This is not just a symbolic black mark. The markets rely on investor confidence, and when that is shaken the results are recorded in tangible declines on balance sheets.
~ Maria Bartiromo
A couple of weeks ago a representative of the public relations firm handling CNBC anchor Maria Bartiromo’s new book sent me an email asking if I would care to review it. I quickly agreed, but my interest stemmed more from a curiosity about the tenor and approach the book would take rather than its actual contents. The book is called The Weekend That Changed Wall Street: An Eyewitness Account. It’s about that fateful September weekend a little over 2 years ago when the 158-year-old financial icon Lehman Brothers declared bankruptcy, sending global financial markets into a panic.
Before I read the book, I wondered whether it would offer substantive information about the financial crisis. Given my interest in markets and economics, I had followed the events of 2008 closely, and felt like I already had a pretty good handle on what happened. Would this book add to my understanding or would it amount to a name-dropping, tabloid-inspired effort to promote CNBC and stock market investing?
Wealth, Fame, and Conspicuous Consumption
The Prologue seemed to confirm my skepticism. It described a lavish 2006 holiday party held by Steve Schwarzman (chairman of the Blackstone Group) and his wife in their posh Park Avenue apartment. Ms. Bartiromo had been invited because the Schwarzmans had bought the apartment from her father-in-law back in 1999. There was indeed plenty of name-dropping. The guest list was a who’s who of finance and politics, and the opulence and excess of the era permeated the text.
I soon realized that the gratuitous glamour of the early pages was merely setting up a stark juxtaposition of the ensuing chapters. As I continued through book, my doubts about its legitimacy fell away one by one. Ms. Bartiromo’s descriptions of the events leading up to and following the Lehman bankruptcy provided an excellent review of everything that was occurring at the time. It’s so easy to forget just how many things changed forever in 2008.
I found the structure of the book to be a little choppy at first, as it seemed to jump from one scene to another. But I soon got used to the format, and ended up finding that it added to my enjoyment of the material. The events of the financial crisis are organized into a series of vignettes, punctuated by character sketches of many key players, and some historical background that was new, at least to me.
There is, for example, a brief history of mortgage-backed securities that I found interesting. As most of you are aware, it was the collapse of the MBS market that really got the crisis rolling. It started with tremors at Countrywide Financial, and whispers about the shady dealings of its founder, Angelo Mozilo.
Chaos, Panic, and Peering into the Abyss
You will recall that the problems snowballed from there. Before we knew it, Bear Stearns was sold to JP Morgan at a fire sale price, Fannie Mae and Freddie Mac were in serious trouble, and the U.S. taxpayer was on the hook for billions of dollars in losses. Next came Lehman Brothers. According to Ms. Bartiromo, a source close to the negotiations had told her as late as Saturday morning, September 13, 2008, that Bank of America was to buy Lehman. That, as we know, didn’t happen and Lehman filed for bankruptcy in the early hours of September 15, 2008.
Bank of America hastily bought Merrill Lynch at about the same time, and a few days later, the U.S. government was rescuing AIG, perhaps the most dangerous grenade out there. No one wanted to pull that pin. The cascade of financial failures continued, with Morgan Stanley and Goldman Sachs being forced to hastily convert to bank holding companies, and runs on Wachovia and Washington Mutual.
You’ll notice that I used the word “hastily” twice in the last paragraph. It’s clear from Ms. Bartiromo’s eyewitness account that the leadership at the time was really flying by the seat of their pants. Hank Paulson, Treasury Secretary at the time, told her off camera that it would be clear in 6 months why they spent “upwards of $1 trillion bailing out major banks without revealing which banks got the money.” She thought “it was a mysterious remark, but the government secrecy finally became clear: it was hiding Citigroup’s insolvency.”
Balanced, Insightful, and Substantial
Overall, the book does a great job of weaving some fairly complex financial concepts into a very interesting plot line. In that sense, I think this book might be of great interest to financial fanatics and the general public alike. In fact, I think anyone who has an interest in our future prosperity would benefit from reading this book.
The latter chapters deal with more recent events like the sovereign debt crisis, but also delve into the core reason these events are so important: Our very way of life is at stake. The final chapter, entitled “Capitalism in the Balance”, tackles many of the fundamental issues I write about on this website.
Over and over again, Ms. Bartiromo cites confidence as the lynch pin of our economic system, and pegs restoring it as priority one for financial reform. I had expected that she might temper her views somewhat, given that her job depends on a reasonably cordial relationship with the business community. On the contrary, she didn’t pull any punches, speaking as a concerned citizen first, and a balanced journalist second.
As for the assumptions I made before reading this book, they were all wrong. If you are harbouring some of the same doubts, I would humbly suggest you set them aside and give this book a chance. You won’t be disappointed.
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