Book
BAILOUT NATION
How Greed and Easy Money Corrupted Wall Street and Shook the World Economy
by Barry Ritholtz
“A beam of enlightened thinking in a sea of delusional complacency.”
—Nouriel Roubini
How did our great country, a bastion of capitalism, devolve into a Bailout Nation where gains were privatized and losses were socialized? What turned us into a nanny state for well-paid bankers? Barry Ritholtz examines these questions and much more in BAILOUT NATION: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy by Barry Ritholtz (May 2009; $24.95; 978-0-470-52038-3).
A top economic blogger and media commentator, Barry Ritholtz provides a searing indictment of the U.S. financial and political establishment, in what is certain to be the definitive book on the financial crisis of 2008. As Rex Nutting of Marketwatch said, “Ever since the housing bubble started to unravel, Ritholtz’s blog has been a must-read, not only for his sharp analyses, but also for his highly entertaining rants against the stupidity of our biggest financial institutions, both public and private. Now Ritholtz brings the same intelligence and moral outrage to BAILOUT NATION, where we discover that the only thing crazier than the housing bubble is the government’s bumbling attempts to keep the damage contained.”
Entertaining and informative, BAILOUT NATION shows how years of trying to control the economy with easy money has finally caught up with the federal government and why bailout has become such a dirty word in the American financial vernacular. According to Ritholtz, there are three main problems with bailouts: There is something inherently unjust about some people getting a free ride when everyone else has to pay his own way. The process of how some groups get rescued by the government, while others are left to flounder, is in and of itself suspect. There are the costs. If we have learned anything about bailouts over the past hundred years, it is that each rescue attempt is more costly than the one that preceded it.
Ritholtz’s rogues gallery of perpetrators and enablers includes Alan Greenspan, former Senator Phil Gramm, Presidents Bush and Clinton, Treasury Secretaries Robert Rubin and Larry Summers, the biggest Wall Street firms, the ratings agencies, and Washington regulators. Together these individuals and institutions created a system that allowed banks and financial institutions to operate with little or no effective oversight, reaping the rewards of their success and insuring their failures would be underwritten by taxpayers. He also shows how each bailout throughout modern history has impacted what happens in the future—for example, why Chrysler should have been allowed to fend for itself in 1980, and the impact that has on future bailouts.
Scathing and tough-minded, BAILOUT NATION is the history of how the United States evolved from a rugged, independent nation to a soft Bailout Nation. But rather than ending on a downbeat note, Ritholtz offers a survey of ideas from some of the best and the brightest in the financial industry, of constructive advice in the following categories: resolving the housing and credit mess, fixing the economy, improving monetary policy, energy innovations, and presidential leadership. Let’s not be fooled again.
About Barry Ritholtz
Barry Ritholtz is the CEO and Director of Equity Research for Fusion IQ, an independent quant research firm. He is also operates one of today’s most popular economic blogs, www.ritholtz.com/blog. The topics under his watchful gaze include finance, business, digital media, retail, energy, and technology. In addition to his blog, Ritholtz is published regularly at TheStreet.com. He is also a guest blogger at Nouriel Roubini’s Global Economics and his research has been published in the Wall Street Journal, Barrons, Forbes, The Economist, and RealMoney.com. Mr. Ritholtz comments frequently in the media on a range of financial stories.
Bailout Nation
How Greed and Easy Money Corrupted Wall Street and Shook the World Economy
By Barry Ritholtz
Wiley; May 2009; $24.95; Hardcover
ISBN 13: 978-0-470-52038-3
A Dozen Things You Probably Did Not Know About Bailouts
1. This was not a “perfect storm” —unforseeable random events that just happened. In reality, it was a series of conscious decisions made by investment banks, commercial banks, government officials, regulators, and central bankers that were simply awful.
2. The bailout has cost more so far than the Marshall Plan, the Louisiana Purchase, the race to the Moon, the S&L Crisis, the Korean War, The New Deal, the Gulf War II/Invasion of Iraq, Vietnam War, NASA and War World II COMBINED. (Oh, and that includes adjusting these other expenses for inflation).
3. The CEOs of the biggest 15 investment banks, mortgage firms and commercial banks “retired” from the firms they helped to ruin—and took home over $1.5 billion dollars in compensation !
4. Warren Buffet offered Lehman Brothers a multi-billion dollar investment that would have saved the firm. Dick Fuld, Lehman’s CEO, turned him down—so he invested it in Goldman Sachs instead.
5. No, contrary to popular rumor, AIG was not brought down by the collapse of Lehman Brothers. In fact, AIG’s exposure to LEH was balanced. Instead, they were like two swimmers both caught in the same riptide. And the same forces that led to Lehman’s demise also killed AIG: too much leverage, too much sub-prime mortgage exposure, too little risk management.
6. When the US bailed out Chrysler in 1980, the UAW had 1.5 million members and the Big 3 had a 75% US market share. Since that “successful” (?!?) bailout, the UAM is down to 400,000 members and falling; the big three fell below a 50% US market share for the 1st time last in May 2008.
7. Nearly every Bailout had followed the same script: similar timelines, official statements, stock action, politics, and ultimately, taxpayer money.
8. Much of the damage to these companies were self-inflicted: the excess leverage, mortgage exposure, deregulation and lowering of credit standards all took place at the behest of these firms. They were not killed by others, they committed suicide!
9. The S&L crisis wasn’t a bailout —it was a payout on a federally funded deposit insurance program.
10. The total costs of the bailouts so far—including loans, guarantees, assumption of risk, and outright gifts—now exceeds $14 trillion dollars. (p 6)
11. The TARP was an elaborate ruse designed to hide the fact that Citigroup was insolvent.
12. Wells Fargo bought Wachovia for $15 billion dollars, but managed to squeeze a $74 billion tax shelter thru the IRS for the purchase. Net profit, $59 billion dollars—pretty nice for one day’s work.
13. Citigroup had been lobbying for the repeal of Glass-Steagall act since the 1980s. They finally got their wish—and it helped destroy the bank!
Jocelyn Cordova
Associate Director of Publicity
(201) 748-6249
jcordova@wiley.com
Marian Brown
Publicist
(201) 748-7626
marbrown@wiley.com
