Review of Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe (Hardcover)

The book starts with a fly-on-the-wall description of big, offsite meeting in Boca Raton for J.P. Morgan employees.There they made plans to ensure that J.P. Morgan led the industry in credit derivatives.This story of the bravado of young party animals becomes the backdrop for how we got into this mess.These recently minted and overconfident traders and analysts risk takers, lead a headlong charge into a poorly understood market innovation.After that, Tett describes in detail the array of models, players and events that lead to the financial crisis and weaves them all together to explain the events like no other author yet has done.

Although the description of events are detailed, Tett leaves out explanations of how basic psychology and particular modeling errors contributed to the problem - such as the researched described in Hubbard's The Failure of Risk Management: Why It's Broken and How to Fix It (although Hubbard is talking about risk management in a broader sense than financial risks alone, I still recommend both books for this topic).But Tett is also more pragmatic and specific than Taleb's The Black Swan: The Impact of the Highly Improbable and makes more logically supported conclusions than Posner's A Failure of Capitalism: The Crisis of '08 and the Descent into Depression.

Tett seems to cover just about every aspect of the recent crisis that an author can cover without getting into specific mathematical modeling errors (Hubbard argues this is a critical contributor but it would be hard to elaborate without alienating much of the audience).She covers AIG, Bear Sterns, Fannie Mae, the credit rating agencies and the Basel II accords.She mentions Gaussian copula model, Goldman Sachs and the actions of Alan Greenspan.The details of Structured Investment Vehicles (SIV) and Value at Risk are included along with recent events like the Troubled Asset Relief Program (TARP).

I do not believe there is another single book that has this breadth of coverage combined with a logical picture of how they formed an avalanche of connected events.As of now, this is the single most important book on the topic, period.




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