Review: A Succinct Introduction to the 2008 Financial Crisis
Rating: 3 out of 5
Date: 11 1, 2012
This book is a series of three investigative journalism articles into the causes of the 2008 financial crisis. The authors spent months delving into thousands of documents, prying answers from secretive hedge funds and fearful former Wall Street bank employees, then piecing the results together into a shocking picture of how financial fraud exploded inside the most trusted names in the US financial services industry. Citibank, JP Morgan Chase, Merrill Lynch, Goldman Sachs and many more are named and their misdeeds documented.In the 19th century people like this were known a swindlers. Swindles, frauds, and bank and stock market manipulations were not uncommon back then, and this book makes it clear that the aspects of human nature that motivated those old-timey swindlers are alive and well today.The first article identifies a little-known major player in the buildup to the financial crisis: Magnetar Capital of Evanston, Illinois. They developed a method of creating collateralized debt obligations (CDOs), worth roughly $1.5 billion each, through third parties, buying a small portion, and taking a short position in the rest via credit default swaps (CDSs). As of 2010, 23 of the CDOs sponsored by Magnetar Capital had become "nearly worthless" according to a source cited in Wikipedia's article on Magnetar Capital. Collapse of the CDO market proved highly profitable for Magnetar's investor partners. The firm's website says they have over $7 billion under management today.The second article talks about banks' self-dealing and the third about how a handful of Merrill Lynch bankers helped blow up their firm.This book is recommended for anyone interested in the financial crisis and its origins. It both compliments and overlaps Michael Lewis' bookThe Big Short: Inside the Doomsday Machine. I rate this 3+ stars. It is brief, clearly written and informative. However, it is also pretty dry, meaning the authors did little to make it even a tiny bit entertaining like adding personal interest stories on, or comments from, key players. It is straight investigative journalism done well. Readers who are interested in this subject may want to read more complete histories such as Lewis or others.For your information, ProPublica is an independent, non-profit news service doing investigative journalism in the public interest. Authors Jesse Eisenger and Jake Bernstein of ProPublica received the 2011 Pulitzer Price in National Reporting for their work.