Man for the Ages Book Review #2
Book: House of Cards
Author: William D. Cohan
Why I choose this book?
Wall Street fascinates me and the global credit crisis events were the most perilous too our economy and well being since the Great Depression so I wanted to get a deeper understanding of the events and people involved.
This book was long but one of those books that you can’t put down until your done. The author did a great job of bringing out the personalities involved with the crisis and giving the lowdown on Bear Stearns, the culture of the company and the key players who ran the show there. Bear Sterns had a rich financial history but got done in due to arrogance, over-leveraging, and a bet the shop on sub prime mortgages strategy.
Personal Lessons I learned from reading the book:
- Leverage is powerful and can make or break you from a net wealth perspective. This is not a new observation but was reinforced as the major takeaway from the book.
- Finance 101 but duration needs to match funding timing horizons. Bear Stearns was heavily reliant on day to day rolling financing that was never a problem until it was. Reputation/confidence is essential in this line of work and once the sharks smell blood in the water and there is even a hint that you are in trouble it becomes a self fulfilling prophecy. It ties back to the wisdom that people will always lend you money until you really need it and then the funding dries up.
- Never listen to Jim Cramer he is an ass clown who recommended Bear Stearns on a dip and is rarely correct. Props to him for getting rich on his sideshow but if you listen to him for investment advice you deserve what you get
- Acting arrogant and going against the status quo can come back to bite you big time. Bear refused to participate in the bailout of Long Term Capital Management when the rest of Wall Street participated. This along with their arrogant attitude labelled them as outsiders which helped them thrive up to the time when they needed help. That help was no where to be found and they were not invited to the big decisions because they had neglected politics a game that Goldman Sachs and others had perfected.
- Bear Stearns went from a market value of billions to being worth $2 a share in a few weeks. They would have been acquired for that very price if a legal screw up did not force their acquirers to up their ante to $10 per share. The mighty can fall quick but lawyers will make money either way even if they screw up.
Other Topics I want to learn more about after reading this book
- Was planning to subscribe to Bennett Sedacca’s blog since he was credited as predicting the Lehman/Bear Sterns problems ahead of time. In doing so I learned he died at the young age of 49 due to a fall related brain injury. Just a little suspicious..
- Going to read a book about Goldman Sachs these guys run things and have the political connections which result in real lasting clout.