Book report: Lowenstein's "Origins of the Crash"
Lowenstein is one of my favorite financial authors-- you may remember his Buffett biography and his analysis of the LTCM failure.
This time he's writing about a subject that's been covered in excruciating detail by a few other books: Frank Partnoy's "F.I.A.S.C.O." & "Infectious Greed", Kurt Eichenwald's "Conspiracy of Fools", "Serpent on the Rock", & "Smartest Guys in the Room", James Stewart's "Disney War", Andy Kessler's "Wall Street Meat" & "Running Money"... you get the idea.
Lowenstein's advantage is that he manages to summarize 25 years in about 250 pages instead of the thousands covered by the other books. If you've read a couple books in the previous paragraphs then you don't need to read this one. However, if you haven't read any of them, then "Origins" is a Cliff Notes summary that'll help you decide if you want to dig deeper.
He starts in the '80s with the spread of junk bonds & derivatives. As the bull market gets going he focuses on the SEC's inability to keep up with changes in technology, CEO pay, options, auditing, financing, and legislation. He points out that Levitt's attempt to shut off the auditing/consulting conflicts in the mid-90s almost caused Congress to cut the SEC's funding... pretty ironic when you consider how much money was lost over the next decade. He spends a chapter on Enron as a metaphor of the entire bull market and the dot-com craze, and he runs through all the major personalities during the rest of the era.
Of course the book's advantage is also its flaw-- he can't go into enough gory detail. He also had too much to cover, so he missed some issues that have been corrected by subsequent research. (Enron did freeze their employee 401(k) plan for a custodian change, but the freeze was announced weeks in advance and the stock price, although down in the single digits by this time, actually rose during the freeze.) Finally, he published in 2004 so he wasn't able to put a coda on the good stuff like the Martha Stewart & Waksal trials, the Rigas' implosion, or the Lay/Skilling trial.
So maybe he'll put out a 2007 edition...
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