June 13, 2009

Unfortunately, this book really showed disappointment beyond expectations. Not a good way to start a review either as you guys should ideally skip reading it beyond this line. If you have, then here is the reason. The book seriously lacks depth. Compared to his earlier work on "Once in Golconda", this book pales in comparison. Incidents, reasons and issues are sporadic across the decade and probably under-researched or there was little to say. The book has a lot of pages, so there is a lot of stuff written in it. However, most of these are issues which one can skip and still be a lot wiser. There is a 30-40 page discussion on churches, employee behavior etc which I failed to understand the significance to the story.

Does this book deserve to be a Wiley Classic? Resounding "Yes" because of only the last 60 pages. If one were to read this book perhaps a few years back, one would have thrown this away and said, "Yeah! those were the bad days unlikely to repeated ever". After being threw one of the toughest crisis, I can comfortably say that this crisis partly a combination of the 60s and the 1925-35 era. Here are probably two key reasons:

1. Capital : The last few chapters discuss the crucial element which went haywire in the 60s. The endless leverage at the broker level. In the 1929-35 era, customers were leveraged at an investment level using margin to finance their endless greed. Banks financed the greed and customers readily accepted the same. In the 1960's brokers were leveraged similar to what we have seen in this crisis. The only good part is that it did not affect the banking system. In the current crisis, everyone was leveraged : customers and brokers. What probably was marginally different was the extent corporate leverage. The 60s similar to the 80s seems to have unrelated mergers driving corporate leverage upwards, with the difference being debt was available much more freely than in the 60s.

2. Merger of entities: For a person who has just entered financial markets, the last year should have been a total surprise. The mergers that we have seen at such rapid pace should have thrown his entire theoretical knowledge out of the window. A regulator / group of financial institutions does not call few related parties over a few days/nights and co-ordinate a merger with whomsoever feasible. Yet, it all looks to have happened. This is nothing new in the U.S. In the 1960's as the book highlights, regulators took active interest in ensuring that systemic collapse does not occur. Hence, they were more than willing to help mergers at a rapid pace. Whether it is good or not, I am not sure. It is important for regulators to police the activities of its participants and prevent disruption of functioning. However, should it be actively engaged to this extent? I don't know if our regulator would ever involve themselves to such a degree.

Interesting, this crisis did not bring out any dubious companies like almost any other crisis seems to have.

The extent of crash and the impact is probably less understood in the 60s than in the period of the great depression or the 1987 crisis. We have well documented history for most of the other crisis barring this one, which is what makes the book interesting.

Dow Jones crisis periods

(Source: www.stockcharts.com)

At best, all these crisis keeps repeating the same problem: greed, leverage for investors and growth for corporates. I am almost famished after reading this book and looking at some of the other classics, I doubt I am going to find anything more interesting. However, it is increasingly getting difficult to get the rest of the books. Not one bookshop seems to have any of these classics, which is a definite read for any person in the capital markets.

Mr. Buffett...how did u survive these periods. Reading them is so exciting that living through them should have a world apart!

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