Cover via Amazon

Finally, I completed reading House of Cards - A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan I accept that I may not have enough background knowledge for understanding each and every terms mentioned in this book and even for writing book review but I am petty sure that now I have general knowing about the state of Wall Street and financial mess they have nurtured in the form of sub prime mortgages and other complicated financial instruments like derivatives (I swear I don’t know what the fuck is this).

Cohan is a former senior Wall Street investment banker, author of The Last Tycoons and as a whole a respected writer and/or journalist.  I am really impressed by the way this book is written. The sequence of the events and excitement of consequences produced by them is what let me to complete this book in such a short time interval.

The book describes about the whole life cycle (from the birth and impressive rise to the dramatic collapse) of once proud investment bank Bear Stearns that became the first major casualty of the global financial crisis or credit crunch and consequently triggering the global financial system in the edge of collapse. Bear Stearns was eventually acquired by JPMorgan Chase in the fire sale price for just $2, later adjusted to $10 after shareholder lawsuit (Just a month or so ago it was trading above $100).

Here are some of the major events / points from the book:

• Bear Stearns had had leverage ratio of nearly 40 times i.e. it was borrowing $40 by showing liquid asset of $1. Not only Bear Stearns, AIG (Always Investing Garbage Hmm..Did I write something wrong:) ), Lehman Brothers and most financial institutions and investment banks were leveraged in the same way.
• Confident is the name of the game in the Wall Street. Just couple of weeks before the collapse of Bear Stearns, it had $18 Billion cash in hand. But once news about its potential survival and toxic assets in its balance sheet began to leak, there was run for money by its clients and no one was ready to do business with Bear.
• Though Bear Stearns was a public company, its management and overall control was in the hand of few people namely Ace Greenberg, Jimmy Cayne and Alan D. Schwart. The failure of Bear was not only due to its business model but managerial missteps and personal rivalry about controlling the firm were also one of the causes.
• Its quite shocking to know that most of the investment banks rely on over night funding for their daily transactions.
• The rating agencies like Standard & Poor’s, Moody’s and Fitch Ratings are the bitch of Wall Street firms and also one of the major villains of this crisis.
• Ironically, the executives of the failed firms like Bear Stearns and Lehman brothers were highest paid. But overall, all Wall Street executives normally were make millions even after the crisis (Remember AIG bonus saga). Wall Street has always be known for its excessive pay and risky investments especially after the de-regulation initiated during Clinton Administration.

Certainly the above list do not fully capitalize what this book explains. I have to say, I never thought it would be so interesting to read a book about finance world. But I believe that every person in the world is being directly or indirectly affected by the current crisis should have at least rough idea about how crisis of such magnitude completely took the world by surprise. As currently I am living in New York, which being the home of Wall Street can be considered as the epicenter of the current mess and one of the most affected state so, getting to know about the financial crisis is always nice.

And I can conclude what I learn in just one statement:

Investment banking is an unregulated black magic that let you to believe you are making chunk of profit that is kinda NULL in reality.