Origins of the Crash: The Great Bubble and Its Undoing

Origins of the Crash: The Great Bubble and Its Undoing

by Roger Lowenstein

With his singular gift for turning complex financial events into eminently readable stories, Roger Lowenstein lays bare the labyrinthine events of the manic and tumultuous 1990s. In an enthralling narrative, he ties together all of the characters of the dot-com bubble and offers a unique portrait of the culture of the era. Just as John Kenneth Galbraiths The Great Crash was a defining text of the Great Depression, Lowensteins Origins of the Crash is destined to be the book that will frame our understanding of the 1990s.

  • Language: English
  • Category: Economics
  • Rating: 3.78
  • Pages: 288
  • Publish Date: December 28th 2004 by Penguin Books
  • Isbn10: 0143034677
  • Isbn13: 9780143034674

What People Think about "Origins of the Crash: The Great Bubble and Its Undoing"

The fact this shines through in Lowenstein's account, means that anyone with an interest in financial history will find this book invaluable. There are more detailed accounts of each of the episodes described (Den of Theives for the LBO boom, The Smartest Guys in the Room for the Enron scandle), however Lowenstein excels in weaving them together to paint his general thesis that unchecked free markets will tend to find work arounds for any obstacles in their course. But as Lowenstein states: The main components of the scandal - the unvarnished greed, the conspiratorial neglect by gatekeepers, the hysterical attention to share price - were simply too common to think that Enron as unique. And given the nature of the beast, Wall Street may be incapable of genuine reform." I would hazard a guess and say what was probably a bit depressing for Lowenstein is that less than a decade on, a similar dance had spread from Main Street corporations straight into the neighbourhood street of every day America, leading to the 2008 crash. But also touches on one of the key things that I think is missing from the account - despite the bad apples, there were many other people out there genuinely trying to do good.

According to the accounting rules current at the time, issue of stock options was not reflected as a cost in the earning statements of companies; when a board of accountants and the SEC recommended that this change, many politicians lobbied against it, including Senator Joseph Lieberman, who claimed that workers would suffer. This was incorrect: only 2% of American workers, 3 million people, got stock options; among them, the top 5 executives of companies got 75% of options, the next top 50 15%, and everybody else made do with 10%; nevertheless, the recommendation was not put in place.

Well, I loaned it to a friend of mine, who was impressed with the depth of knowledge and information about Hedge Funds it offered, so he rushed out (to Amazon, I imagine) and bought some of the authors other works. He literally builds a case suggesting that the Crash of the internet market was quite similar to the Crash in 1929. In reaction to the events of 1929, the SEC was created. He doesnt lay the blame solely at the feet of men like Lay and Ebbers, but also at the feet of the analysts who quieted their own fears, and even the average investor who in the heyday of the 90s booming bull market perhaps forgot the one salient point that Keynes made: Markets can remain irrational longer than you can remain solvent.

Well-known financial journalist Lowenstein (Buffett; When Genius Failed) sets out to explain the stock market crash of 2000 and the ensuing corporate scandals. Lowenstein traces the origins of the trend that fueled the great stock market boom of the 1990s, which ultimately led to the dot-com bubble, the collapse of Enron and Worldcom, and the exposure of corruption that followed in its wake.

Had Clinton decided to sign legislation regulating derivatives, the tech and housing bubbles probably wouldn't have happened. So we had a tech bubble, a bigger telecom bubble, a housing bubble, a stock market bubble fueling the 1990s economy, and we've been in hangover mode ever since.

Enron, Lucent, GE, Tyco aong others variously cooked the books, created fraudulent off-balance-sheet Special Purpose Vehicles, colluded with consulting accountants etc.