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Tuesday, June 16, 2009

Victor Hugo Called It!

Victor Hugo is world renowned as a great novelist, poet, and social justice advocate. He is most famous for his book "Les Miserables" although I personally prefer "Ninety Three" written in his old age. Forced to leave France for his political convictions, he settled in the Channel Islands, part of the United Kingdom, although very close to the French coast. He lived on the isle of Jersey from 1852-1855 and then moved to neighboring Guernsey from 1855-1870. While on Guernsey, he penned Les Miserables and also a host of poems and essays. In one essay, he attacked French financial shenanigans and wrote "Adversity makes men, and prosperity makes monsters."

That single sentence sums up the three book reviews that we will cover in this post (If you are new to Media Realism, each quarter we cover several books that I have recently read).

My three choices are of very recent vintage and cover the financial crisis of the past year:

1) House of Cards by William D. Cohan (Doubleday, 2009). This is a meticulously researched effort that covers the collapse of Bear Stearns, an 85 year old investment bank. A lot of the focus is on the last two CEO's, Ace Greenberg and Jimmy Cayne, two fine bridge players who got caught up in the greed of recent years. Unlike other investment banks, Bear Stearns did not have the Harvard or Wharton MBA's. It was full of midwestern and street smart New Yorkers who came up the hard way. They were great traders as they were taught to take losses quickly. It is a fascinating read and it takes a difficult topic and makes it read like a fast moving novel at times. Highly recommended.

2) Street Fighters by Kate Kelly (Portfolio, 2009). Also about the Bear Stearns collapse, it concentrates on the last 72 hours of the investment house. Also, she focuses less on Greenberg and Cayne and turns her attention to the thousands of 'little people", most impeccably well paid who gave Bear Stearns an almost blue collar or hustlers feel. The 72 hours up to the collapse is good reading but I give House of Cards the definite nod over it.

3) Fool's Gold by Gillian Tett (Free Press, 2009). The sub-title to this one tells the tale--"How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe." This, my friends, is the story of derivatives. And, it is a surprisingly easy read. The explanation of what a derivative is clear and understandable. Essentially, it was conceived as a hedge against risk and was very imaginative and CONSERVATIVE. But greed took over and soon the great Warren Buffett was referring to excessive use of derivatives as " financial weapons of mass destruction." The Morgan bankers who invented them are still at the financial services game and ironically, Morgan itself sidestepped big problems with them as they showed some restraint in their implementation. Many others did not and that is one reason that we are in such a mess today.

Try and read one of these books over the next year. All warn against greed better than the Baltimore Catechism ever did for me and maybe we will learn a lesson and avoid such excess in the future. It is amazing but 150 years ago, Victor Hugo almost forecast our meltdown. Human nature does not change and greed endures.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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