Rating: 
Summary: Outlining the Causes of the Stock-Market Crash of 2000-2002
Review: Roger Lowenstein is one of the best financial reporters around, and he has done a fine job of taking the public information about stock market influences since the 1970s and connecting them to the 2000-2002 stock market crash in the United States.I know of no book that touches on so many subjects including: -Retirement money moving into mutual funds -LBOs creating pressure on CEOs to get their stock prices up -Leveraging of public companies to improve stock price -The rise of free market economics as a policy influence -401(k) plans creating a chase for fast results -CEO stock options rising through the roof -Michael Jensen and Joel Stern providing arguments in favor of excessive payments to executives -Rise of the CFO as a "profit engineer" to produce most of company earnings results -Lack of e.p.s. hit for stock options -CEO pay skyrockets in the absence of performance due to lax consultants and boards -New stock options being granted after stocks drop -Cozy boards that inappropriately keep CEOs in place -Managed earnings (especially by GE and Coca-Cola) -Reduced disclosure -Special Purpose Vehicles (to keep losses and debt hidden from investors) -Security analysts having conflicts of interest -SEC didn't do enough -Accounting firms have conflicts of interest -Derivatives are too unregulated -Too much money to Venture Capital funds -IPO boom -Pro forma earnings -Overinvestment in telecommunications -Unrealistic expectations for the Internet and Internet companies -Fraud by Enron, WorldCom and others. Mr. Lowenstein also goes on to describe the current reform efforts including Reg FD and the Sarbanes-Oxley legistlation, and finds that we have not really cured the problem. We will inevitably have another bubble and crash ahead. I agree with that view. At bottom, Mr. Lowenstein understands very well that too much financial incentive for executives is bad for everyone. The temptation is simply too great to bend the line . . . or to cross way over it. The average compensation in major public companies is excessive now, so the ultimate cause of inappropriate behavior is still in place. As a consultant, I have repeatedly seen honorable people make lousy decisions when the size of their bonus and stock option potential was larger than they could deal with in an unemotional way. The book's main weaknesses come in two areas. First, Mr. Lowenstein views from the problem as an outsider and gets almost all of his information from the media. As a result, he doesn't give you the real pulse of what was going wrong in the companies. It would have been helpful if he had contrasted the Enrons and WorldComs with companies that were led by executives who have done an outstanding job running their companies during the same years (while being exposed to the same temptations and conflicts) such as Michael Dell, Tom Golisano, James Morgan, Jake Gosa, Bob Swanson, and Bob Knutson. Second, he is sometimes careless about details. Joel Stern's Economic Value Added (EVA) is described as "Equity Value Added." The Innovator's Dilemma by Professor Clayton Christensen is described as being a bad influence on Citicorp by discouraging executives from improving their existing operations (nothing could be further from the truth). In the end, I was impressed by his understanding that feeding greed with unlimited incentives is a bad idea. That's the bottom line on this crash. As I finished the book, I was left wondering how we can cure this tendency to provide too many financial incentives to do the wrong thing. Simply policing those who are provided with the incentives more closely will probably not work by itself.
Rating:
Summary: The 1990s Market Bubble--How to 'Get It'
Review: The stock market bubble of the late 1990s represented one of the most intense periods of broad-based irrational behavior since the 1920s, and the fallout from the bursting of the bubble likely kicked off the 2001 recession, cost thousands of employees their jobs, and cost untold investors large amounts of their hard-earned savings (I'd suggest well upwards of $1 trillion). How could something so irrational happen in this day of enlightenment? Roger Lowenstein, one of the best financial authors for the lay person, has done an excellent job of describing and detailing the elixir of half-truths, conflicts of interest, shabby corporate governance and outright fraud that intoxicated many investors. More specifically, Lowenstein provides a highly readable explanation of how too many corporate managers and directors, rather than working in the interests of their shareholders, became looters of shareholder wealth via misleading financial statements, excessive use of stock options and other shenanigans. He also does a good job illustrating how hopelessly conflicted some Wall Street analysts, and even public accounting firms, became during the wild-and-crazy times. The chapter on Enron, a must-read all by itself, will provide a lot answers to those who wonder how such a massive corporation could collapse in this age. To those who already know about the various roles played by Jack Grubman (a very influential Wall Street analyst), Arthur Levitt (the SEC chair during much of the 1990s), Andy Fastow (Ernon's financial alchemist) and Billy Tauzin (an influential Congressman), you will most likely find this book easy, lively reading. For those who are not already familiar with these people and with what will likely turn out to have been the most intense financial mania of our lifetimes, this highly readable book will open your eyes.
Rating:
Summary: The Theme Never Changes, Only the Stories
Review: There are only two emotions that motivate the stock market: fear and greed. In his latest market history, Roger Lowenstein explores how the theme of creating shareholder value morphed into unbridled greed and led to the latest stock market crash.
Delving back to the 1970s and 1980s, Lowenstein spins a compelling narrative, of heavy hitters -- Jack Grubman, Sandy Weill, Frank Quattrone, Henry Blodget, Mary Meeker, Abby Cohen, Bernie Ebbers, Frank Lay, Jeffrey Skilling, Gary Winnick -- who checked their moral scruples, fiduciary responsibility and better judgment at the door in the pursuit of personal wealth. Along the path, they co-opted the system's traditional restraints: full disclosure, public accounts and corporate attorneys. I was disappointed Lowenstein failed to include the Richard Grasso incident. As the head of the New York Stock Exchange and regulator of virtually every individual mentioned in the book, his pursuit of personal wealth at the expense of those he was charged with regulating would have served as the icing and cherry on top of this tale of greed. Regardless, this well-researched and powerfully written portrait of the rise and fall of the bull market of the 1990s will studied by market historians for decades to come.
Rating: 
Summary: Good history. No new information
Review: This book is all right, but not great. It is a descent work of business history. It covers well-known themes, including a business culture increasingly obsessed with short-term gains, a corrupt security analysis industry that boosted share prices to unrealistic levels. It also depicts the evil partnership between CEOs and their accounting firms that cooked the books of their respective companies to deliver phony earnings. Our financial system was fraught with so many conflicts of interest that the crash was an inevitable accident waiting to happen. The security analysts sold their souls and earned their bonus from the related investment banking fees they helped generate. The accountants did the same thing by marketing associated consulting services to the same clients they delivered auditing services to. Lowenstein covers in depth all the related villains, including Marcia Meeker, the leading security analyst who bears much responsibility for boosting Internet stocks to unreal levels. Jack Grubman did the same for the telecommunication industry. If these two characters had been taken out of the security analysis game earlier, maybe the Bubble would have been less inflated. Indeed, if you take out Internet and telecommunication stocks, the bubble just about evaporated. The remainder of the stock market sectors was not nearly as inflated, and therefore did not decline nearly as much when the Bubble burst. So, why is this book not this great? If you have read the financial press during the past decade, you won't get much new insights here. The causes of the Bubble are well known, and have been analyzed thoroughly by other journalists for years. Additionally, Lowenstein underplays the fact that the Bubble really affected, as mentioned above, a very narrow sector of the stock market.
This book is weaker than Lowenstein's previous one: "When Genius Failed." Back then, Lowenstein tackled one of the most complex shock to the capital markets. He analyzed and described in understandable terms how a hedge fund went belly up using pretty sophisticated convergence strategy. He also reported how Greenspan saved the day by coercing large banks to bail out Long Tern Capital Management. This was all fascinating and educating stuff. You won't find that much high intensity gray matter in "The Great Bubble." A far better book on the Bubble is Robert Shiller's "Irrational Exuberance." Shiller's book is more technical, well researched, and academic (in a positive sense). And, more importantly, Shiller's book was prescient. He wrote it in 1999, it was published in early 2000 just before the Bubble actually burst. It is more impressive to foresee the future as Shiller did vs. narrating the past as Lowenstein is doing.
Rating:
Summary: Not relevant
Review: This book is well-written, but it's thesis carries weight only if you believe there was a so-called "bubble" in the 90's. Sure, perhaps many investors lost money, but that does not a bubble make. The real problem in the 90's and into the current century is that the market has failed to realize that the Internet has changed everything, and that old methods of valuation no longer matter. The methods by which a company was valued in the past (earnings, cash flow, ROIC, ROA, ROE, etc.) no longer matter in this new world. Mind share, site visits, stickiness... This is what makes companies great in the new era. Lowenstein misses all of these. His old-fashioned way of thinking about companies is reminiscent of a dead era.
Rating: 
Summary: chicken or egg?
Review: This book, well researched and well told, is both informative and misleading. Informative in that it shines a clear light on the dangerous attitudes and corrupt culture that led to the bubble and its burst; misleading in that it presents a limited picture, a partial explanation implicitly represented as complete. If a burned investor wished to understand the great bull's violent death, and had this book as a sole reference, he would likely assume that bubbles are largely the result of lax standards and creeping corruption, and thus likely infer an off base conclusion: that future bubbles can somehow be prevented with a combination of better rules and tighter governance. The stories of Worldcom and Enron are informative and well told, but do they really count as 'origins' of the mania, rather than indirect creations of it?
A student of market history might suggest that most if not all big bull runs end in delusion and creeping corruption, as enthusiasm turns to mania, mania causes normally rational individuals to take leave of their senses, and desperate measures are implemented at the last in vain hope of keeping the dream alive. Does endemic corruption lead to mania, or does the onset of a mania lead to corruption as an inexorable byproduct of the times? The question, as it applies to this book, is whether the gory details matter as much as understanding the age old cycle of boom and bust itself.
Consider Adam Smith's excellent book, "The Money Game," which details dramatic boom and bust in the 1960s (and the all too familiar culture behind it all). Similar stories, similar players, similar reasons for excitement -even the 1960s version of dotcoms and the foreshadowing of Enron- and of course, a violent and painful ending when it all comes crashing down. Going back further, to 1929, or still further to tulipmania and the South Sea bubble, it could be argued that bubbles remain constant in caricature, with only details changing. Perhaps we are travelling along an expanding sine / cosine wave of boom and bust, as the cycles speed up and leverage allows for ever more spectacular highs and lows.
Lowenstein brings forth a number of useful insights: for instance, the notion that the efficient market hypothesis may do more harm than good. To wit, the assumption of rationality makes the markets less rational by functioning as a rubber stamp. If stock prices are assumed always and everywhere rational, then incredible price movements are deemed reasonable by default, and the boosters are given perfect cover. Lowenstein also gives the phrase "shareholder value" a thoroughly sound thrashing, shedding light on insular corporate culture generally and gross CEO excess specifically. Exposing that culture down to the roots is the main aim of this book.
I was quite suprised, though, to see that a book titled "Origins of the Crash" said nothing about so many major factors that came into play. For example, the fact that we were at the tail end of a record period of peacetime expansion that had been going on since 1982, with only one or two brief and limited interruptions. The fact that we were enjoying a "goldilocks economy" in the late 90's as the result of a long-fought battle with inflation that was finally paying dividends. The major role played by the federal reserve vis a vis multiple events that spurred massive liquidity injections: Asian currency crisis, Russian default, LTCM meltdown, preY2K fears. Nothing said of monetary policy, the boom / bust cycle of credit or the hidden inflationary consequences of easy money (namely, the tendency for fed induced liquidity to go directly into stocks and, as of this writing, real estate).
Nor did Lowenstein really address the compelling nature of the dot com story, except in brief passing. He noted that a seachange technology often leaves a vast litany of losers behind (railroads / automobiles etc), and that mass consumer benefits do not equal mass profits for companies riding the risky edge of innovation. He also noted the impossible driver of the mania: the notion that internet traffic was doubling four times a year to infinity. But so much more could be said! Hyperbole aside, the information age really does change things dramatically; just not overnight. That line of thinking could have been, and should have been in my view, more deeply explored. Speaking of which, here are two of my favorite quotes from the book that practically beg for more discussion:
"Finance has its own Peter Principle, by which a successful model will be adapted to progressively riskier causes until it fails."
"There is always a germ of truth, a half-fact or momentary fact that, taken to hyperbole, can justify the most fantastic projections."
For any student of the markets, this is well worth the read (and at 227 compact pages it's a fast read); Lowenstein's book is practically a modern day addendum to Mackay's seminal "Popular Delusions & The Madness of Crowds." But rather than title it "Origins of the Crash," it might be more representative to see it as "A Slice of the Crash" or "Culture of the Crash." In focusing on creeping corruption and chicanery born of desperation, this book is more a cross section of details for a particular late great mania, rather than a chronicle of its origins.
Rating:
Summary: dry, acerbic wit accurately dissects the money culture
Review: This is a really good, introductory book that explains the whole money culture of the 90s, its origins, and many of the seemingly absurd and illogical justifications used by various players to justify the bubble that permeated Wall St. It is quite informative, always entertaining, and Lowenstein's wit and acerbic sense of humor make one chuckle at the outrageousness of some situations. That said, the book, while descriptive, is not prescriptive: it does not offer much in the way of solutions to the issues so eloquently raised in its pages. It is quite easy, after all, to determine that a hitter swings his bat too wildly to make contact with the ball; it is much harder to tell the batter how to make contact with the ball. Describing the history and culture that gave rise to some of the more egregious practices of the past ten years is certainly informative; however, such descriptions merely contextualize the problem and do little to advance debate on how to overcome such problems. For example, Lowenstein quite correctly points out that one big cause of the mania for shares was managers' sudden infatuation with hitting quarterly earnings targets...which fascination these managers fixated on because the Street told them that is the yardstick by which they would be judged. So? Good analysis, good explanation that the logic implied in the relationship between managers, their colleagues on the street, and the maniacal focus on hitting earnings targets is self-referential if not outright incestuous. But Lowenstein does not take this argument to the next step: what do we do to cut off such self-referential silliness as that which is described? That is a discussion he does not approach, and one that neither he nor anyone else seems to have. History, of course, will judge if the corporate reforms as of late, such as Sarbanes-Oxley and the focus on corporate governance will have the desired effect.
Rating:
Summary: Good History
Review: This is a very good historical account of the highlights of the 90s dot-com boom and bust. The book is very easy to read and is entertaining. Not to mention that it touches the news headlines that we read and may have glossed over at times. There is no silver bullet, but the book does offer some good suggestions. It is amazing at how predictable and how low human behavior can be. We are rarely surprised, in hindsight, but reading this book within five years of the event is rather illuminating. The notes are extensive (30 pages), but informative. The binding and printing are very good. Overall, a very good book.
Rating:
Summary: The Clinton boom wasn't a boom - it was a sham.
Review: What really caused the great stock market bubble of the 90s? Who was responsible for the economic growth of that decade? Who are the villains that robbed millions of their life savings? Lowenstein weaves a stomach turning tale of rampant dishonesty and criminality; individual, corporate and political greed; the willful failure of law enforcement on the federal level; the blindness created by greed and exposes the myth of the so-called Clinton boom years. In the end, Lowenstein shows how the Depression-era laws intended to protect the public against stock swindles were simply ignored by the Clinton Administration. Sharp-witted corporate executives learned that they could loot the companies they ran in behalf of the shareholders and the shareholders themselves. The investment bankers learned that they could tout stocks with impunity, no longer having to fear being penalized for lying about the companies they cheered and simply turning a blind eye to accounting arcana and bad news. The accounting and legal professions, supposedly self-policing, dedicated themselves to finding ways to make dung look like gold, even if they couldn't remove the smell. The media, with its legions of financial "reporters" and their dependence on the advertising revenue of the very businesses they reported on, did no fact checking of their own, but simply parrotted the lies they were fed. And the government? Then President Clinton and legislators simply took the donations of the very people who were fomenting the bubble - and turned a blind eye to enforcing the laws. Several thousand people grew very, very rich from all this chicanery - while millions lost money, sometimes disastrously so. Lowenstein describes how it all began with the inflation of stock options awarded to executives. It didn't take long for corporate executives with compliant boards, lawyers and accountants to realize that a seemingly unlimited flow of wealth was waiting to be tapped. The investment bankers and stock analysts saw - as it always has been - how stock prices could be run up without a whit of truth supporting their claims. Buy, buy, buy became the mantra to the public - while the folks on the inside saw profit on every transaction. Enron and Worldcom were but the largest perpetrators of this sham on the company side, assisted by legions of lawyers who sought loopholes, accountants who looked the other way, stockbrokers who didn't care as long as the public kept buying - and regulators and politicians who lined their own pockets. It's a sad tale of the Clinton boom. It never was what it was publicized as being - it was a sham and millions of ordinary people are the poorer for it. But not the fat cats in the White House, Congress, the brokers or the others who pulled it off. A few may ultimately go to some country club jail, but they'll be able to afford whatever they want from the commissary. Jerry
Rating:
Summary: The Clinton boom wasn't a boom - it was a sham.
Review: What really caused the great stock market bubble of the 90s? Who was responsible for the economic growth of that decade? Who are the villains that robbed millions of their life savings? Lowenstein weaves a stomach turning tale of rampant dishonesty and criminality; individual, corporate and political greed; the willful failure of law enforcement on the federal level; the blindness created by greed and exposes the myth of the so-called Clinton boom years. In the end, Lowenstein shows how the Depression-era laws intended to protect the public against stock swindles were simply ignored by the Clinton Administration. Sharp-witted corporate executives learned that they could loot the companies they ran in behalf of the shareholders and the shareholders themselves. The investment bankers learned that they could tout stocks with impunity, no longer having to fear being penalized for lying about the companies they cheered and simply turning a blind eye to accounting arcana and bad news. The accounting and legal professions, supposedly self-policing, dedicated themselves to finding ways to make dung look like gold, even if they couldn't remove the smell. The media, with its legions of financial "reporters" and their dependence on the advertising revenue of the very businesses they reported on, did no fact checking of their own, but simply parrotted the lies they were fed. And the government? Then President Clinton and legislators simply took the donations of the very people who were fomenting the bubble - and turned a blind eye to enforcing the laws. Several thousand people grew very, very rich from all this chicanery - while millions lost money, sometimes disastrously so. Lowenstein describes how it all began with the inflation of stock options awarded to executives. It didn't take long for corporate executives with compliant boards, lawyers and accountants to realize that a seemingly unlimited flow of wealth was waiting to be tapped. The investment bankers and stock analysts saw - as it always has been - how stock prices could be run up without a whit of truth supporting their claims. Buy, buy, buy became the mantra to the public - while the folks on the inside saw profit on every transaction. Enron and Worldcom were but the largest perpetrators of this sham on the company side, assisted by legions of lawyers who sought loopholes, accountants who looked the other way, stockbrokers who didn't care as long as the public kept buying - and regulators and politicians who lined their own pockets. It's a sad tale of the Clinton boom. It never was what it was publicized as being - it was a sham and millions of ordinary people are the poorer for it. But not the fat cats in the White House, Congress, the brokers or the others who pulled it off. A few may ultimately go to some country club jail, but they'll be able to afford whatever they want from the commissary. Jerry
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