The Wall Street Journal Guide to The End of Wall Street as We Know It
  • The Wall Street Journal Guide to The End of Wall Street as We Know It
  • The Wall Street Journal Guide to The End of Wall Street as We Know It

The Wall Street Journal Guide to The End of Wall Street as We Know It

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by Dave Kansas
     
 

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The definitive guide for Main Street readers who want to make sense of what's happening on Wall Street, and better understand how we got here and what we need to know to in days to come. Written by seasoned financial writer Dave Kansas, this official Wall Street Journal guide will be filled with practical information, revealing what the crisis means for

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Overview

The definitive guide for Main Street readers who want to make sense of what's happening on Wall Street, and better understand how we got here and what we need to know to in days to come. Written by seasoned financial writer Dave Kansas, this official Wall Street Journal guide will be filled with practical information, revealing what the crisis means for reader's financial lives, and what steps they should be taking now to inform and protect themselves.

Editorial Reviews

Publishers Weekly
Limned with basic economic principles and rational analysis, this financial guide from a former editor at the wall street journal should disappoint fans of the sophisticated business broadsheet as well as those drawn by the alarmist title. Kansas wastes no time in conceding that, yes, wall street "practically destroyed itself in an orgy of delusion and greed and transformed itself into something else entirely," but spreads responsibility far and wide. As such, sidebars profiling specific people, organizations and practices read like clues in a murder mystery: did the fed, led by alan greenspan, kill the economy with an "easy-money policy"? was it the big banks, who "magically transformed subprime mortgage debt into something far more attractive"? or are overeager first-time homeowners to blame? if kansas knows, he's not telling. Though he dispenses some helpful investment advice ("pay yourself first," "diversification is vital," "always take advantage of free money"), it's nothing that wouldn't have been just as applicable pre-recession; further, he offers no assurance that individuals can prevent another crisis, no matter how responsibly they handle their money.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
Library Journal

Financial journalist Kansas starts with a blow-by-blow account through late 2008 of how the subprime housing crisis began, evolved into a liquidity panic, and then set off a global economic slowdown. He profiles the major players, such as Ben Bernanke and Timothy Geithner, and does an excellent job of describing the domino-like falling of longstanding firms like Bear Stearns, Lehman, and AIG, then explaining how individuals can cope with the crisis. He gives rudimentary personal finance advice such as reducing debt and diversifying investments. His text is illustrated with easy-to-understand graphs and tables, and includes explanations of important points like bank runs and how the Federal Reserve operates. The end of each chapter has a series of explanatory questions and answers. For deeper insights and possible ways to resolve the crisis, consider also Robert Shiller's The Subprime Solution: he predicted the bursting of the housing bubble. Overall, Kansas provides a very useful beginning for those who are perplexed and anxious about the financial crisis-pretty much everybody.
—Lawrence Maxted

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Product Details

ISBN-13:
9780061788406
Publisher:
HarperCollins Publishers
Publication date:
01/27/2009
Pages:
224
Sales rank:
1,341,542
Product dimensions:
5.20(w) x 7.80(h) x 0.70(d)

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The Wall Street Journal Guide to the End of Wall Street as We Know It

What You Need to Know About the Greatest Financial Crisis of Our Time-and How to Survive It



By Dave Kansas
Collins Business
Copyright © 2009

Dave Kansas
All right reserved.



ISBN: 978-0-06-178840-6



Chapter One "More Risk is Simply More Profit"

It goes without saying that risk is at the heart of a capitalist system. The worrying, the chin scratching, nail-biting and hair pulling that go with it are part and parcel of an economy organized around risk. You can take a calculated risk, a measured risk or an educated risk. But you can't eliminate risk from capitalism without turning it into a system more akin to socialism or communism. You can't have capitalism without some level of risk. And you can't have risk without some level of worry. In the current environment, sometimes the level of worry has exceeded logic. In early December, for instance, short-term Treasury notes actually traded with a negative yield. That meant investors were paying the government to lend it money, an exceedingly rare quirk that underscored the high degrees of fear and worry in the marketplace.

During the twenty years prior to our current financial crisis, concerns about risk steadily diminished. The recovery from the 1987 crash came so quickly that investors embraced the philosophy of "buying on the dips." The notion: stocks eventually recover, so buying on declines made eminent sense. This, however, is a fairly flabby notion. Not every drop recovers so quickly. Buyers of Japanese stocks during the "dip" of the early 1990s are still waiting for a recovery. The same goes for those who bought a number of Internet stocks after they fell from great heights to near oblivion.

In the 1990s, the savings-and-loan fiasco seemed enormous at first. Savings & Loans, sometimes known as thrifts, had lent large amounts of money to developers with grandiose real estate plans. When those plans failed, many savings-and-loan institutions failed, property developments went bust and the government had to step in with billions of dollars to rescue the S&Ls. But the problem seemed to fade away fairly quickly once the rescue got under way with the establishment of the Resolution Trust Corp. The RTC bought up the bad stuff and eventually resold it once the market recovered. In the end, the cost of the S&L crisis, in inflation-adjusted dollars, came out to a mere $256 billion-a pale echo of the trillions in bailout money already deployed in the current crisis.

In late 1997 came the Asian financial crisis. The contagion from that crisis led to huge losses around the globe and even forced the New York Stock Exchange to close trading early during one session-something that hasn't happened in the current crisis. But the crisis had few lasting effects. The Asian economies and markets recovered briskly, and the U.S. market resumed its Internet and technology stock mania. Again, it seemed that risky events resolved themselves rapidly. The fear of risk diminished by one more notch.

Many people lost money and businesses went under when the Internet and technology bubble burst. But the economy suffered little collateral damage. Even an event as devastating as the September 11, 2001, terrorist attacks did not have a permanent impact on markets. Manhattan real estate prices momentarily buckled, but by December of that same year, prices started shooting higher, even as the World Trade Center site smoldered.

For nearly two decades, it seemed as though nothing much could shake the confidence of global markets. Recessions were getting shorter and milder, expansions becoming longer. Developing giants such as China, India and Brazil fed global economic growth. A peso crisis, Russian and Argentine debt defaults, wars, famines and uprisings came and went as the markets and global economies steamrollered ahead.

As the 2000s began, confidence in the resiliency of the financial system couldn't have been higher and conversations with Wall Street professionals couldn't have been more surreal. In 2004, I asked the head of a major European bank about the widespread notion that his bank behaved more like a hedge fund, making large bets with both its own money and borrowed money, This risk-taking often centered on speculative market bets or investments in exotic financial instruments, often referred to as derivatives. "Aren't you concerned about taking on so much risk?" His response: "More risk is simply more profit."

A short time later, a Wall Street executive, when asked a similar question about how his firm felt comfortable using large amounts of its own capital to make risky market investments and fund acquisitions that required large amounts of debt, said, "We have learned to master the distribution and management of risk." Wall Street firms, including Morgan Stanley, Goldman Sachs and Bear Stearns insisted that they had "stress tested" their systems and figured out how to minimize exposure. They said they were prepared for the 100-year storm, should it come. Of course, this was just talk. Few people really expected such a storm to come. Indeed, as financial instruments became more complicated, the risk-management systems couldn't keep up with the transactions, thus undercutting the efficacy of the so-called system stress testing. The reported "value at risk," a measure of the danger Wall Street firms faced in crisis, gave a false sense of security and order to a marketplace increasingly based on frightening levels of risk.

(Continues...)




Excerpted from The Wall Street Journal Guide to the End of Wall Street as We Know It by Dave Kansas Copyright © 2009 by Dave Kansas. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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