Bear Stearns' fall - House of Cards

HOUSE OF CARDS

A Tale of Hubris and Wretched Excess on Wall Street

By William D. Cohan (468 pp. Doubleday. $27.95) (http://www.randomhouse.com/author/results.pperl?authorid=73897)

http://www.nytimes.com/2009/06/14/books/review/Lieber-t.html?ref=review

Cohan is a graduate of Columbia University Graduate School of Journalism and Graduate School of Business. He spoke at a recent Columbia alumni event. He had recently published this:

http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html

James Stewart was the interviewer at the event (http://www.journalism.columbia.edu/cs/ContentServer/jrn/1165270051276/JRN_Profile_C/1165270081398/JRNFacultyDetail.htm).

These fellows who get along in the business generally accept things, even when they don't agree with them. Charm is important. Cohan was more dyspeptic than the others on the stage. I liked him.

I'm reminded of three lessons we learned in the S&L debacle of the early 199o's.
First, when Congress changes the rules, the outcome is hard to predict and likely to be hurtful to many.
Second, the fellows running major financial institutions don't really know what they are doing.
Third, don't borrow short and lend long. That is, in essence, what Bear Stearns was doing by borrowing overnight and owning securities. People criticize the high amount of leverage at places like Bear Stearns, but you don't hear much criticism of the practice of lending long while borrowing short.

http://en.wikipedia.org/wiki/William_D._Cohan

Kate Kelly also has a book on the fall of Bear Stearns, called Street Fighters.

Here's a comment inspired by her book: http://www.theconglomerate.org/2009/06/larry-ribstein-on-street-fighters.html AND http://www.theconglomerate.org/2009/06/street-fighters.html

Fools's Gold

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 By Gillian Tett (293 pages. Free Press. $26.)

http://www.nytimes.com/2009/06/16/books/16kaku.html?_r=1&th&emc=th

http://www.nytimes.com/2009/06/14/books/review/Barrett-t.html?ref=review

Reviewer Paul M. BARRET wrote, "The Morganites sold the notion that financial gravity had been overcome---that risk had been vanquished and that lending could proliferate endlessly."

Gillian Tett is an assistant editor of the Financial Times and oversees the global coverage of the financial markets. In March 2009 she was named Journalist of the Year at the British Press Awards. In 2007 she was awarded the Wincott prize, the premier British award for financial journalism, for her capital markets coverage. She was named British Business Journalist of the Year in 2008. http://www.ft.com/comment/columnists/gilliantett

Judge Posner

What has gotten into Judge Posner? Look at A FAILURE OF CAPITALISM: /The Crisis of '08 and the Descent into Depression. http://www.hup.harvard.edu/catalog/POSFAI.html

He's so prolific; he turns out books faster than I turn out blog posts.

I celebrate him for identifying our situation as a "depression." Expressing distressing thoughts is not that common.

What should we make of these conservatives like Posner and Greenspan who now say that the market lacks some of the self-correcting mechanisms that they used to say it had?

Part of what they missed was the corruption that infected the last administration. It's my theory (I didn't really think of it) that the last administration failed to be honest and screwed up the market. I think they kept interest rates too low too long, presumably because of the need to finance the war in Iraq. By leaving rates too low too long, the Bush Administration allowed home prices to become inflated. People like Posner and Greenspan aren't likely to say that the failure of the Bush Administration to allow the market to work or to be truthful with the public about the real costs of the war allowed the circumstances that led to the current state of the economy. They are more likely to fall back on the idea that the ideology was flawed in some way.

I cannot really prove this idea, but it certainly seem plausible to me. Anyway, I salute Posner for grappling with this. He's a lot more intellectually honest than many. Here's Posner's blog: http://www.becker-posner-blog.com/archives/2009/05/; here's where he deals with his book: http://correspondents.theatlantic.com/richard_posner/. It's called a "Failure of Capitalism." His Atlantic blog comments are quite thoughtful (not surprisingly) and reasonable.

Posner's book is #250 on the Amazon list today.