Posts Tagged ‘Fool’s Gold’

Fool’s Gold by Gillian Tett – Book review

Thursday, August 27th, 2009

Fool’s Gold is the story of how mortgaged backed CDOs (collatorised debt obligations) were created and how they played a major role in the bank collapses and recession of 2007-2009.

The book largely focuses on how J.P. Morgan set up the teams of people who created these products and how the products evolved over time. J.P. Morgan created these new financial derivatives as a way to spread risk. They believed that their creations would make the world economy safer by allowing risk to categorised, insured and dispersed.

The author argues that the problem was not so much caused by the creation of these financial derivatives by J.P. Morgan, but by the way they were warped by other profit hungry banks into a tool that allowed huge quantities of sub-prime loans to be handed out and then sold on to other institutions who didn’t fully understand what they were buying.

The first two thirds of the book are largely concerned with how these new financial innovations were created. It follows their gradual evolution from a risk dispersal product, to a product which had the unfortunate side effect of concentrating huge amounts of risk on the balance sheets of companies across the world.

The final third of the book tells the fast paced story of the collapse.The collapse of Bear Stearns and the role that J.P. Morgan played in saving them are covered, as is the collapse of Lehman Brothers and AIG.

If you want to gain a further understanding of the credit crunch – particularly from the perspective of the J.P. Morgan bankers who were watching with horror as the situation developed – then this is a good and easily readable book. The actual bank collapses are covered very quickly so if you want a detailed account of these then you may have to look elsewhere.

Overall an enjoyable and informative read.