You know what happened during the financial crisis … now it is
time to understand why the financial system came so close to
falling over the edge of the abyss and why it could happen again.
Wall Street has been saved, but it hasn’t been reformed. What is
the problem?
Suzanne McGee provides a penetrating look at the forces that
transformed Wall Street from its traditional role as a
capital-generating and economy-boosting engine into a behemoth
operating with only its own short-term interests in mind and with
reckless disregard for the broader financial system and those who
relied on that system for their well being and prosperity.
Primary among these influences was “Goldman Sachs envy”: the
self-delusion on the part of Richard Fuld of Lehman Brothers,
Stanley O’Neil of Merrill Lynch, and other power brokers (egged on
by their shareholders) that taking more risk would enable their
companies to make even more money than Goldman Sachs. That
hubris—and that narrow-minded focus on maximizing their short-term
profits—led them to take extraordinary risks that they couldn’t
manage and that later severely damaged, and in some cases
destroyed, their businesses, wreaking havoc on the nation’s economy
and millions of 401(k)s in the process.
In a world that boasted more hedge funds than Taco Bell outlets,
McGee demonstrates how it became ever harder for Wall Street to
fulfill its function as the financial system’s version of a power
grid, with capital, rather than electricity, flowing through it.
But just as a power grid can be strained beyond its capacity, so
too can a “financial grid” collapse if its functions are distorted,
as happened with Wall Street as it became increasingly self-serving
and motivated solely by short-term profits. Through probing
analysis, meticulous research, and dozens of interviews with the
bankers, traders, research analysts, and investment managers who
have been on the front lines of financial booms and busts, McGee
provides a practical understanding of our financial “utility,” and
how it touches everyone directly as an investor and indirectly
through the power—capital—that makes the economy work.
Wall Street is as important to the economy and the overall
functioning of our society as our electric and water utilities. But
it doesn’t act that way. The financial system has been saved from
destruction but as long as the mind-set of “chasing Goldman Sachs”
lingers, it will not have been reformed. As banking undergoes its
biggest transformation since the 1929 crash and the Great
Depression, McGee shows where it stands today and points to where
it needs to go next, examining the future of those financial
institutions supposedly “too big to fail.”
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