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Title: Origins of the Crash: The Great Bubble and Its Undoing by Roger Lowenstein ISBN: 1-59420-003-3 Publisher: The Penguin Press Pub. Date: 22 January, 2004 Format: Hardcover Volumes: 1 List Price(USD): $24.95 |
Average Customer Rating: 3.7 (10 reviews)
Rating: 4
Summary: The Culture that "Led to Prosperity and Enron"
Comment: Mr. Lowenstein surveys the principal instances of financial abuse which, together with September 11th, resulted in a steep decline in the U.S. stock market -- with the Dow down almost 40% once Enron's travails began to permeate public awareness. Lowenstein claims that, "if a single corporation could represent the corruption of shareholder value," Enron would be that corporation. Not surprisingly, a significant fraction of this book is focused on Enron, particularly its infamous use of Special Purpose Vehicles. Also prominent in these pages is Worldcom and its colorful, affable CEO, Bernard Ebbers. The underlying lesson from the various cases Lowenstein surveys is that the level of corruption and mismanagement reflects " cultural devolution -- a generalized decline in standards."
One difficulty with this book is that the history it surveys is still very much evolving. Virtually none of the major companies he examines is "out of the legal-woods." In addition, the book reads as though it hastily came together; it lacks a proper introduction, and the final chapter is less tight structurally than it ought to be. With respect to the latter, I drew a different lesson from Lowenstein's book than "cultural devolution." More specifically, I think what Lowenstein documents is that the institutions upon which investors rely for information, integrity and transparency failed miserably, or at least enough of them failed to prompt the market exit and the subsequent drag on values. Analysts became salesmen. Auditors became compromised. Neither the SEC, nor Congress, for whatever reasons, acted as the guardian of last resort. In the end it was a general financial publication, Fortune, and the investigative work of Bethany McLean, that turned on the lights and ended the party. What remains uncertain is whether Sarbanes-Oxley and other reform efforts will be provide sufficient future protection. Lowenstein's last chapter suggest some powerful reasons to remain cautious.
Rating: 3
Summary: Good history. No new information
Comment: This book is all right, but not great. It is a descent work of business history. It covers well-known themes, including a business culture increasingly obsessed with short-term gains, a corrupt security analysis industry that boosted share prices to unrealistic levels. It also depicts the evil partnership between CEOs and their accounting firms that cooked the books of their respective companies to deliver phony earnings.
Our financial system was fraught with so many conflicts of interest that the crash was an inevitable accident waiting to happen. The security analysts sold their souls and earned their bonus from the related investment banking fees they helped generate. The accountants did the same thing by marketing associated consulting services to the same clients they delivered auditing services to.
Lowenstein covers in depth all the related villains, including Marcia Meeker, the leading security analyst who bears much responsibility for boosting Internet stocks to unreal levels. Jack Grubman did the same for the telecommunication industry. If these two characters had been taken out of the security analysis game earlier, maybe the Bubble would have been less inflated. Indeed, if you take out Internet and telecommunication stocks, the bubble just about evaporated. The remainder of the stock market sectors was not nearly as inflated, and therefore did not decline nearly as much when the Bubble burst.
So, why is this book not this great? If you have read the financial press during the past decade, you won't get much new insights here. The causes of the Bubble are well known, and have been analyzed thoroughly by other journalists for years. Additionally, Lowenstein underplays the fact that the Bubble really affected, as mentioned above, a very narrow sector of the stock market.
This book is weaker than Lowenstein's previous one: "When Genius Failed." Back then, Lowenstein tackled one of the most complex shock to the capital markets. He analyzed and described in understandable terms how a hedge fund went belly up using pretty sophisticated convergence strategy. He also reported how Greenspan saved the day by coercing large banks to bail out Long Tern Capital Management. This was all fascinating and educating stuff. You won't find that much high intensity gray matter in "The Great Bubble."
A far better book on the Bubble is Robert Shiller's "Irrational Exuberance." Shiller's book is more technical, well researched, and academic (in a positive sense). And, more importantly, Shiller's book was prescient. He wrote it in 1999, it was published in early 2000 just before the Bubble actually burst. It is more impressive to foresee the future as Shiller did vs. narrating the past as Lowenstein is doing.
Rating: 3
Summary: Not relevant
Comment: This book is well-written, but it's thesis carries weight only if you believe there was a so-called "bubble" in the 90's.
Sure, perhaps many investors lost money, but that does not a bubble make.
The real problem in the 90's and into the current century is that the market has failed to realize that the Internet has changed everything, and that old methods of valuation no longer matter. The methods by which a company was valued in the past (earnings, cash flow, ROIC, ROA, ROE, etc.) no longer matter in this new world. Mind share, site visits, stickiness... This is what makes companies great in the new era.
Lowenstein misses all of these. His old-fashioned way of thinking about companies is reminiscent of a dead era.
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Title: In an Uncertain World: Tough Choices from Wall Street to Washington by Robert E. Rubin, Jacob Weisberg ISBN: 0375505857 Publisher: Random House Pub. Date: 18 November, 2003 List Price(USD): $35.00 |
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Title: Bull! : A History of the Boom, 1982-1999: What drove the Breakneck Market--and What Every Investor Needs to Know About Financial Cycles by Maggie Mahar ISBN: 006056413X Publisher: HarperBusiness Pub. Date: 21 October, 2003 List Price(USD): $27.95 |
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Title: Wall Street Meat: Jack Grubman, Frank Quattrone, Mary Meeker, Henry Blodget and me by Andy Kessler ISBN: 0972783210 Publisher: Escape Velocity Press Pub. Date: 17 March, 2003 List Price(USD): $25.95 |
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Title: Adventure Capitalist: The Ultimate Road Trip by Jim Rogers ISBN: 0375509127 Publisher: Random House Pub. Date: 13 May, 2003 List Price(USD): $26.95 |
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Title: Moneyball: The Art of Winning an Unfair Game by Michael Lewis ISBN: 0393057658 Publisher: W.W. Norton & Company Pub. Date: 10 May, 2003 List Price(USD): $24.95 |
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