Fool's Gold, by Gillian Tett

Tett is a financial journalist who's covered the recent economic crisis in her newspaper; this is her account of what led up to and caused the events that rocked the world in 2007/2008.

I think this book was mentioned in the same article as Liar's Poker and has a pretty similar structure (I just noticed that the titles of the books have the same format too, maybe that's a deliberate nod from Tett, although she doesn't mention Lewis's book at all), albeit they're from slightly different perspectives, since Tett is not herself an insider. While LP was written by someone who'd worked at Salomon, this book mainly focuses on J.P. Morgan (later JPMorgan Chase, later J.P. Morgan again) but has many quotes from people in other banks.

JPM is credited with having invented some of the credit derivative products which led to a boom, but then were seen to be responsible for the bust. In fact, JPM emerge from the story (in the book anyway) with credit: their officials were nervous about the way things seemed to be going and held back from becoming involved in the more risky ventures, with the result that they didn't suffer in the same way as some of the other famous names.

I think this was probably a bit better than Liar's Poker, but still not as good as I'd hoped. In fact, one of the main things that I'd been looking forward to in this book was a fresh perspective: when I'd heard Tett talking in the media, she said that her view on the financial crisis was informed by her background in social anthropology, which meant that she was able to offer insights that other commentators might not appreciate.

But apart from a brief mention in the preface, and another paragraph in the epilogue, very little was made of the anthropology angle. Tett is now a financial journalist (I think I'd got the impression that her main interest was still sociological) and for most of the book you wouldn't have guessed that she'd got a background in another discipline. That was a shame as I think more could have been made of this.

I had the same problem again with understanding the derivatives stuff - I think Tett does better than Lewis at explaining the way this worked, but again I had trouble concentrating and taking it in. So far as I can tell one of the main issues in this crisis was that the banks attempted to sidestep the regulatory framework that attempted to ensure that they were not exposed to too much risk by creating products which sold the risk on to other players. That meant they could fulfil their legal obligations, but also that there was risk spread through the banking system in such a way that no-one really understood where it was. This led to the situation where banks were unwilling to lend to one another, and the escalating LIBOR rate etc..

Rather disappointingly, there wasn't a lot of schadenfreude in the book - she's not that critical of what the banks did, and doesn't dwell very much on the greediness of the players (which means that the book's subtitle, "How Unrestrained Greed Corrupted a Dream, Shattered Global Markets, and Unleashed a Catastrophe", seems a little overstated).

Also, I found the way she quoted people a bit irritating sometimes. E.g.
'I called the turning point too early,' he later observed, with a wry smile and
'Andrew told me what he thought the banks were doing with their super-senior risk, but I kind of ignored it,' Demchak later said, with a dry, despairing chuckle.

OK I suppose, better than Liar's Poker, but not a must-read.

Completed : 12-Jul-2009

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