Confidence Men: Wall Street, Washington and the Education of a President.

The hidden history of Wall Street and the White House comes down to a single, powerful, quintessentially American concept: confidence. Both centers of power, tapping brazen innovations over the past three decades, learned how to manufacture it.

Until August 2007, when that confidence finally began to crumble.

In this gripping and brilliantly reported book, Ron Suskind tells the story of what happened next, as Wall Street struggled to save itself while a man with little experience and soaring rhetoric emerged from obscurity to usher in “a new era of responsibility.” It is a story that follows the journey of Barack Obama, who rose as the country fell, and offers the first full portrait of his tumultuous presidency.

Wall Street found that straying from long-standing principles of transparency, accountability, and fair dealing opened a path to stunning profits. Obama’s determination to reverse that trend was essential to his ascendance, especially when Wall Street collapsed during the fall of an election year and the two candidates could audition for the presidency by responding to a national crisis. But as he stood on the stage in Grant Park, a shudder went through Barack Obama. He would now have to command Washington, tame New York, and rescue the economy in the first real management job of his life.

The new president surrounded himself with a team of seasoned players—like Rahm Emanuel, Larry Summers, and Tim Geithner—who had served a different president in a different time. As the nation’s crises deepened, Obama’s deputies often ignored the president’s decisions—“to protect him from himself”—while they fought to seize control of a rudderless White House. Bitter disputes—between men and women, policy and politics—ruled the day. The result was an administration that found itself overtaken by events as, year to year, Obama struggled to grow into the world’s toughest job and, in desperation, take control of his own administration.

Pulitzer Prize–winning journalist Ron Suskind introduces readers to an ensemble cast, from the titans of high finance to a new generation of reformers, from petulant congressmen and acerbic lobbyists to a tight circle of White House advisers—and, ultimately, to the president himself, as you’ve never before seen him. Based on hundreds of interviews and filled with piercing insights and startling disclosures, Confidence Men brings into focus the collusion and conflict between the nation’s two capitals—New York and Washington, one of private gain, the other of public purpose—in defining confidence and, thereby, charting America’s future.

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With policy-makers on both sides of the Atlantic considering how to beef up the regulation of financial soundness, as distinct from consumer protection, the “Twin Peaks” approach is right back in fashion. The UK is now implementing a Twin Peaks approach.

Michael Taylor, central banker, academic and author, set the pace on this subject back in 1995 with the first CSFI report on “Twin Peaks”. In it, he correctly predicted that if prudential regulation were mixed with consumer protection, the former would lose out. In “Twin Peaks Revisited…a second chance for regulatory reform”, Michael Taylor has refined the argument to tackle the problem of “too big to fail” institutions.

By the European Central Bank

The European Central Bank (ECB) has today published the third edition of the publication entitled The Monetary Policy of the ECB. This book aims to provide the public with a comprehensive overview of the ECB’s monetary policy and its institutional and economic background.

The third edition of the book takes into account new developments since the last edition was published in 2004 in particular the experience during the financial and economic crisis. It provides a comprehensive overview of the ECB’s monetary policy. The first chapter describes the main institutional aspects that are relevant for understanding the single monetary policy. The second chapter provides a broad overview of the economic and financial structure of the euro area. The third chapter describes the ECB’s monetary policy strategy and explains its role in guiding the ECB’s policy response in normal times and during the global financial crisis. The fourth chapter explains how the Eurosystem implements monetary policy decisions using its monetary policy instruments. The fifth chapter concludes with an illustration of how monetary policy has been conducted in the euro area since 1999.

The book can be downloaded in electronic form from the ECB’s website. Hard copies are available from the ECB’s Press and Information Division at the address indicated below.

Reproduction is permitted provided that the source is acknowledged.

Reckless Endangerment

By Gretchen Morgenson and Joshua Rosne

The New York Times’s Pulitzer Prize-winning columnist reveals how the financial meltdown emerged from the toxic interplay of Washington, Wall Street, and corrupt mortgage lenders

In Reckless Endangerment, Gretchen Morgenson, the star business columnist of The New York Times, exposes how the watchdogs who were supposed to protect the country from financial harm were actually complicit in the actions that finally blew up the American economy.

Drawing on previously untapped sources and building on original research from coauthor Joshua Rosner—who himself raised early warnings with the public and investors, and kept detailed records—Morgenson connects the dots that led to this fiasco.

Morgenson and Rosner draw back the curtain on Fannie Mae, the mortgage-finance giant that grew, with the support of the Clinton administration, through the 1990s, becoming a major opponent of government oversight even as it was benefiting from public subsidies. They expose the role played not only by Fannie Mae executives but also by enablers at Countrywide Financial, Goldman Sachs, the Federal Reserve, HUD, Congress, the FDIC, and the biggest players on Wall Street, to show how greed, aggression, and fear led countless officials to ignore warning signs of an imminent disaster.

Character-rich and definitive in its analysis, this is the one account of the financial crisis you must read.

By Arthur M. Berd (Ed)

The ongoing credit crisis is perhaps the biggest economic calamity we have experienced since the 1930s, and has dramatically and fundamentally changed the financial, economic and social landscape of the world. Immediate reactions to the crisis lay in the identification, treatment and management of its symptoms with some strong medicine. However, like in most chronic illnesses, the suppression of symptoms may not cure the illness but rather shift it elsewhere.

This book will provide the reader with analysis on the roots of the credit crisis for understanding what went wrong and what will help avoid repeating this in the future. Containing both academic analysis and practical insights from renowned researchers and leading authorities such as John Hull and Stuart Turnbull, all aspects of the crisis which has defined a generation will be rigorously examined. The book’s six sections focus on: – The Roots of the Crisis – The Impact on the Markets – Risk Management and Regulation – Quantitative Modelling – Market Efficiency and Stability – Lessons for Investors Lessons from the Financial Crisis is an essential and comprehensive resource for market participants, researchers, regulators, academics and governments worldwide.

Payments Systems in the U.S. is a comprehensive description of the systems – (cards, checks, cash, ACH, etc.) that move money between and among consumers and enterprises in the U.S. In clear and lively writing, the authors explain what they systems are, how they work, who uses them, who provides them, who profits from them and how they are changing. Anyone working in the payments industry – or needing to use payments products – can benefit from understanding this.

Money and Power: How Goldman Sachs Came to Rule the World

By William D. Cohan

Contrary to the subtitle, William D. Cohan does not argue that Goldman Sachs rules the world. A judicious author, Cohan avoids hyperbole in “Money and Power,” a definitive account of the most profitable and influential investment bank of the modern era.

In the wake of the financial crisis of 2008, some may question whether he shows too much deference to Wall Street. Cohan, a former investment banker and a regular contributor to the Opinionator blog on NYTimes.com, implicitly accepts a social order in which a tiny elite pays itself fabulously for esoteric pursuits far removed from the provision of ordinary products and services. But his lack of populist resentment heightens Cohan’s credibility as a Goldman critic. What can seem at times like excessive solicitousness turns out to be a wise strategy of allowing the firm’s deeds to speak for themselves.

In an earlier work, “House of Cards,” Cohan told the tale of Bear Stearns, the investment bank that collapsed during the crisis as a result of sheer recklessness. Goldman fared very differently. Demonstrating extraordinary discipline, it hedged risks and made piles of money even as the real estate bubble burst and credit froze worldwide. How did this happen? Are Goldman’s people smarter than everyone else? These are the issues at the core of “Money and Power.”

Marcus Goldman, a former clothing merchant from Burgpreppach, Germany, opened his doors at 30 Pine Street in Lower Manhattan in 1869. Working from a cellar office next to a coal chute, he bought accounts receivable from local businessmen at a discount. His clients got quick cash and were saved what at the time was an “arduous trip uptown” to a commercial bank. The maturation of what became Goldman Sachs offers a fascinating narrative of turn-of-the-century New York and its German Jewish establishment. The Goldman firm branched out to help arrange the public sale of shares on behalf of Sears, Underwood and Studebaker; Woolworth, Goodrich and Continental Can. Cohan recounts these events capably, drawing on the work of historians like Stephen Birmingham. Where “Money and Power” begins to make a more original contribution is in explaining Goldman’s cultivation of a reputation for brilliance unique even in the rarefied precincts of Wall Street.

Part of the mystique derived from truly exceptional leaders, men like the senior partner Sidney Weinberg, who at dicey moments in the 1930s could consult privately with his friend the president, Franklin D. Roosevelt. Another ingredient was the esprit de corps that Weinberg and his successors nurtured among their subordinates. By demanding utter loyalty and rewarding it richly, Goldman invariably stayed on message and exuded a singular confidence. A private-equity executive who competes as well as invests with Goldman tells Cohan that “you’ll never get a Goldman banker after three beers” saying that his colleagues are a bunch of duplicitous and unpleasant people.

Image control and self-correction have been central to Goldman’s ability to weather catastrophe. During the Great Depression, the firm lost much of its capital in a swindle of its own invention. In the late 1940s, it was one of 17 Wall Street banks accused of illegal collusion by the federal government. More recently, Cohan notes, it has survived “rogue traders, suicidal clients and charges of insider trading.” Goldman, he adds, “has come far closer — repeatedly — to financial collapse than its reputation would attest.”

In the run-up to the crisis of 2008, Goldman underwrote billions of dollars of toxic mortgage securities — the sort of irresponsible financial engineering that helped destroy Bear Stearns and Lehman Brothers. But a small group of Goldman traders realized sooner than most others on Wall Street that the industry had gone overboard wagering that real estate ­prices would rise indefinitely. In December 2006, this trading team began betting that the market would crater. Their billions in winnings allowed Goldman to more than offset its mortgage losses and emerge in 2009 stronger than ever.

Goldman’s willingness in 2007 to mark down the value of its mortgage-related inventory gave it a sober sense of its financial position while rivals were clinging to delusions. As word spread that Goldman was taking write-offs, investors lost faith in the accounting of other financial institutions, hastening the demise of several of Goldman’s key competitors.

The author acknowledges Goldman’s undeniable talent for self-preservation without idealizing the firm. He explains that by underwriting those ill-advised mortgage securities, Goldman played a deplorable role in stoking the nationwide real estate insanity. He shows how far removed this activity was from raising money to build legitimate businesses and advising the executives of those companies — once, but no longer, the bedrock of Goldman’s franchise.

While Goldman corrected course earlier than others, it still barely avoided what Cohan calls “the tsunami-like repercussions of the crisis.” With its entire industry trembling in the fall of 2008, the firm increasingly had trouble borrowing the money it needed to finance its daily operations. Goldman and Morgan Stanley transformed themselves from securities firms into bank holding companies. The move subjected them to more regulation but made available short-term loans from the Federal Reserve. “Goldman and Morgan Stanley,” Cohan writes, “made the move as a last-ditch, Hail Mary pass to restore the market’s confidence in their firms and stave off their own — once unthinkable — bankruptcy filings.” In other words, taxpayers essentially rescued the investment bankers in the name of warding off a second Great Depression.

The final episode in “Money and Power” concerns the fraud lawsuit that the Securities and Exchange Commission filed last year, accusing Goldman of deceiving clients to whom it had sold “synthetic” mortgage securities (don’t ask). While the ostensible victims, a pair of large European banks, were betting that mort­gages would pay off, Goldman was assisting yet another client, an American hedge fund operator who had bet that the same mortgages would default. One client put its chips on red; another, on black. Only one could win.

The S.E.C. alleged that Goldman, the casino proprietor, failed to disclose to the banks that the hedge fund operator had actually helped select the flimsy mort­gages, which did, in fact, default. Goldman’s main defense was that this is merely business as usual on Wall Street. The European banks, it added, were sophisticated investors capable of looking out for themselves. Without admitting guilt, Goldman settled the case, coughing up its $15 million fee and paying a record civil penalty of $535 million — pocket change for a firm that handed out $15.4 billion in bonuses in 2010.

Cohan dispassionately gives readers the information they need to ponder whether investment banking has moved in a constructive direction since the days when Goldman helped Sears and Continental Can grow. He falters on just one peripheral point, when he suggests that perhaps the crisis of 2008 will leave Goldman’s reputation tarnished. But, as he says, in January of this year, after all the Wall Street mayhem and recrimination, Lloyd Blankfein, Goldman’s chairman and chief executive, was invited to the White House for a state dinner in honor of President Hu Jintao of China. Goldman, it seems, still casts its spell on America.

All the Devils Are Here: The Hidden History of the Financial Crisis

by Bethany McLean and Joe Nocera

“Hell is empty, and
all the devils are here.”
-Shakespeare, The Tempest

As soon as the financial crisis erupted, the finger-pointing began. Should the blame fall on Wall Street, Main Street, or Pennsylvania Avenue? On greedy traders, misguided regulators, sleazy subprime companies, cowardly legislators, or clueless home buyers?

According to Bethany McLean and Joe Nocera, two of America’s most acclaimed business journalists, the real answer is all of the above-and more. Many devils helped bring hell to the economy. And the full story, in all of its complexity and detail, is like the legend of the blind men and the elephant. Almost everyone has missed the big picture. Almost no one has put all the pieces together.

All the Devils Are Here goes back several decades to weave the hidden history of the financial crisis in a way no previous book has done. It explores the motivations of everyone from famous CEOs, cabinet secretaries, and politicians to anonymous lenders, borrowers, analysts, and Wall Street traders. It delves into the powerful American mythology of homeownership. And it proves that the crisis ultimately wasn’t about finance at all; it was about human nature.

The European Central Bank (ECB) has published a book entitled “Enhancing monetary analysis”, edited by Lucas Papademos, former Vice-President of the ECB, and Jürgen Stark, member of the Executive Board of the ECB.

The book summarises the results of a research agenda pursued by Eurosystem staff to enhance the set of tools used to conduct the ECB’s monetary analysis and describes how these results are used to support the preparation of monetary policy decisions.

The book is in two main parts. The first part discusses the theoretical foundations of monetary analysis, explaining its prominent role in the ECB’s monetary policy strategy. It then describes how monetary analysis is conducted in practice at the ECB. The second part of the book summarises the main analytical results of recent Eurosystem research. The topics covered include: improved money demand models for the euro area; money-based indicator models for inflation; structural general equilibrium models with an active role for money and credit; the interrelationship between money and credit, on the one hand, and asset prices, on the other; and the scope for cross-checking the monetary analysis with the economic analysis using the flow-of-funds framework.

The results of the research programme support continuity in the overall approach to monetary analysis adopted by the ECB since the introduction of the euro in 1999. At the same time, they underpin the evolution of the toolbox used to conduct monetary analysis as new tools are developed and existing tools refined in the light of methodological progress and newly available data.

The publication of this book reflects the ECB’s desire to be transparent about the tools and models used to conduct monetary analysis in support of monetary policy decision-making.

Banks, Banking, and Crises

By Gary Gorton

Gary Gorton identifies the analogies between what happened to the shadow banking system and classic bank runs — 19th-century-style bank runs. Bernanke thinks that work is very interesting.

Deciphering the Liquidity and Credit Crunch 2007–2008

By Markus Brunnermeier

Brunnermeier at Princeton looks at the dynamics of a panic in the repo market and how that cycle of increasing haircuts in margin worked. And he and others have also done some work in trying to identify systemically critical firms by looking at their financial characteristics. There is some interesting work under way in this area.

Lords of Finance: The Bankers Who Broke the World

By Liaquat Ahamed

Upon reading the Pulitzer-winning book about the Great Depression, Bernanke told the commission, one can’t help but ask: “Doesn’t this seem awfully familiar?”

Liaquat Ahamed’s Lords of Finance is supposed to be a history book about the economics of World War I and the Great Depression. But there is terrific prescience to be found in its portrait of times past. Mr. Ahamed, an investment manager who proves to be a writer of great verve and erudition, easily connects the dots between the economic crises that rocked the world during the years his book covers and the fiscal emergencies that beset us today. He does this winningly enough to make his book about an international monetary horror story seem like a labor of love.