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    Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
    Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
    Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
    Audiobook10 hours

    Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe

    Written by Gillian Tett

    Narrated by Stephen Hoye

    4/5

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    About this audiobook

    Drawing on exclusive access to J.P. Morgan CEO Jamie Dimon and a tightly bonded team of bankers known on Wall Street as the "Morgan Mafia"-as well as in-depth interviews with dozens of other key players, including Treasury Secretary Timothy Geithner-Gillian Tett brings to life in gripping detail how the Morgan team's bold ideas for a whole new kind of financial alchemy helped to ignite a revolution in banking, and how that revolution escalated wildly out of control.

    The deeply reported and lively narrative takes readers behind the scenes, to the inner sanctums of elite finance and to the secretive reaches of what came to be known as the "shadow banking" world. The story begins with the intense Morgan brainstorming session in 1994 beside a pool in Boca Raton, where the team cooked up a dazzling new idea for the exotic financial product known as credit derivatives. That idea would rip around the banking world, catapult Morgan to the top of the turbocharged derivatives trade, and fuel an extraordinary banking boom that seemed to have unleashed banks from ages-old constraints of risk.

    But when the Morgan team's derivatives dream collided with the housing boom and was perverted-through hubris, delusion, and sheer greed-by such titans of banking as Citigroup, UBS, Deutsche Bank, and the thundering herd at Merrill Lynch (even as J.P. Morgan itself stayed well away from the risky concoctions others were peddling), catastrophe followed. Tett's access to Dimon and the J.P. Morgan leaders who so skillfully steered their bank away from the wild excesses of others sheds invaluable light not only on the untold story of how they engineered their bank's escape from carnage but also on how possible it was for the larger banking world, regulators, and rating agencies to have spotted, and heeded, the terrible risks of a meltdown.

    A tale of blistering brilliance and willfully blind ambition, Fool's Gold is both a rare journey deep inside the arcane and wildly competitive world of high finance and a vital contribution to understanding how the worst economic crisis since the Great Depression was perpetrated.
    LanguageEnglish
    PublisherTantor Media, Inc
    Release dateJul 20, 2009
    ISBN9781400182831
    Author

    Gillian Tett

    Gillian Tett was trained as a social anthropologist but became a journalist while doing fieldwork in Soviet Central Asia during the of communism in Russia. Since that time she has risen through the ranks of the Financial Times, holding positions on its economics desk before becoming the bureau chief in Japan. She now lives in London.

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    Reviews for Fool's Gold

    4/5

    85 ratings7 reviews

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    • 5/5
      Great book to get a big picture about the development of CDO and how it got out of control due to greed- Very easy and quick read. Recommend for anyone who wants to quickly get an overview of the development of CDOs and their complexities and greed.
    • 4/5
      Account of how the financial world went into virtual meltdown in 2008, by FT journalist Gillian Tett. Useful background for one who has followed events pretty closely. No one cause and no one guilty group but more than enough blame to go round. Has the world learnt lessons, just possibly; has the crisis been resolved, not by a long chalk; could something similar happen again, almost a probability. The fallout from this tale of greed chasing fool's gold will resonate for decades.
    • 3/5
      Another view of the collapse, focusing on the bankers at J.P. Morgan, who largely stayed out of the stupidest and riskiest decisions but were swept up anyway, in part because they’d played key roles in developing the derivatives that were so badly misused in recent years.
    • 4/5
      Fool's Gold is a story of unintended consequences. It's a largely sympathetic account of a small group of J.P. Morgan traders who perfected the idea of credit derivatives in the mid-1990s and then convinced Congress they shouldn't be regulated. By using something called a credit default swap, they could separate the default risk from commerical loans (one of the biggest sources of risk in banking) and sell it to someone else. The institution guaranteeing the risk was paid a steady stream of relatively small fees for assuming a risk they basically didn't think would happen. J.P. Morgan convinced the regulators that this "innovation" meant banks should be able to lower their capital reserves. The dream was that the capital thus freed up would "turbocharge not only banking but the economy as a whole." Tett portrays the Morgan traders as careful not to engage in deals with unknown or unquantifiable risk--their goal was to control risk not increase it. The problem developed when Morgan's competitors started using credit default swaps with subprime mortgage-backed securities with little or no understanding of their actual default risk and misplaced reliance on self-serving computer models and agency ratings. As one of the Morgan traders said, "Really this crisis is not to do with derivatives. It is about bad mortgage lending, bad risk managment policies, how the innovation was used."As Tett points out, this disaster was self-inflicted. "Unlike many banking crises, this one was not triggered by a war, a widespread recession, or any external economic shock. The financial system collapsed on itself, seemingly out of the blue, as far as many observers were concerned." After taking the reader on a journey to the outer reaches of cyberfinance, Tett concludes that "If there is one element, above all, that is needed to restore sanity to banking, it is that policy makers, bankers, and politicians must adopt a more holistic vision of finance. In essence, what is needed is a return to the seemingly dull virtues of prudence, moderation, balance, and common sense." Amen to that!Probably the main thing this book made me aware of is what's called "the shadow banking system." I wish I could succinctly and intelligently describe the shadow banking system but I just don't understand it well enough. What I got out of the book is that it's a vast, unregulated network of institutions that borrow and lend large amounts of money to each other that has developed over the last 20 to 30 years. It includes all the off-balance sheet shell companies that were created to hold investments such as collateralized debt obligations (CDOs) backed by subprime mortgages. When people started to default on their mortgages, the institutions making up the shadow banking system lost confidence in each other and credit seized up. The result was a bank run, or panic, by institutions (rather than individuals). Tett's self-proclaimed purpose in this book is to explain why the crisis happened. Overall, she did a good job of doing that but there was still enough that I was confused about in the end that I'm deducting 1 star. Nevertheless, this is a well-written, informative and very interesting look behind the scenes of the current practice of banking and how it's changed radically over the last 30 years. Recommended--4 stars.
    • 4/5
      I've now read no fewer than seven excellent books detailing the financial atrocities of 2007-9. Each takes a different spin. British broker Philip Augar covers the historical perspective; hedge fund manager and amateur philosopher George Soros looks to epistemology; former Federal Reserve Chairman Alan Greenspan provides a wide-ranging survey aimed more or less at self-exculpation; former Goldman Sachs chief and US Treasury secretary Hank Paulson breathlessly covers the regulator's perspective; New York Times journalist Andrew Ross Sorkin impressively covers the CEO's perspective and Michael Lewis writes from the perspective of those motley few who not only saw the crash coming (as we all did!) with hindsight, but bet on it happening ahead of time. Now Gillian Tett, an excellent writer for the Financial Times, provides the credit structurer's perspective. Surveying the economic and intellectual environment which lent the tools and opportunity for these sub-prime backed products to get off the ground, Tett tells the story through the prism of the J. P. Morgan structuring desk from whose "BISTRO" transactions ("bank of international settlements total rip-off" indeed!) all of this started, but who still never fell for the mortgage-backed kool-aid which overwhelmed the rest of the market. The house of Morgan (Jean Strouse's reverent tome is well recommended) has a venerable tradition that even Goldman Sachs would envy; its performance over the last three years has burnished that reputation in a way that Goldman certainly ought to. Tett's curiously titled book is, for the most part excellent, entertaining and novel. She does a better (and certainly more balanced) job of explaining the engineering of a CDO than Lewis (though in fairness, his is the only other entry to even have a go), and the J. P. Morgan angle is a clever narrative to lay over the goings on. So much so that when Tett loses her focus on Morgan in the closing stages - her attention switches to the much larger field of conflict as the financial world blew up - the book suffers: Tett's treatment Bear, Lehman, AIG, and others is (of necessity) cursory, and those who are interested should seek out Sorkin's extraordinary survey, which is far more thorough. Tett does pull it all back together again in her epilogue by re-focussing on the Morgan diaspora in a where-are-they-now summary, and she provides a stark and assertive personal perspective. Her background is social anthropology which she says (and I fully agree) provides a valuable perspective on how this could all have happened, and how it might happen again, that you won't find in Hayek or Friedman. But this is added as an afterthought rather than a spoke of the central thesis, which is a pity. For me that's the real story: the herd mentality, the group-think, the social and anthropological hierarchies that persist (and on which our financial and political institutions, frankly, are built) which tend to neuter the checks and balances which classical market theory says ought to be provided by the market. Curiously, George Soros gets closest to this, in his otherwise rather idiosyncratic (and a bit premature) book. Tett's missed opportunity here is compounded when she misinterprets the metaphor of Plato's cave: The participants who look at only the shadows projected on the wall aren't at fault for failing to look at the "perfect forms" whose outlines create the shadows: Plato's point is they *can't* ever see them: it is the human condition to be stuck with the shadows. That ought to lead, therefore to a different conclusion: not that we should turn around to look at the projector - for that will surely blind us - but that we need at all times to maintain a healthy scepticism for what we are seeing. The fatal mistake is to suppose it is the truth.If we can devise a way of building that impulse - a will to contingency, if you like - into our institutions, we'll be on the way to fixing this. Fat chance, I suspect.
    • 4/5
      I was expecting this kind of books usually is a bit more dry or technical to read through. But the author did a good job making the book interesting enough to keep me reading to the end. The book is informative enough but not too boring nor too technical. With the story starting from the JP Morgan group started the derivative team more than 10 years ago, it gave a more in-depth background and insider point of view for the readers to comprehend the unravel of the big Financial crisis. It also got me curious and interested in reading more about the collapse of Lehman and Bear Sterns. Good read.
    • 5/5
      Given the subject matter, this is an extraordinary book. Tett makes the whole story come alive, albeit through the lense of participants in just one company. More importantly, this is very lucid, especially for one like myself who does not ordinarily read and/or understand the whole business of banking. In the end, it comes down to a morality play where folks mess around with things they do not fully understand -- like Little Riding Hood finding the Wolf in Grandma's bed.