The End of Wall Street

by Roger Lowenstein

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The roots of the mortgage bubble and the story of the Wall Street collapse-and the government's unprecedented response-from our most trusted business journalist.

The End of Wall Street is a blow-by-blow account of America's biggest financial collapse since the Great Depression. Drawing on 180 interviews, including sit-downs with top government officials and Wall Street CEOs, Lowenstein tells, with grace, wit, and razor-sharp understanding, the full story of the end of Wall Street as we knew it. Displaying the qualities that made When Genius Failed a timeless classic of Wall Street-his sixth sense for narrative drama and his unmatched ability to tell complicated financial stories in ways that resonate with the ordinary reader- Roger Lowenstein weaves a financial, economic, and sociological thriller that indicts America for succumbing to the siren song of easy debt and speculative mortgages.

The End of Wall Street is rife with historical lessons and bursting with fast-paced action. Lowenstein introduces his story with precisely etched, laserlike profiles of Angelo Mozilo, the Johnny Appleseed of subprime mortgages who spreads toxic loans across the landscape like wild crabapples, and moves to a damning explication of how rating agencies helped gift wrap faulty loans in the guise of triple-A paper and a takedown of the academic formulas that-once again- proved the ruin of investors and banks. Lowenstein excels with a series of searing profiles of banking CEOs, such as the ferretlike Dick Fuld of Lehman and the bloodless Jamie Dimon of JP Morgan, and of government officials from the restless, deal-obsessed Hank Paulson and the overmatched Tim Geithner to the cerebral academic Ben Bernanke, who sought to avoid a repeat of the one crisis he spent a lifetime trying to understand-the Great Depression.

Finally, we come to understand the majesty of Lowenstein's theme of liquidity and capital, which explains the origins of the crisis and that positions the collapse of 2008 as the greatest ever of Wall Street's unlearned lessons. The End of Wall Street will be essential reading as we work to identify the lessons of the market failure and start to reb...

Genres: Finance, Economics, Business, Nonfiction, History, Audiobook, Money

368 pages, Hardcover

First published January 1, 2010

About the author

Roger Lowenstein is an American financial journalist and writer. He graduated from Cornell University and reported for The Wall Street Journal for more than a decade, including two years writing its Heard on the Street column, 1989 to 1991. Born in 1954, he is the son of Helen and Louis Lowenstein of Larchmont, New York. Lowenstein is married to Judith Slovin.
He is also a director of Sequoia Fund. In 2016, he joined the board of trustees of Lesley University. His father, the late Louis Lowenstein, was an attorney and Columbia University law professor who wrote books and articles critical of the American financial industry.
Roger Lowenstein's latest book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, was released on March 8, 2022, and won the 2022 Harold Holzer Lincoln Forum Book Prize.

Reviews

[John McDonald · Rating 5 out of 5]

In 1873, Walter Bagehot, the noted financial columnist for the Times of London, wrote the bible on banking and the measures central banks, then the Bank of England, should be prepared to take when a nation's banking system is plagued with dysfunction or the economy has receded. Bagehot wrote in Lombard Street, "every banker knows that if he has to prove he is worthy of credit, however good may be his arguments, in fact his credit is gone."

J.P. Morgan made a nearly identical observation, perhaps more practical than Bagehot's given Morgan's status as a prominent investment banker, when he famously stated "a man I do not trust could not get money from me on all the bonds in Christendom". If you cannot trust the borrower, what possible reason does a lender have in trusting his collateral, and if you can't trust or feel secure about the collateral, you have no good reason to extend credit and make the loan.

This, it seems to me, was the essence of the collapse of the bond, banking, credit, and capital markets from mid-2007 through late 2009, when the world experienced a preventable, catastrophic economic collapse joining the pantheon of catastrophes alongside the Great Depression and the Dark Ages which followed the black plague.

We have come to believe that our knowledge, our systems, and our technologies will steer us away from doom. What we haven't accepted is that those charged with running the banks, the credit markets, and the businesses which comprise our economy, despite the sophistication of our processes, our knowledge, and our technology, still ignore the lessons of history and bring us to the precipice of collapse because we somehow believe that our systems and markets are "transformative" and will self-correct.

Lowenstein very simply and, I think correctly, believes that failures of the credit markets and issuance of credit securities brought the collapse upon us. He sets the stage early in his work when he writes, "part of the conceit of the new finance was that every risk could be laid off--that is, transferred to some other party". Lowenstein could have gone one step further and asserted that no one with authority at the helm of the banks, the regulatory system, the credit markets believed the volume of debt and, more importantly, the character of the debt being structured in tiers and issued as securities--CDO, CDS, SIVs and the virtually unlimited number of times that any form of debt was securitized--could have resulted in what essentially was the cessation of the functioning of the credit markets to lend because all trust in the creditworthiness of the borrowers, the lenders, and the collateral had dissipated.

Of all the books written about the financial and economic collapse of 2008, Lowenstein's treatment is perhaps the clearest and the most orderly in terms of understanding and preserving the chronological (and historic) march of the events that culminated with the US government essentially nationalizing (without calling it that) the banks, ordering some lenders to merge and forcing investment houses into liquidation, which, in the end, completed the full use of the powers of central banks and regulators to take all steps to calm markets and restart a devastated economy through central banking. I do not disagree with this approach with the caveat that these restrictions, requirements, protocols and regulations are revisited to assess their utility.

Some argue persuasively that borrowers and lenders were both responsible for the calamity of 2008, the lenders constructing debt securities with layer upon layer of debt; the rating agencies--Standard and Poor's, Moody's, Fitch--relinquishing their to duty provide an intense review and prudent analysis of creditworthiness; insurers who insured debt instruments without regard to the possibility that the instruments had little prospect of repaying creditors; banks which loaned depositor's funds without an eye to creditworthiness and the reserves required to protect depositors and the borrowers who, because of lenders' marketing, actually believed that little or no equity in a home purchase should be necessary to enhance the value of the asset so that a borrower's creditworthiness became irrelevant. These arguments are simply unsupported hopes and dreams, do not account for the ghosts of Milton Friedman and Alan Greenspan who stalk these markets reminding us of their unwillingness to regulate (the famous stories of Sheila Baer and Brooksley Borne calling for regulation of credit instruments in the same manner as commodities are regulated) because they simply assumed that credit and other assets markets would self-correct in all cases and remedy any imbalances (Greenspan even told Borne that no one need worry about fraud since the free market would find it on its own without the help of government intervention or the FED.

Bagehot wrote in 1873 that, if you face panic in the credit markets, your best recourse is to lend to everybody without exception on every kind of security at the lowest rate, "because they fear destruction in the panic" and "this bold policy is the only safe one."

At first, the signs were there, but those with regulatory responsibilities (except perhaps the FED's Paul Hoenig) chose to ignore them: The TED spread (ratio of rates of interest on corporate debt to that offered on US Treasuries, a measure of safety, rising to 3-4; banks paying 6% for borrowing overnight repo money when federal funds traded at around 5.25%; CDS premiums gradually increasing as both borrowers, issuers, and insurers realized that a lot of the debt being issued was uncollectible.

Then, there is the question of economic ideology governing monetary decision-making and the marked disbelief that the credit and capital, left to their own devices, would self-correct to prevent the devastation that eventually was wrought upon every economy in the world. Even today, some of that same economic hardline is preventing government policy-makers from taking action to prevent or negate other crippling features of the recovering economy--irrational income disparities that government action could correct, low wages, insufficient safety net programs, especially the lack of uniformly available medical assistance to the poor and many workers.

It is fairly standard that wealthy people who have found success in business and finance come to populate regulatory agencies and positions which give them authority over financial matters. This may be--in fact, I believe it most assuredly--is a mistake. These people marched to their success because they largely inherited or earned their wealth, and believed the system that gave them wealth and security will provide prosperity and security to all. This system is the one they want to continue. This explains part of the problem, or as Aeschylus wrote, "[a]ll arrogance will reap a harvest rich in tears. God calls men to a heavy reckoning for overweening pride." In other words, the pride that comes to those who have succeeded may prevent them from seeing the mistakes being made all around, for which the greater population will pay the costs of a heavy reckoning.

Arrogance and hubris. The consequences are no different now than they were at the time Aeschylus wrote his prophetic words.

UPDATE MAY 2022: The US now must employ the reverse procedures to counteract inflation which partly has resulted from the quantitative easing in place from 2009 through 2014 and renewed during the pandemic. The result has been the onset of inflation, not only in prices but in asset values such as real estate, commodities, stocks. As the FED employs deflationary procedures through the FOMC (largely selling Treasuries and sucking in dollars to reduce assets on its balance sheets), we are likely to see the mirror image of what we observed in the 2005 through 2008 period but with a further economic dislocation as these assets are 'revalued.'

[William Breakstone · Rating 5 out of 5]

BOOK REVIEW


”The End of Wall Street”
by Roger Lowenstein, The Penguin Press, 2010

Reviewed by Bill Breakstone
Somers, New York, Tuesday, May 11 2010

Here is yet another chronicle of the 2008—2009 financial collapse. It is a thorough re-telling of the tragedy, and though much will be found repetitive by those who have read many of the other books on the subject (and there are plenty of them) it does offer some significant new insights or interpretations that other authors may have mentioned in passing, but not with the specifics that Lowenstein offers. Additionally, the author concludes the history with a stinging indictment of the American financial system, not just Wall Street, but the underlying theories that were espoused by economists and our economic leadership over a three-decade period leading up to the present time.

There were so many crises that our financial leaders at Treasury, the Fed, the SEC and other regulators had to face that, regardless of the mistakes that were made, they must be admired for their stamina, endurance and willingness to modify their solutions and new worries arose day after day, and sometimes hour after hour. They are all detailed here by Lowenstein, who is particularly adept at tying them together in relationship to each other. Just as Paulson, Bernanke and Geithner came up with a rescue of Fannie and Freddie (“the Sisters”), less than 24 hours later they were faced with the demise of Lehman Brothers.

At many times during the crisis, the subject of moral hazard arose. It has reared its ugly head again this morning, as economists, bankers and commentators are beginning to see the EU rescue of the Greek economy as possibly setting up a European repeat of the reliance upon governmental rescue as an excuse for national economic action by the individual states affected by the debt crisis.

Lowenstein elaborates on the changing solutions that the “financial triumvirate” (Paulson, Bernanke & Geithner) attempted to institute as a solution to American banking debt. Bear Stearns was saved from complete failure by a government- sponsored (or should we say forced) takeover, thus establishing early on the moral hazard mentioned above. Next came the quasi-nationalization of the Sisters. During the intervening 5-plus months, Lehman’s finances deteriorated, its share price plummeted, and its management was encouraged to seek a merger partner or a buyer. Lehman’s management moved at a snail’s pace, until it was too late. Even up to those last days preceding the September 16, 2008 bankruptcy, there existed the hope of a rescue, which would have involved a government guarantee. But by that time, Paulson was dead-set against another “bailout” and refused Barclay’s request for a temporary guarantee, one that would have bridged the gap for a period of less than a week until Barclay’s shareholders could approve Lehman’s purchase.

With Lehman’s demise, the pressure mounted on every firm, as the trust so essential to the operation of capital markets evaporated. When our Triumvirate assessed the impact that AIG’s failure would have on the world’s economy, the “moral hazard” high-ground was quickly abandoned. As Bernanke said at the time, “There are no ideologues in financial crises.”

Here is the irony of Lehman’s demise. It had the b ad luck to be number one after Bear Stearns and before AIG. If the roles had been reversed, or if Bear had been allowed to fail first, Lehman might very well still be around.

As said above, the real meat of Lowenstein’s book come with the final two chapters. Let’s allow the author to speak for himself:

“The cost of the crash to ordinary citizens was astronomical. The total wealth of Americans plunged from $64 trillion to 5$51 trillion. Another cost—to be borne by future generations—was the huge growth in the federal deficit incurred to pay for the rescue.

The most punishing blow was the devastation in jobs, and for ordinary workers the pain continued long after the worst was over on Wall Street. In October 2009, unemployment hit double digits—10.2 percent. In California, cradle of the subprime loan, 12-1/2 percent of the population was out of work; in Michigan, devastated by the collapse in auto sales, 15 percent. As a measure of how disproportionate was the Wall Street scourge, Wall Street itself, presumably one of the prime agents of the bust, shed 30,000 jobs; the entire United States lost a total of eight million. Never, since the end of World War II, had so many jobs disappeared so fast, and never had the power of finance to inflict damage on the society it serves been so painfully clear. By the recession’s end, the economy had lost all the jobs that had been added during the boom years, and more. Even with a population that was 20 million larger, the job market was smaller. In sum, the U. S. spent nearly a decade losing ground—a decade that, according to the country’s highest sages, was to have ushered in an era of nearly uniformly advancing prosperity. The subprime binge that Bernanke had supposed was a contained problem turned out to be a symptom of a full credit mania. Ultimately, it destroyed the American workplace. Such was the bitter fruit of Wall Street’s folly.”

The final chapter continues:

“The crash put paid to the intellectual model that inspired, and to a large degree facilitated, the bubble. It spelled the end of the immodest faith in Wall Street’s ability to forecast. No better testimony exists than the extraordinary recanting of Alan Greenspan, the public official most associated with the thesis that markets are ever to be trusted. Ten days after the first round of TARP investments, Greenspan appeared at the House of Representatives to, effectively, repeal the credo by which he had managed the nation’s economy for seventeen years:

In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivative markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.

This remarkable proclamation, close to a confession, was the intellectual counterpart to the red ink flowing on Wall Street. Just as Fannie, Freddie, and Merrill Lynch had undone the labors of a generation—had lost, that is, all the profits and more that they had earned during the previous decade—Greenspan undermined its ideological footing. And even if he partly retracted his apologia (in the palliative that it wasn’t the models per se that failed, but the humans that applied them), he was understood to say that the new finance had failed. The boom had not just ended; it had been unmasked.

Why did it end so badly? Greenspan’s faith in the new finance was itself a culprit. The late economist Hyman Minsky observed that “success breeds a disregard of the possibility of failure.” The Fed both embraced and promoted such a disregard. Greenspan’s persistent efforts to rescue the system lulled the country into believing that serious failure was behind it. His successor, Bernanke, was too quick to believe that Greenspan had succeeded—that central bankers had truly muted the economic cycle. Each put inordinate faith in the market, and disregarded its oft-shown potential for speculative excess. Excessive optimism naturally led to excessive risk.

The Fed greatly abetted speculation in mortgages by keeping interest rates too low. Also, the various banking regulators (including the Fed) failed to prohibit inordinately risky mortgages. The latter was by far the more damaging offense. The willingness of government to abide teaser mortgages, “liar loans,” and home mortgages with zero down payments, amounted to a staggering case of regulatory neglect.

The governments backstopping of Fannie and Freddie, along with the federal agenda of promoting home ownership, was yet another cause of the bust. Yet for all of Washington’s miscues, the direct agents of the bubble were private ones. It was the market that financed unsound mortgages and CDOs; the Fed permitted, but the market acted. The banks that failed were private; the investors who financed them were doing the glorious work of Adam Smith.

Rampant speculation (and abuse) in mortgages was surely the primary cause of the bubble, which was greatly inflated by leverage in the banking system, in particular on Wall Street. High leverage and risk-taking in general was fueled by the Street’s indulgent compensation practices.

The system of securitizing mortgages lay at the heart of Wall Street’s unholy alliance with Main Street, and several links in the chain made the process especially risky. Mortgage issuers, the parties most able to scrutinize borrowers, had no continuing stake in the outcome; the ultimate investors, dispersed around the globe, were too remote to be of any use in evaluating loans; these investors (as well as various government agencies) relied on the credit agencies to serve as a watchdog, and the agencies, being cozy with Wall Street, were abysmally lax. Wall Street’s penchant for complexity was itself a risk. Abstruse securities were more difficult to value, and multitiered pyramids of debts were far more susceptible to ruinous collapse.

The banks’ stock prices offered unsettling evidence of how thoroughly the market failed to appraise the possibility of loss. By 2007, the banks had all disclosed massive holdings of mortgage securities, and mortgage defaults were soaring. And yet, as late as that October, Citigroup was trading near its all-time high. That investors could be so blind refuted the strange ideology that markets were somehow perfect (“strange” because the boast of perfection is never alleged with respect to other human institutions). By analogy to the political arena, American society respects the will of the voters, as well as the institution of democracy, but it limits the power of legislatures nonetheless. Market referendums are no less needful of checks and balances.

Counter to the view of its apostles, the market system of the late twentieth and early twenty-first century did not evolve in a state of nature. It evolved with its own peculiar prejudices and rites. The institution of government was nearly absent. In its place had arisen a system of market-driven models, steeped in the mathematics of the new finance. The rating agency models were typical, and they were blessed by the SEC. The new finance was flawed because its conception of risk was flawed. The banks modeled future default rates (and everything else) as though history could provide the odds with scientific certainty—as precisely as the odds of in dice or cards. But markets, as was observed, are different from games of chance. The cards in history’s deck keep changing. Prior to 2007 and ’08, the odds of a nation-wide mortgage collapse would have been seen as very low, because during the previous seventy years it had never happened.

What the bust proved, or reaffirmed, was that Wall Street is (at unpredictable moments) irregular; it is subject to uncertainty. Greenspan faulted the modelers for inputting the wrong slice of history. But the future being uncertain, there is no perfect slice, or none so reliable as to warrant the suave assurance of banks that leveraged 30 to 1.

In particular, the notion that derivatives (in the hands of AIG and such) eradicated risk, or attained a kind of ideal in apportioning risk to appropriate parties, was sorrowfully exposed. . . . . . “

Lowenstein offers a few final salvos concerning the relegation of Keynesian economic theory to a premature historical rubbish pile, and the belief of Ronald Reagan and his intellectual sages that government regulation had become unnecessary, that as the former President famously said “government was the problem, not the cure.”

Then the author’s coup de grace: “Previous to the crash, it was casually assumed that no statutes or rules were needed to prevent banks from making foolish loans; after all, the theory went, why would institutions ever jeopardize their own capital? This cornerstone of efficient market theory—the view of economic man as always rationally self-interested—was rather embarrassingly upended. Similarly, the faith that bankers know best, that they could be counted on to preserve their firms was shattered.”

[George Bradford · Rating 4 out of 5]

If Wall Street is not working in the public's interest, why did the government bail it out?

How did Wall Street -- once primarily engaged in raising capital for industry, advising on mergers and selling stocks to the public -- migrate to casino style gambling activities with no conceivable social benefits? Why did the U.S. Government fail to identify and regulate Wall Street's serial risk binging? How did U.S. taxpayers get stuck with the tab for Wall Street's reckless greed?

Former Wall Street Journal reporter Roger Lowenstein answers these questions (and many more) in "The End of Wall Street". Lowenstein weaves his historical narrative of the events, personalities and institutions involved in 2008's economic collapse around Robert Rodriguez. In 2006 Mr. Rodriquez had over 20 years experience running a top performing stock fund and a highly rated bond fund for First Pacific Advisors. And from this vantage point Robert Rodriquez anticipated trouble earlier than most.

Lowenstein chronicles how and why Rodriquez distanced his clients from Fannie Mae and Freddie Mac in 2006, rid his bond portfolio of of "suspicious" mortgage-backed securities in early 2007, warned investors of an "absence of fear" in mid-2007 and saw that it would require capital (not just liquidity) to save the financial system in 2008.

But "The End of Wall Street" is not merely the story of one capitalist who foresaw disaster ahead. "The End of Wall Street" is much more.

All of the individual players (from Alan Greenspan to Barack Obama) are called to account. All of the institutions (from the Federal Reserve to Goldman Sachs) are here. And all the drama (from the government rescue of Bear Stearns, to its decision to let Lehman Brothers die, to the government's subsequent bailout of AIG, to its relentless efforts to broker mergers of tottering financial service behemoths and to its ultimate socialism -- making taxpayers shareholders of the nation's nine largest banks) is recounted in detail.

"The End of Wall Street" details the very real carnage visited on our nation as a result of 2008's economic collapse. The vanished jobs, the lost homes and the evaporated savings are merely the tip of iceberg. Government deficits (and defaults), a vulnerable dollar, financial insecurity and permanently high unemployment are here for the foreseeable future.

"The End of Wall Street" also asks questions that should trouble every citizen. Just which of Wall Street's activities, precisely, were so essential that they merited federal protection? If Wall Street is not working in the public's interest, why did the government bail it out? What part of Goldman Sachs is good for the country?

Roger Lowenstein's "The End of Wall Street" delivers the facts and allows you answer these questions for your self. And, in doing so, it is a good read.

[Mac · Rating 4 out of 5]

With essentially the same content as Sorkin's "Too Big to Fail," Lowenstein's book traces the roots of the financial crisis and follows the events as they unfolded. While it doesn't have the same level of detail that "TBTF" contains, it does have more in-depth analysis of the events, something Sorkin clearly resisted.

With this analysis comes a point of view, and Lowenstein identifies under-capitalization of banks as the true cause of the financial meltdown. He points out, fairly, that there wasn't much of a liquidity crisis, as many writers have identified, because liquidity was easy to come by - capital, on the other hand, was not. This is a convincing premise, but considering the sheer amount of odious financial instrumentation and experimentation going on in the early-mid 2000's, under-capitalization was only one turd among many in what turned out to be a gargantuan pile of shit.

In addition to its analysis, "The End of Wall Street" moves slightly past where "Too Big to Fail" ends and even attempts a little prognostication. Here's where things get a little poignant - Lowenstein clearly thought that more positive things would come out of this. You know, people learning their lessons, stronger financial regulation, etc. Unfortunately, bankers are up to their old tricks, and what seems to be the real legacy of the financial crisis is the influence of the Tea Party.

[Bryan Craig · Rating 4 out of 5]

This is another approachable book on the 2008 financial crisis. I learned a lot about how the crisis started; it gives you a solid background on how Wall Street become one wild casino.

[Megha Kaveri · Rating 4 out of 5]

A detailed description about the happenings and what triggered it. I liked this book in particular because of the clarity. It is clear that the bankruptcy and the recession that happened in 2008 wasn't something that to off in 2008. It was like magma boiling inside the earth and finally thrown out as lava. Excellent read for people who like simple language and longer narrations. Although the number of characters in the book is a little intimidating.

[Walt · Rating 3 out of 5]

It is difficult to place this book in a list of recommended readings. It includes detailed information presented in a chronological scheme; but the writing style assumes the reader is versed in the language and operations of Wall Street. However, if the reader is familiar with the lingo of the business world - and derivatives in particular - and the operations of Wall Street, the book may be too simple.

As someone reading for casual interest, I got only bits and pieces of understand. Lowenstein does not explain things well, and when he does explain terms and conditions, he does so casually and does not refer back to them. A case in point is derivatives. He briefly mentions that they are a financial tool that are derived from something else, such as debt. What does this mean? I do not know. CDOs? I mistook these for credit default swaps; but they are another financial tool.

The result is that I do have a better understanding of events leading to the 2008 economic melt down; but I am not confident in being able to share that information to another casual reader. Lowenstein does a good job in places. His discussion on credit default swaps was informative. Readers may know they are insurance premiums on financial trades; but few casual readers probably realize that anyone could take out a CDS on any trade whether they were an active party in the trade. The result is that third parties would purchase a lot of CDS and try to make the trades fail.

Lowenstein introduces a lot of new people into the situation. Many of them are lawyers, and others are "they number two guy at JP Morgan," or some such vague position. The result is an impenetrable web of meetings and personas. Some are good and competent; others are not so good and careless. Lowenstein appears to try to avoid laying blame. The closest he comes is the hard core conservative ideology of Hank Paulson, Paulson's inner circle of Goldman expatriates, and unidentified hedge fund managers who actively sought to collapse some of the big banks.

Scattered into this mix is an ambiguous character named Rodriguez. He seems to have been a financial trader of some sort who had no formal role in the outcome of the financial collapse; but rather was an average guy who presaged doom. Lowenstein glorifies the trader, who correctly predicted the fallout of the collapse. Too bad Rodriguez retired....Perhaps the main reason for including him is to show that some traders knew bad times were coming, even if the CEOs did not.

[Kathy Scantle · Rating 5 out of 5]

Of all of the financial crisis books I've read, The End of Wall Street by Roger Lowenstein was by far the most comprehensive and informative. Lowenstein went in to just about every single aspect of the financial crisis including credit rating agencies, Fannie and Freddie, Lehman, leverage, capitalization, Bear Stearns, credit default swaps, deriviatives, CEOs, subprime mortgages, Wall St bonuses, politics, Geithner, Paulson, Bernanke, Greenspan, Congress, Citigroup, the TARP and on and on. This was the 5th book I've read about the financial meltdown and it the one that gave me the best run down of the crisis. I loved the book Too Big to Fail, but that read like a thriller and included all of the juicy gossip and scandals of the meltdown. 13 Bankers was way over my head as I felt I needed a finance class to understand it. The End of Wall Street put everything in an easy (well, pretty easy) to understand way. It also filled in the gaps for me about some parts of the financial crisis that I hadn't read about. Lowenstein reveals mistakes that people made but he doesn't dwell on the mistakes. As you read you will notice by the end how everyone has made serious errors on predicting and preventing the crisis. The author does this so that by the end the reader discovers that nobody had this right -- although some had it right some of the time. He did such a good job at this that he does not inflame the populist rage or take political sides. Lowenstein told the story of the financial crisis in a way that spoke "it is what it is," rather than being inflammatory. He did explain what he thought was an error of the TARP at the beginning, that is, that Paulson et al used the TARP to give liquidity to the banks, when Paulson and his team should have used the TARP to give capital to the banks. (Paulson and his team later did use the TARP to infuse capital into the banks.) As Lowenstein was describing how the market, or the capitalists who plied it were smart and developed many brilliant products, they had forgetton one thing: "Capitalism requires capital. No amount of leverage, not even record quantities of liquidity from the Federal Reserve, can obviate this need."

[Dan Schiff · Rating 2 out of 5]

A clinical, relatively bloodless recounting of the subprime mortgage bubble and resulting mess that infected Wall Street. Lowenstein's knack for detail is a plus, but he is more reporter than storyteller.

There's not much of a narrative here, and "character" development (since he lists an extensive "Cast of Characters" at the book's outset) is limited mostly to where an executive grew up, what his parents did, and how much he likes to golf. Attempts at color are few and largely unsatisfying. Do we really care where such and such VP from Wachovia was on vacation when he got the call to fly immediately to New York?

Lowenstein is big on sprinkling in quotations where he can, though they are frequently clipped and out of context, giving the impression of characters awkwardly speaking past each other. I can only assume he was interested in sticking with the facts through and through, not fabricating any quotations, though this would have aided many scenes.

The End of Wall Street has an undercurrent of outrage running throughout, which is understandable. Lowenstein's ultimate eulogy for Wall Street and its excesses -- as well as the federal government's spastic, poorly measured response -- is cogent and eloquent. But my guess is the book would have been better if Lowenstein had waited a few more years for the true legacy of this crisis to come into greater focus.

[John Gurney · Rating 4 out of 5]

End of Wall Street is highly readable, even suspenseful, although we already know how the mortgage crisis ended in 2007-2008. Author Roger Lowenstein commendably takes us through a brief financial history of mortgage lending and securitization. We are reminded of Fannie Mae and Freddie Mac and how, as early as the 1990s, they were loosening lending standards and fending off additional regulation. The late Clinton-era days of Robert Rubin and the ultra-low interest rates of Fed Chair Alan Greenspan as well as powerful politicians like Chuck Schumer (D-NY) who wanted more loans for people of moderate means all had their parts. G.W. Bush-era misregulation and a frenzy of moral hazard and agency problems plus a reliance of statistical models that used historic data set the stage [think: "past results do not guarantee future results"].

Lowenstein pulls no punches when exposing incompetence and willful blindness at Countrywide Mortgage, Citibank, Lehman Brothers, Bear Stearns, AIG, Merrill Lynch, and others. We follow the rescues day-by-day, yet at a fast pace, as Hank Paulson, Timothy Geithner, and Ben Bernanke tried to hold the financial world together, lurching from 2008 crisis to another. Lowenstein covers technical material in a readable way.

[Jaak Ennuste · Rating 5 out of 5]

If you want to understand the 2008 financial crisis, then this is the book. Few authors get the data, details and stories in the perfect balance like Lowenstein does.

I was too young to understand when this was going on, but it is by far the most serious financial crisis since 1930s. The President and Treasury were not sure if they are looking at a complete financial Armageddon whereby all banks could fail. The government bought assets and equities of private companies by up to USD 430bn. If you also include guarantees and short term loans given, the support was roughly 3 trillion USD. This was the size of the government's annual budget.

At the heart of the crisis is too much debt to uncreditworthy people. This probably surprises nobody. But why did it happen, and on such a large scale? Charlie Munger uses the term "lollapalooza effect", which means that many different strong winds start blowing in one direction, and this creates one of a kind conditions for disproportionate events (bad and good). Let us consider the different "winds" at play here.

1. Weak regulation in home loans. Almost any person could get a home loan. Such loans got various names - subprime mortgages, NINJA loan (no income, no job, no assets). The point was all the same. A person would ask for a loan, and they often did not have to submit any details on their income, other assets, even on whether they wanted to live at the house or not. Depends on how you measure it, but anywhere from 20-40% of new loans given out in 2006 were to persons of very weak credit. Either they had a weak credit score, or they had decent credit score, but they had other large loans and/or missing documentation (so you did not really know about their creditworthiness). During 2006, for first time homebuyers, the average down payment was 3% of the house price. The median was 0%. Yes, the median buyer did not put any of their money down.

2. Perverse financial products. You might ask why would a rational banker give out a loan to someone with weak credit score and no down payment? They will default, and the bank will take a loss. One reason is that a bank executive might think of his bonus this year or next year, but no further than that. The second reason, and this is specific about the Great Recession, is that they could put various bad home loans together and sell it to investors (investment banks, investment funds, retail investors, whoever..). Suddenly, the loans are off their balance sheet, and not their worry anymore. It is not surprising that you do not care about the quality of the loans you give out if you are not on the hook for it. So, banks started creating complicated products such as CDOs, which pooled together loans and then sliced them into different tranches. Many levels of complications made sure that no one was accurately able to assess risks. And investors thought they were purchasing home loans packages, which had historically been solid.

3. Rating agencies were crooked. Now one could ask whether there are no judges for these types of products? Yes, there are. Moody's, S&P and Fitch are supposed to do that work. They take a loan product (call it "CDO - bonanza") and analyze what type of loans are included there (there might be thousands). If these are to people who have not documented their income or assets, then they should give it a bad rating (D!). Once the CDO - bonanza is given the rating D, no investor will want to buy it. But that did not happen - the rating agencies gave them straight As. Why? As always, it is because of incentives. Their business model had changed over time, and their main clients were now banks and investment banks, who paid the credit agencies to give marks to their products. It is an obviously perverse incentive. If you gave someone a D, they would take their business to your competitor.

4. Even more perverse financial products. There were so many, it cannot be summarized in a post, much less in one bullet point. Financial firms were clever enough to then start giving out credit default swaps on these shitty products. For simplicity I will call this product insurance, because this is what it is essentially. The demand for insurance became so significant that they started creating synthetic insurance. I will bring an example. Lets say I buy insurance to my house (EUR 700k - I wish...). Synthetic insurance means someone else can buy insurance on my house as well. Now when something happens to my house, the insurance provider is on the hook not for EUR 700k but EUR 1.4m. This creates a level of complication which makes it, at some point, impossible to truly assess the assets and liabilities accurately. One failure can lead to a huge insurance claim, that then brings down the insurance firm, that then has other second and third order effects.

5. Bonuses of bankers. Everything was built up for short term performance. Give out shitty loans, sell them to investors, gain a profit, and pay your executives millions in bonuses. Banks that went bust paid out bonuses in the very same year they went bust. So, everyone had the incentive to max out on short term gains at the expense of long term health of the company and the economy. The CEO of Merrill Lynch was sent home with a USD 160m package. Because his firm had failed.

Then came the bailout. The Treasury and the FED truly were worried about the state of the economy, and this is what dictated the bailing out of financial firms. It meant purchasing their equity, making short term loans to them. Hank Paulson, the Treasury secretary, was at pains not do do it, but eventually he concluded that not bailing out was simply a worse option. He came out of this ordeal fairly well in my view. Ben Bernanke was too much of an academic to understand the depth of the crisis (he thought it was all contained when the crisis was already brewing).

[Vonetta · Rating 4 out of 5]

I'm a finance nerd, so I'm into this sort of thing, but even if you're not a fellow nerd, it's still easy to get sucked into this book. I've never read Grisham, but I'm guessing the narrative of The End of Wall Street is just as suspenseful. I mean, we all know what happens, but I was on the edge of my seat, gobbling this up, all testament to Lowenstein's writing style.

[Koke · Rating 2 out of 5]

كعاده الامريكان في اغلبيه كتابتهم الصحفيه يسردون وكأنك تعلم
كتاب سئ لم اكمله للنهايه

[Jakub Dovcik · Rating 4 out of 5]

The focus of this book is on the highest level of decision-making within Wall Street in the period before and during the 2008 crisis, specifically focusing on the fall of Bear Stearns, attempts to rescue Lehman Brothers, and later the saving of AIG.
It is much less personality-driven than for instance Big Short and surveys primarily the thinking of CEOs, FED presidents (Lowenstein tends to place a great emphasis on FED policy in his books, relative to other authors, and this one is no exception), and Henry Paulson, the then-Secretary of Treasury. Thus it is frankly slightly boring at some points in the middle, especially around the repeated attempts to solve the credit problem in the first half of 2008. It is nevertheless probably the best general, and to a large extent objective, an overview of the inner workings of Wall Street that kindled the Great Recession - the faults of mortgage-backed securities, bad regulation policy from both Democrats and Republicans, and then mistakes in the run-up to the fall of Bear and Lehman.
Unlike many other books, this one does not have pure greed as the primary cause of the crash - it is much more nuanced, with incompetence and mistakes playing a larger role.

[Tyler Storm · Rating 4 out of 5]

Clear and relatively concise book. Many of the reviews here, especially John McDonald's review, eloquently describe what the book is about and the author's main arguments.

I'll agree that Lowenstein did a good job in writing this book to sum up what happened and what caused the financial crisis here in the United States. Of the books that exist on this topic, Lowenstein's book covers all the bases and is entertaining and non partisan. His sources are all primarily from direct interviews with the policy makers, bankers, lawyers, and so forth involved in the deal making and negotiations.

The book gets boring once you hit around page 200/300 but once you get to the chapters about TARP in fall 2008 and the rebound in the economy it starts getting much better. I'm glad I stuck with it and finished the book. Lowenstein has a nice writing style that is somewhat similar to Michael Lewis writing style. This book won't be as technical as other books on this topic thus it is a good pick for a lay person.

[Jill Martin · Rating 4 out of 5]

Roger Lowestein. 11.33 hrs. Narrated by Erik Synnestvedt. A very informative account of the years leading up to the beginning of the crash in Oct. 2008. Very scary details of how Wall Street banks and investors abused lending practices by over leveraging, making very bad loans to just anyone without proper requirements, bundling them all into CDOs so no one knew how bad they were and paying huge salaries/compensation to its upper management and account execs. The book also chronicles the FEDS, US Treasury, Wall Street investment firms and big banks just ignored all the signs of failure. The book was very informative, but I’m glad I listened to it instead of read it. I think I would have found it tedious to read. 8 stars. (4.26 to 6.2.17)

[Vincent T. Ciaramella · Rating 3 out of 5]

Teaching Economics, I really wanted to know what happened. When one tries to research it independently there is a lot of finger pointing. I really didn't know who to believe. I took a gamble with Lowenstein's book and I wasn't let down.

I feel I have a better command of the chaos that descended upon our economy during late 2007 into 2009. His book was balanced and didn't hold back. It wasn't just one person or institution that was guilty, it was an interconnected web of shady deals, unregulated banking, and a Fed chairman who tried to solve the issue by applying Great Depression era solutions to a problem that had little in common with it.

I would recommend this book to anyone who wants to read about what happened in 2008.

[George Crofts · Rating 5 out of 5]

When I attained my MBA at the University of Southern California in 1988 the prevailing finance dogma was efficient markets theory. According to this theory all available information was reflected in the market price of assets. The crash of 2007-8 proved this theory wrong.

Similarly in the mid-2000’s Hank Paulson and Ben Bernanke believed that the market could effectively price risk and police itself without any Government oversight.

Roger Lowenstein is very good at explaining complex financial topics. I had forgotten what a synthetic collateralized debt obligation (CDO) was.

I like everything that Roger Loewenstein writes.

[Gary Slavens · Rating 4 out of 5]

Working in Charlotte, home to Bank of America and Wachovia, during the financial crisis, “The End of Wall Street” was informative and infuriating in turns. Seeing how “too big to fail” played out in reality made for page-turning reading. The most painful part of this book, however, was the realization that we, as a country, society, and government, don’t appear to have learned any lessons from the crisis. If that’s true, then I fear that we’re doomed to repeat them.

[Harshan Ramadass · Rating 4 out of 5]

As we continue to see this incredible frothiness everywhere in asset markets, I wanted a guilty pleasure read from the last recession. Boy! Was it a wild time? I just don’t know (still) if this current - crypto,nft, meme stock, bidding houses on zoom - craze will end up causing the same damage as the Great Recession. Some very smart people like Howard Marks and Jeremy Grantham say we are very nearly there!

[Jennifer · Rating 3 out of 5]

My Dad lent me this book when I started my current job and it was fascinating now that I know a lot more about Fannie Mae and Freddie Mac. I read half of the book and then listened to the last half of it. It is stagger how we go to the point of the financial crisis in 2008 I hope we learn from our mistakes and prevent anything like this from happening again.

[Mark Robertson · Rating 3 out of 5]

This obituary was decidedly premature, as the bankers went largely unchastened and those too big to fail have only gotten bigger. Still, a good description of the US-centered events at the start of the global crisis with a healthy respect for economic theory and government’s role.

[Caio Malufe · Rating 5 out of 5]

Very good account of the world crisis and how it came to be the size it eventually got to! Highly recommended, especially for those who are interested in the financial markets

[Brad Trademark · Rating 3 out of 5]

Great info on the fall out of the housing market which kicked off The Great Recession.

[Harsimran Sahni · Rating 5 out of 5]

Great book ..must recommend to all who want to learn about 2008 recession.

[Annalise Schamuhn · Rating 4 out of 5]

Almost too detailed and play-by-play, but maybe that's what you're looking for! I admit I skimmed through a lot of the plot and focused more on the discussion and analysis.

[Suzanne · Rating 5 out of 5]

Great summary of the crisis.

As a mortgage banking attorney who was involved in loan pool reviews from that era it was an exciting look back

[Elizabeth · Rating 4 out of 5]

Great explanation of the great recession. Recommend this to anyone looking for knowledge on what happened.

[April · Rating 4 out of 5]

Although nearly a decade old now, this accessible and engaging book gives a fascinating look at the events before, during, and immediately following the banking crisis.

[RayKrauze · Rating 4 out of 5]

A concise and easily digestible read on the 2008 financial collapse.