From the Publisher
“Lowenstein, a magnificent business writer, creates an almost novelistic accounting of the all-too-real 2008 financial collapse…. Lowenstein has a pitch-perfect sense of the Street's monumental recklessness.”—Time
“[The End of Wall Street] is a complex but imaginative book… [Lowenstein] is able to identify the creative instruments of financial destruction with the directness that is all-important to a book like this.”—New York Times
“Think of Roger Lowenstein's The End of Wall Street as a tuition-free class in 21st-century U.S. macroeconomics... The End of Wall Street debunks the notion that no one could have seen the economic catastrophe coming.”—USA Today
“The End of Wall Street is a calm, reasoned, and often witty tour of the current financial landscape and how it got that way.”—Philadelphia Observer
“In the flood of new books about the financial crisis, Roger Lowenstein's is a standout. Lowenstein, a highly accomplished financial journalist, lays out what may be the best explanation yet of the recent crash—and as good a prediction as any on what happens next.”—Barron’s
"Lowenstein’s strong knowledge of the source material and flair for the dramatic and doomsday title should draw readers who still wonder what went wrong and how."—Publishers Weekly
“Lowenstein does a great job of explaining…in understandable terms that unobtrusively avoids the injection of emotion and politics.”—Booklist
“Over the past year, there has been a steady stream of books trying to make sense of the crisis. The latest, and perhaps the most accessible and even-handed, is Roger Lowenstein's The End of Wall Street."—Washington Post
"The End of Wall Street is a good book: witty, well-written, heavily researched and often dramatic.”—Associated Press/Huffington Post
“A veteran financial/business journalist examines the past three years of economic collapse, chronicling actions and inactions from dozens of villains and a few heroes…A well-delineated chronicle likely to cause readers to ask who put the clowns in charge of the circus, and why aren’t they confined to prison cells.” —Kirkus
Roger Lowenstein…is a connoisseur of investing intelligence and folly. In constructing a precise, condensed version of the origins, climax and fallout of the "dark and powerful storm front that had long been gathering at Wall Street's shores," he finds much more folly than intelligence…Careful and meticulous, The End of Wall Street covers a lot of well-trodden ground. Still, there's plenty of telling detail.
The New York Times Book Review
The End of Wall Street offers one expert reporter's domino theory about Wall Street's collapse. It is a complex but imaginative book, an especially useful piece of the jigsaw puzzle that current Wall Street books are busy creating…not a story of blowhard personalities, even if it is filled with C.E.O.'s and financial regulators who arguably control the future of global finance. Instead it is a coherently issue-oriented book that frames each stage of the crisis in terms of the real world's ability to confound theorists, number-crunching quants, economic historians and other putative experts, many of whom have seen their most cherished ideas destroyed by the events of the last few years.
The New York Times
Lowenstein (When Genius Failed) offers an overview of the causes and consequences of the financial crisis that rises above the glut of similarly themed books with its juicy behind-the-scenes detail and thoughtful analysis. He sets out to prove that the current financial difficulties began long before the summer of 2008, and long before the failure of Lehman Brothers. He begins with the history of Fannie Mae and the rise of mortgage-based securities and a dangerously burgeoning housing bubble, and hits the high points of the 2008-2009 news cycles, including Washington Mutual’s unwise loan strategies, the panic following Bear Stearns’s near-demise, a rash of foreclosures, TARP, and the woes of Citigroup. The insider knowledge lends flavor and context to many of these stories—a ranting Jim Cramer, Ben Bernanke’s loss of confidence, and Alan Greenspan’s astonishing 2008 testimony to Congress. Lowenstein’s strong knowledge of the source material and flair for the dramatic—and doomsday title—should draw readers who still wonder what went wrong and how. (Apr.)
A veteran financial/business journalist examines the past three years of economic collapse, chronicling actions and inactions from dozens of villains and a few heroes. New York Times Magazine and Bloomberg contributor Lowenstein (While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis, 2008, etc.) teases out the upsetting saga of ignorance and greed without adding much to the story already related in newspapers, magazines and broadcast outlets, not to mention a few books that beat his to bookstores. Nonetheless, he handles the recap skillfully, in language nonspecialists can understand. The author identifies more than 100 key players, almost all of them middle-aged white males from Wall Street, private mortgage companies, law firms, federal government agencies and the U.S. Congress. The narrative consistently demonstrates how almost all of those who could have halted the coming recession by employing common sense instead decided that the housing market would never collapse. When it did, nearly all of the smart guys in the room expressed shock, even though some of them had worried privately about a looming disaster. Among the most loathsome of the destroyers in Lowenstein's case are Angelo Mozilo, chief executive of Countrywide Financial, which wrote billions of dollars of home loans bound to default; and Joseph Cassano, an executive of insurance behemoth AIG who overexposed the company and its clients to the risks of credit-default swap losses. The leading heroes, chosen from a slim field, are Brooksley Born, chair of the Commodity Futures Trading Commission, who tried to discuss governmentregulation of derivatives a decade before the debacle; and Robert L. Rodriguez, chief executive of First Pacific Advisors, who protected his investors from the insane greed while trying to warn anybody who would listen about the house of cards about to collapse. A well-delineated chronicle likely to cause readers to ask who put the clowns in charge of the circus, and why aren't they confined to prison cells. Agent: Melanie Jackson/Melanie Jackson Agency
In the flood of new books about the financial crisis, Roger Lowenstein's is a standout. Lowenstein, a highly accomplished financial journalist, lays out what may be the best explanation yet of the recent crash and as good a prediction as any on what happens next.
If a novelist lined up as many dramatic events as the author does here, his work would be blasted as contrived. Lowenstein, a magnificent business writer, creates an almost novelistic accounting of the all-too-real 2008 financial collapse.... Lowenstein has a pitch-perfect sense of the Street's monumental recklessness.
This account of the credit crisis of 2007–08 follows many others. Being later means that Lowenstein (When Genius Fails) is able to extend his coverage into the 2009 recession and assess the financial carnage from the perspective of more time. He blames the origins of the crisis on the hubris of those in the financial industry—who deluded themselves into thinking that the credit markets would never retrench—and acquiescent politicians who saw loosened credit as a means of bolstering the economic prospects of the poor. He blames the depth of the crisis and resulting recession on early misjudgments by the U.S. Federal Reserve and the Bush administration; by the time they moved to shore up the banks in late 2008, it was necessary for the government to absorb much of the cost, which meant a weaker dollar, bigger government, higher unemployment, and increased taxes. Lowenstein is able to make arcane financial concepts like collateralized debt obligations (CDOs) and leveraged balance sheets intelligible to average readers. VERDICT While CNBC reporter Charles Gasparino's The Sellout paints a more colorful picture and Andrew Ross Sorkin's frenetic Too Big To Fail focuses more specifically on the crucial events of early fall 2008, in breadth Lowenstein's work is the most complete yet to appear and is essential reading for everyone. [See Prepub Alert, LJ 12/09.]—Lawrence Maxted, Gannon Univ. Lib., PA
Read an Excerpt
In the late summer of 2008, as Lehman Brothers teetered at theedge, a bell tolled for Wall Street. The elite of American bankers wereenlisted to try to save Lehman, but they were fighting for somethinglarger than a venerable, 158-year-old institution. Steven Black, the veteranJPMorgan executive, had an impulse to start saving the daily newspapers,figuring that historic events were afoot. On Sunday, September14, as the hours ticked away, Lehman’s employees gathered at the firm,unwilling to say goodbye and fearful of what lay in wait. With bankruptcya fait accompli, they slunk off to bars for a final toast, as peopleonce did in advance of a great and terrible battle. One ventured that“the forces of evil” were about to be loosed on American society.Lehman’s failure was the largest in American history and yet anotherfinancial firm, the insurer American International Group, was but hoursaway from an even bigger collapse. Fannie Mae and Freddie Mac, thetwo bulwarks of the mortgage industry, had just been seized by the federalgovernment. Dozens of banks big and small were bordering on insolvency.And the epidemic of institutional failures did not begin todescribe the crisis’s true depth. The market system itself had comeundone. Banks couldn’t borrow; investors wouldn’t lend; companiescould not refinance. Millions of Americans were threatened with losingtheir homes. The economy, when it fully caught Wall Street’s chill,would retrench as it had not done since the Great Depression. Millionslost their jobs and the stock market crashed (its worst fall since the1930s). Home foreclosures broke every record; two of America’s threeautomobile manufacturers filed for bankruptcy, and banks themselvesfailed by the score. Confidence in America’s market system, thought tohave attained the pinnacle of laissez-faire perfection, was shattered.
The crisis prompted government interventions that only recentlywould have been considered unthinkable. Less than a generation afterthe fall of the Berlin Wall, when prevailing orthodoxy held that the freemarket could govern itself, and when financial regulation seemed destinedfor near irrelevancy, the United States was compelled to socializelending and mortgage risk, and even the ownership of banks, on a scalethat would have made Lenin smile. The massive fiscal remedies evidencedboth the failure of an ideology and the eclipse of Wall Street’sgolden age. For years, American financiers had gaudily assumed morepower, more faith in their ability to calculate—and inoculate themselvesagainst—risk.
As a consequence of this faith, banks and investors had plied theaverage American with mortgage debt on such speculative and unthinkingterms that not just America’s economy but the world’s economyultimately capsized. The risk grew from early in the decade, whenlittle-known lenders such as Angelo Mozilo began to make waves writingsubprime mortgages. Before long, Mozilo was to proclaim that evenAmericans who could not put money down should be “lent” the moneyfor a home, and not long after that, Mozilo made it happen: homesfor free.
But in truth, the era began well before Mozilo and his ilk. Its seedstook root in the aftermath of the 1970s, when banking and marketswere liberalized. Prior to then, finance was a static business that playedmerely a supporting role in the U.S. economy. America was an industrialstate. Politicians, union leaders, and engineers were America’sstars; investment bankers were gray and dull.In the postindustrial era, what we may call the Age of Markets,diplomats no longer adjusted currency values; Wall Street traders did.Just so, global capital markets allocated credit, and hordes of profitminded,if short-term-focused, investors decided which corporationswould be bought and sold.
Finance became a growth industry, fixated on new and complexsecurities. Wall Street developed a heretofore unimagined prowess forsecuritizing assets: student loans, consumer debts, and, above all,mortgages. Prosperity in this era was less evenly spread. Smokestackworkers fell behind in the global competition, but financiers who masteredthe intricacies of Wall Street soared on wings of gold. Financenow was anything but dull; markets were dynamic and ever changing.Average Americans clamored to keep pace; increasingly they resortedto borrowing. By happy accident, Wall Street had opened the spigot ofcredit. People discovered an unsuspected source of liquidity—the abilityto borrow on their homes. With global investors financing mortgages,ordinary families were suddenly awash in debt. The habit ofsaving, forged in the tentative prosperity that followed the war, gaveway to rampant consumerism. By the late 2000s the typical Americanhousehold had become a net borrower, fueled by credit from lessdevelopedcountries such as China—a curious inversion of the conventionalrules.
Paradoxically, the more license that was given to markets, the morethat Wall Street called on bureaucrats for help. Market busts becamea familiar feature of the age. Notwithstanding, it was the doctrine ofthe experts—on Wall Street and in Washington—that modern financewas a nearly pitch-perfect instrument. A preference for market solutionsmorphed into something close to blind faith in them. By themid-2000s, when the spirit of the age attained its fullest, the very factthat markets had financed the leverage of banks, as well as the mortgagesof individuals, was taken as proof that nothing could be wrongwith that leverage, or nothing that government could or should try torestrict. Financiers had discovered the key to limiting risk, and centralbankers, adherents to the cult of the market, had mastered the mysteriousart of heading off depressions and even the normal ups and downsof the economic cycle. Or so it was believed.
Then, Lehman’s collapse opened a trapdoor on Wall Street fromwhich poured forth all the hidden demons and excesses, intellectualand otherwise, that had been accumulating during the boom. TheStreet suffered the most calamitous week in its history, including amoney market fund closure, a panic by hedge funds, and runs againstthe investment firms that still were standing. Thereafter, the Street andthen the U.S. economy were stunned by near-continuous panics andfailures, including runs on commercial banks, a freezing of credit, theleveling of the American workplace in the recession, and the sickeningdrop in the stock market.
The first instinct was to blame Lehman (or the regulators who hadfailed to save it) for triggering the crisis. As the recession deepened,the thesis that one firm had caused the panic seemed increasingly tenuous.The trouble was not that so much followed Lehman, but that somuch had preceded it. For more than a year, the excesses of the marketage had been slowly deflating, in particular the bubble in home loans.Leverage had moved into reverse, and the process of deleveraging setoff a fatal chain reaction.
By the time Lehman filed for bankruptcy, the U.S. housing market,the singular driver of the U.S. economy, had collapsed. Indeed, by thenthe slump was old news. Home prices had been falling for nine consecutivequarters, and the rate of mortgage delinquencies over the precedingthree years had trebled. In August, the month before Lehmanfailed, 303,000 homes were foreclosed on (up from 75,000 three yearsbefore).
The especial crisis in subprime mortgages had been percolating foreighteen months, and the leading purveyors of these mortgages, havingstarted to tumble early in 2007, were all, by the following September,either defunct, acquired, or on the critical list. Also, the subprime crisishad fully bled into Wall Street. Literally hundreds of billions of dollarsof mortgages had been carved into exotic secondary securities, whichhad been stored on the books of the leading Wall Street banks, not tomention in investment portfolios around the globe. By September 2008,these securities had collapsed in value—and with them, the banks’equity and stock prices. Goldman Sachs, one of the least-affectedbanks, had lost a third of its market value; Morgan Stanley had beencut in half. And the Wall Street crisis had bled into Main Street. WhenLehman toppled, total employment had already fallen by more than amillion jobs. Steel, aluminum, and autos were all contracting. TheNational Bureau of Economic Research would conclude that the recessionbegan in December 2007—nine months ahead of the fateful daysof September.
On the evidence, Lehman was more nearly the climax, or one of aseries of climaxes, in a long and painful cataclysm. By the time it failed,the critical moment was long past. Banks had suffered horrendous lossesthat drained them of their capital, and as the country was to discover,capitalism without capital is like a furnace without fuel. Promptly, theeconomy went cold. The recession mushroomed into the most devastatingin postwar times. The modern financial system, in which marketsrather than political authorities self-regulated risk-taking, for the firsttime truly failed. This was the result of a dark and powerful storm frontthat had long been gathering at Wall Street’s shores. By the end of summer2008, neither Wall Street nor the wider world could escape theimminent blow. To seek the sources of the crash, and even the causes,we must go back much further.