Is Wall Street motivated solely by greed, or do its bankers have humanity’s interests at heart? In this revealing account of the events leading up to the Global Financial Crisis, Gillian Tett sheds light on how investment bankers think, why they made the decisions they did, and how it all came unstuck.
Tett, anthropologist and editor of the Financial Times, explains how a small team at J.P. Morgan believed they were developing financial products that would reduce risk and help stabilise the global economy.
As Tett explains, "…the bitter irony is that they first developed their derivatives ideas in the hope that they would be good for the financial system." In helping their own careers and their bank’s portfolio, they thought that they could also help humanity.
Tett argues that these bankers’ claims are not as outlandish as they seem. Derivatives and other innovative products can indeed help mitigate risk: the problem is that, if used incorrectly, they can also increase it. And this is exactly what happened.
The new products were widely adopted in the banking world and developed into ever-more complex financial tools. Some of their users underestimated the risks, while others blatantly ignored them, secure in their belief that their banks were ‘too big to fail’. Eventually, the system failed and the problems inherent in derivatives were exposed.
...the bitter irony is that they first developed their derivatives ideas in the hope that they would be good for the financial system.
This is a great book to read if you want to know more about the mysterious world of finance and the roots of the Global Financial Crisis, suitable for both beginners and people with more advanced economic knowledge. Tett explains economic principles in a way that is clear without being patronising, and renders banking surprisingly riveting, by focusing on the human side of the story.
Tett’s multifaceted depictions of a small cast of characters gives us a rare insight into the world of Wall Street and how individual personalities, combined with corporate culture, can have massive effects on the global economy. It is a viewpoint that is unfortunately often missed.
If we really want to understand how the economy works, then we need to understand that it is driven not just by dispassionate calculations of profit, but also by human behaviour.