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Gasparino Chides Wall Street’s Amnesia 30 Years of Bets, Busts
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Richard S. Fuld Jr. was raging against “rumormongers” as he struggled to save Lehman Brothers Holdings Inc. Creditors were increasing their demands, and traders were dumping tutti-frutti mortgage bonds in favor of plain vanilla Treasuries.
Familiar scenes from a meltdown? You bet. It was 1998, and Russia had devalued the ruble and defaulted on part of its debt, triggering a bond-market panic.
“Wall Street has a short memory,” says Charles Gasparino in “The Sellout,” a workmanlike attempt to trace the origin of the Great Panic of 2007 and 2008 back through decades of greed, government mismanagement and financial engineering.
“When it comes to making bets on exotic bond markets -- whether mortgage debt or Russian bonds -- things can always get worse,” writes Gasparino, a former Wall Street Journal reporter who now serves as an “on-air editor” for CNBC.
Up to now, most crisis books have explored one corner of the disaster at a time. They’ve brought us inside looks at the collapses of Bear Stearns Cos. and Lehman; reconstructions of how Washington and Wall Street fought to rescue the system; and studies on how government efforts to spur homeownership added helium to the bubble. To cite a few.
In “The Sellout,” Gasparino attempts something much broader -- to wrap all those elements, and more, into one fat account spanning 30 years and more than 500 pages. The result is a useful yet often unsatisfying book.
Cayne Plays Bridge
Useful because it offers an all-in-one-place account of what happened and why. Unsatisfying because so much of the material has appeared elsewhere, from Chairman Jimmy Cayne playing bridge as Bear Stearns slid toward its death to Treasury Secretary Henry Paulson begging House Speaker Nancy Pelosi on bended knee to help keep his financial rescue plan alive.
Gasparino is at his best when he follows the roots of the current crisis back to the early 1980s, when Wall Street was transformed by a confluence of cheaper borrowing rates, computers and the conversion of private partnerships into public companies. On the scene were two mortgage-bond pioneers.
Lew Ranieri was the college dropout from Brooklyn immortalized in “Liar’s Poker” -- a man so round that he resembled “a bowling ball,” as one source puts it.
“He liked to eat junk food, curse and worry about the competition -- most of all a skinny Jewish kid from southern California named Larry Fink,” Gasparino writes.
Mortgage Magic
The two men -- Ranieri at Salomon Brothers and Fink at First Boston -- cranked out one innovation after another, and the magic of securitization made everybody happy, as Gasparino notes. Banks could get mortgages off their balance sheets, make more loans and bring in extra fees; consumers found it easier to borrow; Wall Street could make money off creating and holding the securities; investors got fatter yields.
Only one snag: The system kept imploding -- in 1986, 1994 and 1998 -- inflicting ever greater damage after which the risk- based model re-emerged, “bigger and riskier than ever,” Gasparino writes. You can draw a straight line from there to the serial bailouts of 2008.
Gasparino makes a heroic effort to show how the moving parts fit together, from the Fed’s easy money to shady mortgage brokers. His book offers a handy primer for CNBC fans, though others may tire of his ticks and Wall Street-centric view.
Toasty Executives
In the world according to Gasparino, losses are “massive” and executives become “toast.” The pages are peppered with references to CNBC. Though Gasparino is on first-name basis with the financial titans who dine at San Pietro in Manhattan, his access elsewhere seems limited. Both Paulson, a former Goldman Sachs Group Inc. chief executive, and Federal Reserve Chairman Ben Bernanke declined to be interviewed for this book.
As I plowed through the familiar anecdotes, I found myself wishing that Gasparino had bitten off a smaller chunk of the story -- a book focused on Fink and Ranieri, say. Instead, I was reminded of how a Wall Street Journal coach cautioned feature writers against thinking too big.
“We try to embrace the circus fat lady,” William Blundell wrote, “and only well into the effort do we find there is too much of her and not enough of us.”
“The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System” is published by Harper Business (553 pages, $27.99).
Bloomberg
Familiar scenes from a meltdown? You bet. It was 1998, and Russia had devalued the ruble and defaulted on part of its debt, triggering a bond-market panic.
“Wall Street has a short memory,” says Charles Gasparino in “The Sellout,” a workmanlike attempt to trace the origin of the Great Panic of 2007 and 2008 back through decades of greed, government mismanagement and financial engineering.
“When it comes to making bets on exotic bond markets -- whether mortgage debt or Russian bonds -- things can always get worse,” writes Gasparino, a former Wall Street Journal reporter who now serves as an “on-air editor” for CNBC.
Up to now, most crisis books have explored one corner of the disaster at a time. They’ve brought us inside looks at the collapses of Bear Stearns Cos. and Lehman; reconstructions of how Washington and Wall Street fought to rescue the system; and studies on how government efforts to spur homeownership added helium to the bubble. To cite a few.
In “The Sellout,” Gasparino attempts something much broader -- to wrap all those elements, and more, into one fat account spanning 30 years and more than 500 pages. The result is a useful yet often unsatisfying book.
Cayne Plays Bridge
Useful because it offers an all-in-one-place account of what happened and why. Unsatisfying because so much of the material has appeared elsewhere, from Chairman Jimmy Cayne playing bridge as Bear Stearns slid toward its death to Treasury Secretary Henry Paulson begging House Speaker Nancy Pelosi on bended knee to help keep his financial rescue plan alive.
Gasparino is at his best when he follows the roots of the current crisis back to the early 1980s, when Wall Street was transformed by a confluence of cheaper borrowing rates, computers and the conversion of private partnerships into public companies. On the scene were two mortgage-bond pioneers.
Lew Ranieri was the college dropout from Brooklyn immortalized in “Liar’s Poker” -- a man so round that he resembled “a bowling ball,” as one source puts it.
“He liked to eat junk food, curse and worry about the competition -- most of all a skinny Jewish kid from southern California named Larry Fink,” Gasparino writes.
Mortgage Magic
The two men -- Ranieri at Salomon Brothers and Fink at First Boston -- cranked out one innovation after another, and the magic of securitization made everybody happy, as Gasparino notes. Banks could get mortgages off their balance sheets, make more loans and bring in extra fees; consumers found it easier to borrow; Wall Street could make money off creating and holding the securities; investors got fatter yields.
Only one snag: The system kept imploding -- in 1986, 1994 and 1998 -- inflicting ever greater damage after which the risk- based model re-emerged, “bigger and riskier than ever,” Gasparino writes. You can draw a straight line from there to the serial bailouts of 2008.
Gasparino makes a heroic effort to show how the moving parts fit together, from the Fed’s easy money to shady mortgage brokers. His book offers a handy primer for CNBC fans, though others may tire of his ticks and Wall Street-centric view.
Toasty Executives
In the world according to Gasparino, losses are “massive” and executives become “toast.” The pages are peppered with references to CNBC. Though Gasparino is on first-name basis with the financial titans who dine at San Pietro in Manhattan, his access elsewhere seems limited. Both Paulson, a former Goldman Sachs Group Inc. chief executive, and Federal Reserve Chairman Ben Bernanke declined to be interviewed for this book.
As I plowed through the familiar anecdotes, I found myself wishing that Gasparino had bitten off a smaller chunk of the story -- a book focused on Fink and Ranieri, say. Instead, I was reminded of how a Wall Street Journal coach cautioned feature writers against thinking too big.
“We try to embrace the circus fat lady,” William Blundell wrote, “and only well into the effort do we find there is too much of her and not enough of us.”
“The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System” is published by Harper Business (553 pages, $27.99).
Bloomberg
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