Chillin' out till it needs to be funded
Mike Mayo follows on to the numerous Financial crisis accounts and decides to write about the inner workings of Wall Street and why nothing would change
In Exile on Wall Street,Mayo:
While it provides an education, this is no textbook. It is also an invaluable
resource for finance practitioners and citizens alike.
Ex Lehman Veep, Barry Ritholtz, posted a review:
Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves by Mike Mayo is one of the more important books to be published since the start of the financial crisis. Part memoir, part revelatory narrative of Mike’s career, this highly personal but informative book provides some very important information about how Wall Street works – or doesn’t – and confirms the view of many people than most deals are bad deals, done only to enrich the parties but not investors.
Mayo provides a lot of important detail about how the major Wall Street firms operate and, in particular, why the larger banks and their clients are more concerned about making money than creating value. Mike learned as did I that truth is not beauty on Wall Street, except in those few, generally smaller firms that have been able to preserve a culture of client service and quality. As Mike points out several times in Exile, many large cap mergers are done simply to cash out the managers.
“Two things are worth noting about these super-size banks,” Mayo writes. “First, much of their growth has come from mergers and acquisitions. They are not growing like Google, by creating a product and doing it better than anyone else. Instead they are just buying out their competitors… Secondly, many of these banks would likely not have grown to their current size without federal assistance in the past. In all the bank crises of previous decades, bank failures were thought to be too economically disruptive. But government bailouts – including the most recent round – didn’t resolve that problem. They merely delayed it, allowing banks to keep growing in size and scope, making the potential cataclysm next time that much bigger.”
This quote hints at one of my criticisms of Exile on Wall Street, namely that Mike does not yet appreciate that nobody in Washington or on Wall Street wants banks, especially the largest banks, to behave. There are many places in the book where I expected Mike to turn that corner of epiphany and state this case, but let me do it for him.
Whether you talk of the National Bank Act of 1865, the creation of the Fed in 1913 or the subsequent birthing of the housing GSEs in the 1930s, both the business community and their lackeys in Washington were more concerned about stoking employment and sales today than in safety and soundness of money or banks. I touched on this point in my 2010 book, Inflated: How Money and Debt Built the American Dream, which begins with this quote from Hayek’s “Denationalization of Money” essay:
“I do not think it is an exaggeration to say that it is wholly impossible for a central bank subject to political control, or even exposed to serious political pressure, to regulate the quantity of money in a way conducive to a smoothly functioning market order. A good money, like good law, must operate without regard to the effect that decisions of the issuer will have on known groups or individuals. A benevolent dictator might conceivably disregard these effects; no democratic government dependent on a number of special interests can possibly do so.”