House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
by William D. Cohan
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Book Summary Information
Author: William D. CohanEdition: Hardcover
Audio: English (Original Language); English (Unknown); English (Published)
Published: 2009-03-10
ISBN: 0385528264
Number of pages: 480
Publisher: Doubleday
Product features:
- ISBN13: 9780385528269
- Condition: NEW
- Notes: Brand New from Publisher. No Remainder Mark.
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Book Reviews of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
Book Review: Jack of Hearts
Summary: 2 Stars
The title of the book, makes me imagine a tower composed from a deck of
cards, and then maybe a paper airplane flying into that "house of cards".
Were things really that "structurally" fragile?
I do not think you can really read and understand this book if you do not
first understand the basic vocabulary: For example, without knowledge
of what words such as Mortgage Backed Security (MBS), or Subprime mean,
how will you understand how loans were made, and then the money owing
to the institution (or party) who made the loan, was sold by that institution
(or party) to somebody else, for a price, and that that somebody ended up with
essentially a mispriced bond, while the originator of the loan got cash and
no longer had to worry about the person (or family) they lent the money to?
A mortgage is a "funny" loan. It is "funny" (strange, not ha-ha) because the
interest rate tends to vary, every few years, whereas with a traditional loan
the interest rate is fixed. I guess if you are really "smart" instead of applying for
a 100 grand mortgage, you would instead apply for a 100 grand loan to buy a
Ferarri instead, but then use the proceeds to buy a house before "they" figure out
that you decided to call your house, "Ferrari".
And then there are these institutions called Fannie Mae, and Freddie Mac...
Which were set up to help people find a place to live, who could not otherwise
afford to do so. Which makes sense, because if USA Inc. is going to employ
individuals, it helps if those individuals have a place to stay, otherwise they
might end up camping near factories, a place of work...It is disturbing that the
manufacturing sector in the US has been shutting down factories and moving
them overseas for the past few decades...The Wealth of a Nation depends upon
what that Nation can make, or provide in terms of products and services, whereas
the Living Standard of a people is determined by what they can acquire.
A nation can be rich, while its people are poor. Some economists, such as John
Kenneth Galbraith, I think, have said that the reason you want to tax the rich to
give to the poor is to help reduce the costs of policing discontent, to reduce the
possibility of civil unrest, crime, and even anarchy. Adam Smith in his book,
Wealth of Nations,noted that a healthy labour force is a productive labour force,
and was therefore an early proponent of socialized medicine (as well as socialized
education). In other words, it is in the best interest of the rich that the poor not
be so poor. For having to go grocery shopping to be met by armed security guards
does not equate to a "high living standard" in the minds of most people who have
money, or food stamps, to spend.
Have you ever noticed that if you go into a bank to ask for a loan (specifically
a mortgage) you might also be tempted to invest in a mutual fund? But what
you will not be presented with is a list of real estate listings in your neighbourhood.
Banks sell mortgages, and not houses. I guess if they sold houses, somebody
might come back and say, There is a problem with the drywall, I want a refund.
They who are good at accounting tend not to be good at physics, chemistry,
plumbing, electrical, or drywall construction problems. A salient feature of modernity
is the interdependency of economic life.
I once asked a stock broker how I could buy (invest in) a bond. He looked at me and
said, I don't know...I still have not figured out how to do that, although discount
brokerages abound allowing anybody with cash and a bank account it seems to open
up a stock-trading account with little difficulty...Many it seems would like to blame
the mortgage default problem on Moody's, the credit rating agency, because they
feel Moody's should have seen that the MBS paper was risky, and rated it as such,
relatively early on. But it is important to note that legally speaking, Moody's published
opinions, and was not paid for the accuracy of those ratings, only for the privilege of
offering an opinion. Moody's reputation has been tarnished, is not considered a
trustworthy company now because their employees were not good at their j-o-b.
That is cold-comfort to the investors, however.
SUBPRIME is an odd word, it does not have to do with interest rates, but it is a classification,
an adjective used to describe individuals with either a lack of credit history, or having a poor
credit rating, in other words, persons with a high probability of defaulting on their debt
obligations. And so, mortgage backed securities which "pooled" (collected) the loans made,
into a single giant loan (mortgage backed security) composed of many subprime loans,
really were risky, assuming the vocabulary is correct.
Economists speak of a moral-hazard problem: If persons are able to borrow money, buy
homes, but then later hand in the keys, and simply walk away having declared bankruptcy,
...will banks be willing to make loans in future? Maybe. For a similar reason, insurance
policies often contain a clause about a deductible, and it is a reason why bankruptcy laws
are written so that "declaring bankruptcy" is not that easy, "without consequence", so that
the system of making loans might yet continue.. Obtaining a mortgage to buy a house, not
to live in, but to "flip it", as in sell it at a higher price, is akin to buying stocks on margin.
And like the asset price bubble that occurred in the stock market, it was not too difficult to
predict (or foresee) a real estate asset price bubble either. For many began to buy houses
with the prospect of selling them for higher prices than they paid, as if those houses were
stocks. And banks were willing to lend them cash, to help them "buy on margin".
And now the financial system appears to be either "evolving", or being systematically replaced
with a new economic system which seems oddly reminiscent of the old Soviet system. Imagine
an economy where children are raised to achieve their "full potential", but that potential is
defined by the state rather than the individual. It will be an economy where very few might be
given the luxury of leisure. Abraham Lincoln once said, Let him who does not have a house
not be allowed to tear down the house of him who has, so that when he has a house of his own,
he might not be afraid that somebody might tear down his. Of course, in the days of Lincoln,
a person would go out into the woods with an axe and build himself a log cabin, and would call
that a house. But today, people want windows, electricity, and plumbing. The concept of a "Jack
of all trades" does not seem desirable, or practical. If they who worked on Wall Street had only
been honest with respect to the accounting...If the US had taken Pat Buchanan's advice that
"Protectionism works" (keep the factories at home)...If the oil companies had continued to build
oil refineries during the eighties...But things happen for a reason, in the mystical sense of
"dynamic optimization". That is to say, that at any given moment, the status quo is actually the
best possible outcome given the fallen nature of men. To really change things, people will need
to look within themselves and make that change, before their environment can heal. For God is
Love, and all things are possible with him. Jesus fed five thousand with five loaves of bread and
two fish...A credit crisis, is "nothing": Virtual, really.
"The fault dear Brutus, lies not in the stars, but in ourselves".
- Julius Cesar, the play by Shakespeare.
J.P. Morgan, the Wall Street Financier, once said, "I never gamble". However, he was also
known to see an astrologer. Maybe she was just a close friend. Or he found psychiatry too
expensive in comparison.
Summary of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
On March 5, 2008, at 10:15 A.M., a hedge fund manager in Florida wrote a post on his investing advice Web site that included a startling statement about Bear Stearns & Co., the nation's fifth-largest investment bank: "In my book, they are insolvent."
This seemed a bold and risky statement. Bear Stearns was about to announce profits of $115 million for the first quarter of 2008, had $17.3 billion in cash on hand, and, as the company incessantly boasted, had been a colossally profitable enterprise in the eighty-five years since its founding.
Ten days later, Bear Stearns no longer existed, and the calamitous financial meltdown of 2008 had begun.
How this happened - and why - is the subject of William D. Cohan's superb and shocking narrative that chronicles the fall of Bear Stearns and the end of the Second Gilded Age on Wall Street. Bear Stearns serves as the Rosetta Stone to explain how a combination of risky bets, corporate political infighting, lax government regulations and truly bad decision-making wrought havoc on the world financial system.
Cohan's minute-by-minute account of those ten days in March makes for breathless reading, as the bankers at Bear Stearns struggled to contain the cascading series of events that would doom the firm, and as Treasury Secretary Henry Paulson, New York Federal Reserve Bank President Tim Geithner, and Fed Chairman Ben Bernanke began to realize the dire consequences for the world economy should the company go bankrupt.
But HOUSE OF CARDS does more than recount the incredible panic of the first stages of the financial meltdown. William D. Cohan beautifully demonstrates why the seemingly invincible Wall Street money machine came crashing down. He chronicles the swashbuckling corporate culture of Bear Stearns, the strangely crucial role competitive bridge played in the company's fortunes, the brutal internecine battles for power, and the deadly combination of greed and inattention that helps to explain why the company's leaders ignored the danger lurking in Bear's huge positions in mortgage-backed securities.
The author deftly portrays larger-than-life personalities like Ace Greenberg, Bear Stearns' miserly, take-no-prisoners chairman whose memos about re-using paper clips were legendary throughout Wall Street; his profane, colorful rival and eventual heir Jimmy Cayne, whose world-champion-level bridge skills were a lever in his corporate rise and became a symbol of the reasons for the firm's demise; and Jamie Dimon, the blunt-talking CEO of JPMorgan Chase, who won the astonishing endgame of the saga (the Bear Stearns headquarters alone were worth more than JP Morgan paid for the whole company).
Cohan's explanation of seemingly arcane subjects like credit default swaps and fixed- income securities is masterful and crystal clear, but it is the high-end dish and powerful narrative drive that makes HOUSE OF CARDS an irresistible read on a par with classics such as LIAR'S POKER and BARBARIANS AT THE GATE.
Written with the novelistic verve and insider knowledge that made THE LAST TYCOONS a bestseller and a prize-winner, HOUSE OF CARDS is a chilling cautionary tale about greed, arrogance, and stupidity in the financial world, and the consequences for all of us.
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