Street's problems will be fixed, because there is no "easy" button to push in this regard. Government can make rules, for instance, to limit the risk that banks can take in their transactions, especially concerning the dominant role claimed by the up-to-now lightly regulated hedge funds. But how much can you require firms to simplify their financial products to the point where they must divulge proprietary processes to competitors? There are a million potential pitfalls to devising new regulations, and the process is entrusted to a Congress which doesn't give a shit for any action which does not produce any immediate gratification to their chances for reelection. You don't need to read a book to understand the outrage of the growing throngs of protesters who have been demonstrating at the financial downtowns of American cities, starting with Wall Street, but the nature of this activity only confirms, in 2011, McGee's 2010 documentation of systemic failures.
July 26, 2010
In the wake of the 2008-2009 global financial meltdown, whose epicenter was found at the intersection of Wall Street and K Street, many books (Andrew Ross Sorkin’s ‘Too Big To Fail,’ Hank Paulson’s ‘On the Brink,’ etc.) have emerged to describe the macro view of how such events co-mingled to send the financial system spiraling out of control. Now, two new books have surfaced to open the kimono on the inside machinations that gave fuel to the financial meltdown fire.
In “Chasing Goldman Sachs”, author Suzanne McGee uses the ‘chasing’ metaphor to cover a whole range of issues, trends and examples of how investment banking has transmogrified over the past 30 years. Once Wall Street brokerage firms were no longer dependent on stock commissions (after the SEC’s ‘Mayday’ pronouncement of May 1975) firms began looking for ways to replace and increase profits through a variety of non-traditional methods. Everything from the creation of derivatives to voracious competition for business to the emergence into new markets proliferated throughout the 80’s, 90’s and 00’s.
Goldman Sachs was viewed by many as the leading progenitor of these new and advanced ways to make money by, in essence, shuffling or redirected money around and as such were the envy of the Street. (Or as Goldman CEO Lloyd Blankfien admits in the book that Goldman began ‘rationalizing it’s pushing of the ‘risk envelope’ during the credit bubble years.”) The trouble came when less informed players ineluctably began to mimic their techniques but did so with an increasing share of gusto and in a way that would ultimately, in many cases, have them driving so far ahead that they drove off the cliff. As ‘Chasing’ aptly demonstrates, Morgan Stanley, Bear Stearns, Lehman and many others ended up in hot water trying to ape Goldman’s success.
In the process, McGee’s rendering basically serves as a history of the entire Wall Street landscape of the last thirty or so years, covering the machinations of these top financial firms and their relationships with investors, the trading exchanges, the IPO market, real estate, the Fed and all the power players that were a part of the story. (Bernanke, the FDIC, the banks, etc. all have a role to play.) As McGee describes, as deals got riskier, “bankers and traders assumed that someone else higher up the food chain was doing the worrying for them.” Unfortunately, as events have borne out, such was not the case.
In “Chasing Goldman Sachs”, author Suzanne McGee uses the ‘chasing’ metaphor to cover a whole range of issues, trends and examples of how investment banking has transmogrified over the past 30 years. Once Wall Street brokerage firms were no longer dependent on stock commissions (after the SEC’s ‘Mayday’ pronouncement of May 1975) firms began looking for ways to replace and increase profits through a variety of non-traditional methods. Everything from the creation of derivatives to voracious competition for business to the emergence into new markets proliferated throughout the 80’s, 90’s and 00’s.
Goldman Sachs was viewed by many as the leading progenitor of these new and advanced ways to make money by, in essence, shuffling or redirected money around and as such were the envy of the Street. (Or as Goldman CEO Lloyd Blankfien admits in the book that Goldman began ‘rationalizing it’s pushing of the ‘risk envelope’ during the credit bubble years.”) The trouble came when less informed players ineluctably began to mimic their techniques but did so with an increasing share of gusto and in a way that would ultimately, in many cases, have them driving so far ahead that they drove off the cliff. As ‘Chasing’ aptly demonstrates, Morgan Stanley, Bear Stearns, Lehman and many others ended up in hot water trying to ape Goldman’s success.
In the process, McGee’s rendering basically serves as a history of the entire Wall Street landscape of the last thirty or so years, covering the machinations of these top financial firms and their relationships with investors, the trading exchanges, the IPO market, real estate, the Fed and all the power players that were a part of the story. (Bernanke, the FDIC, the banks, etc. all have a role to play.) As McGee describes, as deals got riskier, “bankers and traders assumed that someone else higher up the food chain was doing the worrying for them.” Unfortunately, as events have borne out, such was not the case.
July 26, 2010
In the wake of the 2008-2009 global financial meltdown, whose epicenter was found at the intersection of Wall Street and K Street, many books (Andrew Ross Sorkin’s ‘Too Big To Fail,’ Hank Paulson’s ‘On the Brink,’ etc.) have emerged to describe the macro view of how such events co-mingled to send the financial system spiraling out of control. Now, two new books have surfaced to open the kimono on the inside machinations that gave fuel to the financial meltdown fire.
In “Chasing Goldman Sachs”, author Suzanne McGee uses the ‘chasing’ metaphor to cover a whole range of issues, trends and examples of how investment banking has transmogrified over the past 30 years. Once Wall Street brokerage firms were no longer dependent on stock commissions (after the SEC’s ‘Mayday’ pronouncement of May 1975) firms began looking for ways to replace and increase profits through a variety of non-traditional methods. Everything from the creation of derivatives to voracious competition for business to the emergence into new markets proliferated throughout the 80’s, 90’s and 00’s.
Goldman Sachs was viewed by many as the leading progenitor of these new and advanced ways to make money by, in essence, shuffling or redirected money around and as such were the envy of the Street. (Or as Goldman CEO Lloyd Blankfien admits in the book that Goldman began ‘rationalizing it’s pushing of the ‘risk envelope’ during the credit bubble years.”) The trouble came when less informed players ineluctably began to mimic their techniques but did so with an increasing share of gusto and in a way that would ultimately, in many cases, have them driving so far ahead that they drove off the cliff. As ‘Chasing’ aptly demonstrates, Morgan Stanley, Bear Stearns, Lehman and many others ended up in hot water trying to ape Goldman’s success.
In the process, McGee’s rendering basically serves as a history of the entire Wall Street landscape of the last thirty or so years, covering the machinations of these top financial firms and their relationships with investors, the trading exchanges, the IPO market, real estate, the Fed and all the power players that were a part of the story. (Bernanke, the FDIC, the banks, etc. all have a role to play.) As McGee describes, as deals got riskier, “bankers and traders assumed that someone else higher up the food chain was doing the worrying for them.” Unfortunately, as events have borne out, such was not the case.
May 17, 2014
"The relationship between Wall Street and its partners on both the buy and sell sides has been under threat for more than a decade, as Wall Street drifted further and further away from its core utility function and those clients generated a decreasing proportion of its revenue and profits." (44)
"[P]ublically traded investment banks found that their new shareholders had a slightly different view of what the institutions' priorities should be than the former partners had had. Both want to maximize market share, but one of the trade-offs for access to capital was the demand by new shareholders that the firms also maximize profitability." (67)
"Goldman traditionally had been more restrained when it came to compensation than many of its Wall Street peers: its bankers were told firmly that a large part of the value they generated was because of Goldman's brand name rather than their individual efforts." (176)
"'Wall Street is one of the most competitive industries I have ever seen in my life,' says Seth Merrin, founder of Liquidnet, who does business with nearly every major Wall Street institution. 'If you have three or four of these guys in a room by themselves, within fifteen minuets they'll have some kind of bet going on, even if it's just how long it takes a raindrop to hit the bottom of the window, and they'll all be yelling and screaming at their raindrop to move faster.'" (292)
"At poker, he [banker-turned-consultant] says, what happens in one hand doesn't affect the outcome of future hands -- that's a function of the cards he's dealt. Chess, in contrast, is a game of strategy, where each move limits future options or creates fresh opportunities. 'It doesn't surprise me that the guys on the Street tend to play poker more often than chess,' he comments dryly." (375)
"[P]ublically traded investment banks found that their new shareholders had a slightly different view of what the institutions' priorities should be than the former partners had had. Both want to maximize market share, but one of the trade-offs for access to capital was the demand by new shareholders that the firms also maximize profitability." (67)
"Goldman traditionally had been more restrained when it came to compensation than many of its Wall Street peers: its bankers were told firmly that a large part of the value they generated was because of Goldman's brand name rather than their individual efforts." (176)
"'Wall Street is one of the most competitive industries I have ever seen in my life,' says Seth Merrin, founder of Liquidnet, who does business with nearly every major Wall Street institution. 'If you have three or four of these guys in a room by themselves, within fifteen minuets they'll have some kind of bet going on, even if it's just how long it takes a raindrop to hit the bottom of the window, and they'll all be yelling and screaming at their raindrop to move faster.'" (292)
"At poker, he [banker-turned-consultant] says, what happens in one hand doesn't affect the outcome of future hands -- that's a function of the cards he's dealt. Chess, in contrast, is a game of strategy, where each move limits future options or creates fresh opportunities. 'It doesn't surprise me that the guys on the Street tend to play poker more often than chess,' he comments dryly." (375)
October 16, 2010
Thought everything on the financial crisis worth reading had already been written? Now pick up Suzanne McGee’s thoughtful //Chasing Goldman Sachs: How the Maters of the Universe melted Wall Street…and Why They’ll take us to the Brink Again//. Rather than starting in the recent past, McGee examines how evolution in the financial system laid the seeds of the meltdown in the 1970s.
At its heart, McGee’s book offers two theses: first, that it was banks attempting to match Goldman’s extraordinary profits that pushed them to take greater and greater risks while lacking Goldman’s gift for risk management, and second, that financial institutions should be understood in the model of utilities, providing a vital commodity (in this case capital) that keeps the economy humming. It was when these firms put striving for greater profits ahead of their clients’ interests that the wheels came off the bus. The first claim feels like a narrative device. The second, however, proves not just persuasive, but eye opening as she demonstrates how firms skim capital, inflating their own profits while failing to serve their clients.
Beyond other character driven accounts, McGee masterfully examines the crisis’s systemic underpinnings. Looking to the future, she shows how finance will continue to evolve with proliferating hedge funds adding risk. McGee takes a clear side, making an insightful case for more muscular systemic reform. Well researched and reasoned, this is a must read for any reader wishing to understand what happened and how it could happen again.
At its heart, McGee’s book offers two theses: first, that it was banks attempting to match Goldman’s extraordinary profits that pushed them to take greater and greater risks while lacking Goldman’s gift for risk management, and second, that financial institutions should be understood in the model of utilities, providing a vital commodity (in this case capital) that keeps the economy humming. It was when these firms put striving for greater profits ahead of their clients’ interests that the wheels came off the bus. The first claim feels like a narrative device. The second, however, proves not just persuasive, but eye opening as she demonstrates how firms skim capital, inflating their own profits while failing to serve their clients.
Beyond other character driven accounts, McGee masterfully examines the crisis’s systemic underpinnings. Looking to the future, she shows how finance will continue to evolve with proliferating hedge funds adding risk. McGee takes a clear side, making an insightful case for more muscular systemic reform. Well researched and reasoned, this is a must read for any reader wishing to understand what happened and how it could happen again.
November 20, 2011
McGee does an excellent job in covering the extent to which government regulation failed, investment banks failed, and especially in discussing the psychology that moves the "masters of the universe" to willfully ignore the iceberg directly in front on them as they order their version of the Titanic to go full speed ahead. It is for these reasons that I give a four-star rating. And also her discussion regarding the rise of "Hedge Funds" and the impact these vehicles have had on more traditional banks, mutual funds and investment banks.
Unfortunately, I cannot say I was as impressed with her discussion of the housing "crisis" or of the sermon she offered at the end of the audio as to proposed solutions. And, perhaps rather curiously, the one area that seemed to get short shrift is how Goldman Sachs was simply smarter, has a corporate culture that is far less toxic to those who take "contrarian" views than that of most investment houses or whatever magic potion it was that made them do exactly what everyone else was NOT doing.
Still and all, both an informative and -- dare I say it -- entertaining listen.
Unfortunately, I cannot say I was as impressed with her discussion of the housing "crisis" or of the sermon she offered at the end of the audio as to proposed solutions. And, perhaps rather curiously, the one area that seemed to get short shrift is how Goldman Sachs was simply smarter, has a corporate culture that is far less toxic to those who take "contrarian" views than that of most investment houses or whatever magic potion it was that made them do exactly what everyone else was NOT doing.
Still and all, both an informative and -- dare I say it -- entertaining listen.
Read
February 15, 2015I am sorry I didn't finish this book. It's not the writers fault, it's mine. I love books about Wall Street and Investment Banking. But, I'm on the side of Barbarians at the Gate and Liar's Poker. Book's that show the underhanded and dirty, loud mouthed sweary, excessively paid yuppie consumers and Porsches side of Wall Street, the Kids who complain if they don't get bonuses of $1million+ regardless of whats happening in the real world. Spoilt and entitled assholes who are in an industry that creates wealth mainly for the ringmasters and treats the players like Rubes to be taken whenever possible. And this book is a straight up and in depth explanation of just what has happened on Wall Street, of the companies constant striving for a ROI of 20% + regardless and how it went from being about the clients and fee's to products intended to bring in profits and buyer beware.
So, if you are looking for straight writing about Wall Street this book is probably a very good place to be, for me it's too grown up,
So, if you are looking for straight writing about Wall Street this book is probably a very good place to be, for me it's too grown up,
December 13, 2010
The book discusses a half a century of trends in the investment banking business model by featuring a series of interviews with Wall Street deal-makers. The interviews are surprisingly candid due to the bankers' frequent use of pseudonyms. Each chapter reveals a shift in the business model from advisor, to utility, to agent and finally to "casino". The book accurately discusses the timeline of these transitions and adequately discloses the shades-of-gray considerations. The book's title is reflected in the thesis that the evolution of the IB business model was led by GS, but McGee does a great job featuring sources across the street. The last 100 pages discuss the role of regulation and the intricacies of the crisis that are better documented in many other texts. I honestly recommend stopping at page 260, when the book dropped from a 4-star rating to 3. The book is voyeuristic enough to entertain anyone who liked Too Big To Fail and useful for IB professionals under 35.
July 18, 2010
I am not well versed in finance, and so this was a challenging yet enlightening read for me. Wall Street is compared to a utility, which makes good sense in many ways. I learned a lot about how Wall Street operated in the past, and how that has changed, and how the changes contributed to the meltdown. Being naturally in favor of free market and less intervention by the Federal Government, I am not entirely certain that government regulation is a good solution here. That said, I don't know what the answer is. I certainly hope that the people who know, or think they know can operate in the best interest of the entire system rather than their own profit and interest.
February 15, 2012
This is yet another book I have read about the financial crisis of 2008. This book endeavors to explain how the culture of Wall Street allowed the financial crisis to take place rather than an explanation of what happened. I would not make this your first or even second or third book about the crisis, but if you really want to delve deep into the psychology of Wall Street this is the book for you. The sad this is this book was written in 2010 and the last few chapters are the authors observations about what need to happen to prevent another crisis. Unfortunately none of these steps have been taken - Wall Street just went back to "business as usual".
August 30, 2012
It's all about risk management until it isn't. Everybody wanted what Goldman Sachs had: big returns in the short term.
"Big clients didn't want to wait around to sell big blocks of stock until the trading desk could find the buyers. Goldman kept the securities on their own balance sheet and took the risk. Unloaded them later, usually at a profit." Fiduciary duty didn't stretch to include the whole financial system. Bankers can't be trusted to look beyond their short term interests. "It's in their DNA."
"Big clients didn't want to wait around to sell big blocks of stock until the trading desk could find the buyers. Goldman kept the securities on their own balance sheet and took the risk. Unloaded them later, usually at a profit." Fiduciary duty didn't stretch to include the whole financial system. Bankers can't be trusted to look beyond their short term interests. "It's in their DNA."
April 9, 2012
it's a book of exceptional importance in which not only is how the reckless way of business operation of Wall Street I revealed but also how it ends up in a self-fulfilling doomsday prophesy. the author outlines a roadmap for readers to take a judgment instead of having made one herself. a fairly researched and thoroughly explained thesis. all in all it's a smooth read even when the subject itself is of little of my interest. applause!
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July 23, 2011The best book I've read explaining the financial meltdown on Wall St. in September, 2008. Not a lot of finger-pointing, just a look at all the historical events, such as the rise of online trading, investment banks going public, the repeal of Glass-Steagall, that led to the "perfect storm" economic disaster.
July 29, 2010
Read if you dont understand what people in the financial sector are talking about.
September 26, 2011
good audio book, good premise--everyone is trying to make that dollar dollar bill. lots of greed..
March 6, 2012
Not a great read, a bit slow. Lots of numbers in a range that I can't comprehend so they quickly lost their meaning. It did give me some insight into the finacial meltdown that occured.
May 2, 2012
Read "The Big short" for a micro level look at the crisis... read this book for the macro level book. A terrific and unique look at the crisis and companies/people who lead us to it.
January 1, 2014
Just okay, there are quite frankly, many books out there on Goldman Sachs that are done better.
March 14, 2014
Good take on how the company has changed over the years and more specifically how Wall Street itself has evolved - for better or for worse.
March 23, 2015
Interesting read, less an explanation of what happened than an exploration of the culture that led to the 2008 crisis.
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