Gillian Tett's Story of the Financial Crisis: 'Fool's Gold — How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe'. By Malcolm C Harris; Gillian Tett, Fool's Gold: How the Bold Dream of a http:// Link to full text. Fool's Gold by Gillian Tett - From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her news-breaking warnings of a.

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From award-winning Financial Times journalist Gillian Tett, who enraged Wall Street leaders with her news-breaking warnings of a crisis more than a year. FOOL'S GOLD – HOW UNRESTRAINED GREED CORRUPTED A MARKETS AND UNLEASHED A CATASTROPHE by GILLIAN TETT. Access a free summary of Fool's Gold, by Gillian Tett and other business, leadership and nonfiction books on getAbstract.

When the new dawn actually broke, the very next day, it was with the news that a crisis was erupting at a hedge fund with close links to Bear Stearns - one of the early markers of the great unravelling. The third bash took place in January this year, at the World Economic Forum, where Jamie Dimon, the chief executive of JP Morgan Chase, was one of only a few chastened senior bankers to show his face. Dimon, who bought collapsed rival Bear Stearns for a knockdown price in in a deal described as being like "the Boy Scouts taking over the Mob", hosted a cocktail party for key contacts in the Piano Bar at the Swiss resort of Davos.

The invitations were embossed with the ghostly image of the bank's founder, J Pierpont Morgan, hailed as the saviour of Wall Street in the crisis of , with the not-so-subliminal message that Dimon had fulfilled a similar role in this debacle.

A down-to-earth, hard-nosed New Yorker, Dimon emerges well from these pages. I can testify to him being a different breed from most investment-banking CEOs: Once I realised it was not a colleague playing a practical joke, we had a cordial exchange of views on short-selling. Tett's book gives the lie to the comforting notion that the crisis could not have been foreseen. Veteran financier Felix Rohatyn warned in the early s that derivatives were "financial hydrogen bombs built on personal computers by year-olds with MBAs".

In , Bill White and Claudio Borio, the two most senior economists at the Bank for International Settlements, presented a paper challenging the orthodoxy that financial innovation was good, because it reduced and dispersed risk. Their audience, which included Alan Greenspan, was not impressed.

Financial Times hide caption. Journalist Gillian Tett warned about the problems in the financial industry long before many of her colleagues.

'Fool's Gold': The Banking World's Responsibility

In her new book, Fool's Gold, Tett examines the global economic meltdown and the role J. Morgan played in creating and marketing risky and complex financial products. On half a mile of immaculate private beach, along Florida's fabled Gold Coast, sits the sugar-pink Boca Raton Hotel, designed in a gracious Mediterranean style by the Palm Beach architect Addison Mizner.

Since the hotel opened in , it has styled itself a temple to exclusivity, boasting Italianate statues and manicured palm trees, a dazzling marina with slips for thirty-two yachts, a professional tennis club, a state-of-the-art spa, a designer golf course, and a beautiful strip of private beach. A glitzy roll call of celebrities and the wealthy have flocked to the resort, billed as a "private enclave of luxury," where they can relax well away from prying eyes.

On one summer's weekend back in June , a quite different clientele descended: Morgan in New York, London, and Tokyo. They were there for an off-site meeting, called to discuss how the bank could grow its derivatives business in the next year.

In the humid summer heat, amid the palm trees and gracious arches, the group embraced the idea of a new type of derivative that would transform the wider world of twenty-first-century finance and play a decisive role in the worst economic crisis since the Great Depression.

As with most intellectual breakthroughs, the exact origin of the concept of credit derivatives is hard to pinpoint. For Hancock, a highly cerebral man who likes to depict history as a tidy evolution of ideas, one step of the breakthrough occurred at the Boca Raton off-site.

Some of his team, however, have only the haziest, alcohol-fuddled memories of that weekend. Full of youthful exuberance and a sense of entitlement, the young bankers had arrived in Florida determined to party as hard as they could.

They worked for the "swaps" department--a particular corner of the derivatives universe--which was one of the hottest, fastest-growing areas of finance. In the early s, J. Morgan, along with several other venerable banks, had jumped into the newfangled derivatives field, and activity in the arcane business had exploded.

By , the total notional value of derivatives contracts on J. In one year when J. More startling than those numbers was the fact that most members of the banking and wider investing world had absolutely no idea how derivatives were producing such phenomenal sums, let alone what so-called swaps groups actually did. Those who worked in the area tended to revel in its air of mystery. By the time of the Boca meeting, most of the J. Morgan group were still under thirty years old; some had just left college.

But they were all convinced, with the heady arrogance of youth, that they held the secret to transforming the financial world, as well as dramatically enhancing J. Morgan's profit profile. Many arrived in Boca presuming the weekend was a lavish "thank you" from the bank management. On Friday afternoon, they greeted each other with wild merriment and headed for the bars.

Many had flown down from New York; a few had come from Tokyo; and a large contingent had flown over from London. Within minutes, drinking games got under way. As the night wore on, some of them commandeered a minivan to visit a local nightclub.

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Others hijacked golf carts and raced around the lawns. A large gaggle assembled around the main Boca Raton swimming pool threatening to throw one another in. As the revelry around the pool intensified, Peter Voicke, a buttoned--up German who held the title head of global markets and, though only in his late forties, was the most senior official present, earnestly tried to calm them down. Voicke had agreed to stage the off-site in the hope it would forge camaraderie.

But the camaraderie was getting out of hand. In no mood to heed his admonitions, several of them pushed Voicke into the pool. The drunken crowd then turned on Bill Winters, a jovial American who, at just thirty-one, was the second most senior official of them.

Halfheartedly, he tried to dodge the crowd. But as he ducked, his face slammed into an incoming elbow, and a fountain of blood spurted out. For a moment, the drunken laughter stopped.

Voicke was obviously furious. Now Winters was hurt. But then Winters let out a laugh, hauled himself out of the pool, and clicked his nose back into place. Morgan staff, he had joined the bank straight from getting his undergraduate degree, but notwithstanding the lack of a PhD, he was exceedingly cerebral, intensely devoted to the theory and practice of finance in all its forms.

He viewed almost every aspect of the world around him as a complex intellectual puzzle to be solved, and he especially loved developing elaborate theories about how to push money around the world in a more efficient manner. When it came to his staff, he obsessively ruminated on how to build the team for optimal performance. Most of all, though, he loved brainstorming ideas.

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Sometimes he did that in formal meetings, like the Boca off-site. But he also spewed out ideas on a regular basis as he strode around the bank's trading floor. The team called his exuberant outbursts of creativity "Come to Planet Pluto" moments, because many of the notions he tossed out seemed better suited to science fiction than banking.

But they loved his intensity, and they were passionately loyal to him, knowing that he was fiercely devoted to protecting, and handsomely rewarding, his tribe.

They were also bonded by the spirit of being pioneers. The J. Morgan derivatives team was engaged in the banking equivalent of space travel. Computing power and high-order mathematics were taking finance far from its traditional bounds, and this small group of brilliant minds was charting the outer reaches of cyberfinance.

Like scientists cracking the DNA code or splitting the atom, the J. Morgan swaps team believed their experiments in what bankers refer to as "innovation" — meaning the invention of bold new ways of generating returns — were solving the most foundational riddles of their discipline. He was almost as fascinated by how to manage people for optimal performance as by financial flows. The moment he was appointed head of the derivatives group, Hancock had started experimenting with his staff.

One of his first missions was to overhaul how his sales team and the traders interacted. Against all tradition, he decided to give the sales force the authority to quote prices for complex deals, instead of relying on the traders. He expected that doing so would more intensely motivate sales, and the change produced good results. He then started inventing new systems of remuneration designed to discourage taking excessive risks or hugging brilliant projects too close to the vest.

He wanted to encourage collaboration and longer-term thinking, rather than self-interested pursuit of short-term gains. The teamwork ethos was already well entrenched at the bank, especially by comparison to most other Wall Street banks, but Hancock fervently believed that J.

Morgan needed to go even further.

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In later years, Hancock pushed his experimentation to unusual extremes. He hired a social anthropologist to study the corporate dynamics at the bank.

He conducted firm-wide polls to ascertain which employees interacted most effectively with those from other departments, and he then used that data as a benchmark for assessing employee compensation, plotting it on complex, color-coded computer models.

He was convinced that departments needed to interact closely with each other, so that they could swap ideas and monitor each other's risks. Silos, or fragmented departments, he believed, were lethal. At one stage he half-jokingly floated the idea of tracking employee emails, to measure the level of cross-departmental interaction in a scientific manner.

The suggestion was blocked.

You cannot have that if everyone is always fighting! The bankers attached to this team sat around a long desk under low ceilings on the third floor of the J. Morgan headquarters, and the group was somewhat anomalous in its responsibilities.

Excerpt: 'Fool's Gold'

Though some marketing of products to clients was done, the group acted more like an incubator for ideas that had no other obvious departmental home and handled a ragbag of products, including structured finance schemes linked to the insurance world and tax-minimizing products. A few months before the meeting in Boca Raton, Hancock had approached Bill Demchak, an ambitious young banker with a good reputation around the bank, to run the IDM group.

Determined to drive innovation, Hancock told him, "You will have to make at least half your revenues each year from a product which did not exist before!Central bankers were divided with the US tending to want to assist banks and the Bank of England letting them stew. The second jamboree took place on 11 June , in Barcelona, when industry body the European Securitisation Forum held its annual meeting and celebrated the most lucrative year in history for investment banks.

John A Flood. And what were the lawyers doing who put these beautiful structures together? The SPVs sold the securities in smaller slices and insured losses in case of defaults in return for Morgan paying fees. It's like you raised a cute kid who then grew up and committed a horrible crime. Browne PDF eBook. This lack of a holistic vision of finance had, Tett points out, terrible consequences, the most tragic of which have been the blows to families who had never heard of a CDO collateralised debt obligation or an SIV structured investment vehicle , but are now suffering the loss of savings, homes and jobs.

The appetite for these CDOs was enormous. One of her first tasks was to attend a banking conference in Nice with the topic of credit derivatives.

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