FOOL’s GOLD:How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a

Catastrophe

- Gillian Tett

ANKIT KHANDELWAL

Book Review

THEME

• A vivid description, and investigation of the reasons behind the financial crisis of 2008, the biggest global economic meltdown after the 1929’s Great Depression.

• Theme encapsulated in the subtitle.

ABOUT THE AUTHOR

• US managing editor and an assistant editor of the Financial Times

• Winner of  Spear's Book Award for the financial book of 2009, for Fool’s Gold.

GILLIAN TETT

ABOUT THE BOOK

• Analysis and search to the core of the 2008 financial crisis.– Tett’s visit to European Economic Forum

• Who’s affected by the Crisis?

–EVERYONE!!!• How’s Tett investigates?

– Finding links of all credit based financial products with J.P. Morgan.

ABOUT THE BOOK (Cont…)

• J.P. Morgan’s alumni finding way around financial world’s greatest foe- fear of loan default.

• The Morgan group invents Credit derivatives- to provide a hedge against risk

• Creating Credit derivatives– CDO (Credit Debt Obligation)– CDS (Credit Default Swap)– Sub-prime Mortgages– Frozen Credit Markets

ABOUT THE BOOK (Cont…)

• What are Credit Derivatives?

– Bank A, worried about a loan it has made, strikes a derivative deal to pay a fee to Bank B in exchange for Bank B’s promise to compensate Bank A if the loan sours.

– Bank A sheds some of the uncertainty related to its loan and feels emboldened to make fresh loans. Bank B assumes some of the risk but immediately enjoys the fee income.

Brief about the Book (Cont…)

• Tett writes:“For the first time in history, banks would

be able to make loans without carrying all, or perhaps even any, of the risk involved themselves. That would, in turn, free up banks to make more loans, as they wouldn’t need to take losses if those loans defaulted.” 

• New players join in.– Bear Stearns, – Lehman Brothers,– Merrill Lynch, – American International Group, etc.

ABOUT THE BOOK (Cont…)

• All banks at Wall Street raked in to get the hottest thing in Financial Market- Securitized loan bundles.

• Morgan’s rivals took fatal step of adding subprime mortgage loans to the derivatives-and-securitization mix. 

• Impact of real estate bubble burst of 2008-2009.– derivatives and securities tied to subprime mortgages

suddenly lost value.–  Investors panicked– stock markets crashed.

ABOUT THE BOOK (Cont…)

• What Government did?

–NOTHING!!!• Wall Street lobbying campaign that persuaded 

– Congress, – Securities and Exchange Commission (SEC),– Clinton and Bush administrations,– Federal Reserve

ABOUT THE BOOK (Cont…)

• The Regret– Morganites leave the bank and personally

imported derivatives know-how to institutions that behaved more rashly.

• The bankruptcy of Lehman Brothers– largest bankruptcy filing in U.S. history, holding

over $600 billion in assets.

• The Bailouts– AIG, Chrysler, Bank of America and others.

My VIEWS

• Tett excels at recreating the 2008 economic environment.

• She deciphers financial terms that a lay reader can understand.

• Analytical as and when required.

• Unbiased and upfront confrontation during interviews.

LEARNINGS

• There seems to be no end to man’s greed.

• Analogy of a car accident. – Car analogous to the credit derivatives– Car driver analogous to the investment bankers

• Banks job is to find balance between profit making and safe-guarding depositors assets.

LEARNINGS (Cont…)

• Government should take interest in regulating the financial markets.

• Even central banks can run foul.

• There can be conflict of interests in economic policy makers suggestions.– Professors and law officers greed.

REFERENCES

www.ft.com: Gillian Tett Profilewww.newyorktimes.com

www.wikipedia.org: Photo of Gillian Tetthttp://seekingalpha.com/: Photo of Fool’s Gold book

Fool’s Gold : Book Review

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