Thursday, June 11, 2009

Summer Reading Lists

Anxiety still clouds the finance world. Few will say they have time to focus on the recently published tales that try to explain the causes of the crisis or dramatize the behind-the-scenes sequences of the implosion of Bear Stearns, Lehman, and AIG. But a handful of titles are making their way up best-selling lists or are being discussed or whispered about.

Consider adding them to your summer reading list. Or at least be familiar with them. That might make a difference in network circles, in the last round of an interview, or in impressing a senior colleague. They all help you understand how it was possible a collapse of mortgage markets led to a near depression in the economy.

Some might say it's too early to assess what happened. Others might contend it's best to tell (and sell) the stories when they are fresh. Most of the accounts are readable--free of arcane jargon, worthy of praise in their efforts to explain the alphabet soup of mortgages, derivatives and securitization (ABS, ABCP, CDO, CDS, etc.).

The best of the lot is House of Cards (by ex-banker William Cohan), which presents a riveting tale of Bear Stearns' history and its sudden downfall. Lack of capital and liquidity issues explain its demise. But Cohan will convince you that selfishness, greed, and short-sightedness among its top leaders in its last years (led by Jimmy Cayne) is just as much the blame.

The book chronicles well the day-to-day problems Bear had in funding itself in its last days, as a literal run-on-the-bank sacked it. Yet Cohan shocks you with tales of petty bickering and undercutting among senior managers. Building a well-capitalized, durable (and diverse) firm was less an objective; a mad, ugly scramble each year to grab multi-million-dollar bonuses was the primary, unspoken goal.

Fool's Gold (by journalist Gillian Tett) focuses on the evolution and astounding growth of credit-default-swaps (CDS), spurred by the inovation from a JPMorgan team in the early 1990's. CDS, she hints, might have ultimately led to the crisis. Tett goes inside to tell how CDS derivatives were nurtured, expanded, and then exploded.
Oddly, the book avoids the technical aspects of CDS (very little about settlement processes and mark-to-market accounting or how dealers make money trading them). And it strains to explain how CDS could be a direct cause of the current crisis.
Nonetheless, it tells a spellbinding story of the people who gathered to brainstorm and had a dream of financial innovation and credit derivatives.
The House of Dimon (by Patricia Crisafulli), a third book, is informative, but reads like a press release from the subject's publicist. A biography of JPMorgan Chase CEO Jamie Dimon. Sometimes it reads like a b-school case.

His up-and-down-and-up story about his climb to CEO has been told often. The book re-tells the story with more detail about his early years and his role as Sandy Weill's protege'/sidekick. You see how career decisions he made right after b-school influence how he got to the top of JPMorgan today. You see how his experiences at Commercial Credit and Primerica prepared him to be the shrewd businessman who happens to run a bank.
The book at times is unbalanced. The author is careful not to be too critical of Dimon's known brash style or any past failings, and she didn't give sufficient time to his detractors or other insiders.

These are all first drafts of history. Now we await to see how the same events will be described in b-school finance texts.

  • Tracy Williams

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