The definitive account of Wall Street's stunning collapse
From critically acclaimed investigative journalist and CNBC personality Charles Gasparino comes a sweeping examination of the most recent volatile, anxiety-ridden era in our nation's socioeconomic history. The Sellout traces the implosion of the financial services business back to its roots in the late 1970s when Wall Street embraced a new business model predicated on taking enormous risks. It shows how a backwater business involving the trading of risky bonds packed with mortgages showered countless billions in profits on the financial industry but sowed the seeds of its ultimate demise. Gasparino walks readers through Wall Street's three-decades' love affair with risk, revealing a trail of culpability—from the government bureaucrats who crafted housing policies that encouraged homeownership, to the Wall Street firms that underwrote and invested in risky debt, to the mortgage sellers who handed out loans to people without the financial wherewithal to pay them back, to the homeowners who became convinced they could afford mansions on blue-collar wages. The ongoing tumult in financial markets and the global economy began when some of our most esteemed financial institutions, our government, and even average citizens abdicated their collective responsibilities, eventually selling out investors and selling off the American Dream itself.
In the spirit of classics such as Barbarians at the Gate and Liar's Poker, this page-turning narrative captures how avarice, arrogance, and sheer stupidity eroded Wall Street's dominance and profoundly weakened the financial security of millions of middle-class Americans. Eye-opening and engrossing, The Sellout provides the most thorough investigation to date of this latest gilded era.
In the wake of the stock market crash of 1929 the Pecora Commission investigated Wall Street, and detailed many outrageous practices in the "Pecora Report" that led directly to the establishment of the SEC and other regulatory structures. Gasparino is trying to do something similar in this book: show us the long, tangled, enormously complicated underpinnings of a Wall Street culture and decision-making apparatus that seems completely disconnected from reality and "Main Street" logic. Would that this were a modern-day Pecora Report--would that this book and others like it could lead one day to new, well-crafted regulatory oversight!
I also recommend Andrew Ross Sorkin's Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves and Paul Krugman's The Return of Depression Economics and the Crisis of 2008 as well as the Pecora commission report from the Great Depression: The Pecora Report: The 1934 Report on the Practices of Stock Exchanges from the "Pecora Commission"
It's almost impossible to understand what happened on Wall Street in 2007 and 2008 without going back in time to the 1970s, the era in which investment banking changed forever. And that's what Gasparino does in this book, making it one of the most valuable books about the financial crisis published so far that the general reader is likely to find. Its nature is likely to come as a surprise to anyone who is familiar with the author only from his television appearances; while it has all the gossipy insights into Wall Street that Gasparino has always delivered (including Jimmy Cayne, the former CEO of Bear Stearns, offering him what Cayne described as a joint in an elevator one day...), it thankfully goes well beyond that. The scandalous tales about daily life on the Street are there to entertain and amuse us, sure, (along with a reasonable degree of self-promotion) but the author combines that with solid analysis and insight into the role played by the evolution of structured finance and the failures of risk management.
Most significantly, Gasparino pays attention to history, specifically to the way that a handful of bond market honchos transformed the mortgage lending market from a local business into a Wall Street affair. He weaves together the strands of the narrative deftly, showing how politics in Washington and greed on Wall Street combined to turbo-charge the level of risk-taking and then a series of risk-management failures. Andrew Ross Sorkin's book,[...] is more elegantly written and works as a great chronicle of the months that lay between the collapse of Bear Stearns and the near-apocalypse of September 2008, six months later, but a lot of the historical context needed to understand why those events unfolded as they did is missing. In contrast, Gasparino tries to accomplish something more ambitious, explaining how risk moved from becoming a way to boost profits on Wall Street to being the heart of Wall Street's business. What happened to Wall Street wasn't just about subprime lending or leverage -- it's about why the creation of mortgage-backed securities and leverage became the heart of what Wall Street is all about.
So far, the only books I've seen to have shed light on this issue aren't easily read by a general reader without a knowledge of finance or a high tolerance for jargon. [...] What Gasparino does is to present some of the same concepts in a gossipy, chatty book that should appeal to those on Main Street who are striving to understand just what happened and how it could happen.
Gasparino's thesis is that government policy encouraged that risk-taking to reach extreme levels -- in the great debate over whether Washington or Wall Street is more to blame with the mess, he comes down on the side of blaming Wall Street. (I'm not sure I agree, but his argument is thoughtful, logical and well-supported by the facts that he musters.) He correctly identifies the 1998 collapse of Long-Term Capital Management as a turning point in the process; after that point, it became politically impossible to let a large financial institution fail (and the CEOs of the large investment banks came to realize that.) After seeing just how urgently regulators pursued a bailout style solution to that conundrum, followed by the efforts to prevent Bear Stearns bankruptcy in early 2008, why would Dick Fuld take seriously the suggestion that he take urgent steps to bolster his balance sheet? Long before the critical events of September 2008, which culminated in a bailout of Fannie Mae, Freddie Mac and AIG (not to mention the TARP program that has left the US taxpayer owning stakes in B of A and Citigroup), `moral hazard' was alive and well on Wall Street. In Gasparino's view, misbegotten government policies designed to make home ownership possible for all Americans (even those not in a position to afford it) should shoulder most of the blame. But the bankers aren't let off the hook, either. Their errors of judgment and oversights are placed in the spotlight and held up to scorn.
It helps that Gasparino has been covering Wall Street and all its doings for the better part of two decades, starting on the ground floor (the guys doing the bond deals) and working his way up to writing about Wall Street CEOs like Cayne, Fuld and John Mack. Sure, he's self-promotional, but he also has access to a network on Wall Street that is both broad and deep. And in this case, he's pulled off a book that is as much analytical and anecdotal. That combination could make it stand as one of the best books about the crisis, despite the rather glib conclusions about what needs to happen next. Gasparino is good at tackling what happened, and identifying villains across the landscape, but the reason this gets 4.5 stars instead of 5 (and came close to being rounded down instead of up) was that the forward-looking analysis fell rather flat. Gasparino comes up with some rather predictable recommendations -- ditch the SEC, for instance -- but doesn't have the insight of, say, a Niall Ferguson when it comes to imagining a future shape for what he acknowledges is a deeply-flawed financial system.
Recommended for anyone looking for insight into what we have just been through and why we have had to go through it. Gasparino, always a tenacious scoop-hound, has gone beyond his traditional strengths as a reporter and produced a book that is far better-written and more thoughtful/analytical than his two previous offerings. If you're looking for other reading material on the crisis, Andrew Ross Sorkin's book will take you deeper into the chronology of the critical months (including who ate what, when and where, and the jogging paths of key players in the crisis), but I found the historical context was more perfunctory and the book emphasized the day-to-day drama at the expense of the reasons for the debacle. There are several more detailed books available about both Bear Stearns and Lehman Brothers; [...]
Full disclosure: Gasparino is a former colleague, although we haven't worked at the same organization in about eight years and we're not in touch regularly. I usually don't review books by people I know; I'm making an exception for this one because I think it's both a lively read and one that will help those who aren't on Wall Street get a handle on what happened, and because it provides the kind of historical context that has been largely lacking.
If you know the people or are knowledgeable about who is in what job,and what their real duties were, you may be able to follow it.Otherwise, prepare to take notes and construct a matrix to follow what is going on.For all the promotion cnbc gave this, it was a real disappointment. In addition his value judgments of people must be taken with a grain of salt. One should keep in mind he lavished a lot of praise on Madoff on cnbc when he was first caught-and never apologized to viewers or victims for claiming he was a really nice guy.
