Book Review | Complicit

Title: Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable (Bloomberg)

Author: Mark Gilbert

My Review:

We all helped Wall Street plunge the planet into the deep recession of the last couple of years. We need to be more vigilant over our own stakes in the world of money; and we need to insist that our governmental leaders enact and enforce adequate controls over the financial system that drives our nations economies and our own personal wealth. So goes one major premise of Mark Gilbert’s incisive COMPLICIT. In well laid out detail, Gilbert exposes the chimerical investment products, the lack of oversight, and the outright chicanery that brought our economy to its knees and cost small investors huge chunks of their portfolios and retirement savings.

According to Gilbert, Bureau Chief for Bloomberg News in London, several factors combined to create a bubble in the money markets, a bubble that had to burst because it grew out of a type of legal Ponzi scheme.

Where did [the money] go?..The answer, in part, is that there wasn’t anywhere near as much money as there seemed to be. And because it didn’t exist in the first place, the money hasn’t gone anywhere. It was an illusion, although the economic consequences of its disappearance turned out to be very real indeed.

The starting point of his analysis is the subprime mortgage debacle, but he is careful to acknowledge the enabling factors that had to be in place for such a series of events even to take hold. He steps us through the greed for commissions and fees that encouraged home buyers without adequate repayment resources to be led into signing for mortgage loans they could not afford. He describes how this crisis-in-waiting was further exacerbated by the bundling and sale of these toxic loans into investment vehicles which were then offered to third party buyers as safe and conservative. And he shows how the investment bankers got even further mileage from these iffy assets by creating derivative products wherein investors could bet on the market performance of these assets rather than on the assets themselves. And finally, the players in this financial game all colluded to ensure it ran its course to disaster: banks and investment houses paid for high securities ratings from such venerable agencies as Moody’s and Standard & Poor; realtors appraised property at highly inflated values; individuals failed to do due diligence in assessing their true ability to handle mortgage loans; investors relied on ratings rather than on their own research in selecting products for their portfolios; and government regulators and stewards of the world’s capital looked the other way. When buyers began to default on the loans they never should have been granted in the first place, the derivative investments were seen to be without foundation, the investors lost their money, the investment houses lost their credibility and customers, the banks found themselves holding the mortgaged real estate and uncollectible loans, and credit dried up as banks tried to shore up their balance sheets by retaining any funds not withdrawn by nervous depositors.

Gilbert fully supports his arguments at every turn. He quotes statistics, government leaders, and finance experts to prove his points. He specifically relates each of the consequences of the credit crunch (e.g., the willingness of investors to accept negative yields on U.S. Treasury bills) back to its cause (the perceived lack of any safe alternative in the private sector). Because of the complexity and interlocking nature of the “credit crisis, his text is at times redundant, but this repetition is necessary to the flow of his logic and does serve to reinforce his major points so that the reader finishes the book with a good understanding of and agreement with his arguments.

While this book is written with style and humor, it may be a little dense for the general reader. It requires a willingness to grapple with concepts like NINJA loans, structured investment vehicles, collateralized-debt obligations, the logic behind the U.S. government’s decision to bail out the Bear Stearns brokerage and American International Group (AIG) but let Lehman Brothers Holdings die in bankruptcy, and China’s role in creating an environment of easy credit. The book is structured and reads like a text book; the reader should not expect a chapter-by-chapter executive summary” that allows one to accept the premises without absorbing the proofs.

Mr. Gilbert’s treatise is an invaluable aid to our comprehension of the financial collapse that peaked in 2008 and reverberates to this day. The conclusions and recommendations in his final chapter make perfect sense in light of his book’s disclosures. One hopes that the world’s financial and governmental powers-that-be are paying attention, as Mr. Gilbert has done an enormous amount of their work for them. The fixes he proposes are intuitively logical and long overdue. And we civilians would do well to study this book for its lessons and its guidance as to what financial protections we should demand from our elected and appointed leaders.

A hearty THANK YOU! to FSB ASSOCIATES,, for providing a review copy of this book.

This review reflects the tastes, perceptions, and opinions of one person only and may be entirely wrong from another person’s point of view. Please read the book yourself and decide.