The Big Short

The name "Michael Lewis" is always a draw when it comes to 'storybooks' about the finance industry, particularly the bond markets. I first read him in 'Liar's Poker', perhaps his most famous, and hilarious, book on the goings on in the now defunct Saloman Brothers. Since then Mr Lewis has gone on to write more books, the latest of which is "The Big Short", which is billed as a  true story. Unlike many books on the Financial Crisis that plagued the world in the 2007-2008 period, Lewis writes intimately about the people caught up in the maelstrom. He is a good story teller, which is why his books are popular. "The Big Short" tells the stories of several protagonists - investors and small time fund managers, who placed bets against the prevailing sentiment that the sub-prime mortgage market would never crash. Their stories were about a search for information, for clarification, for understanding the behaviour of the markets that had basically malfunctioned. That is the polite way of putting it. In fact, as our protagonists were to discover, the entire financial system had gone to the dogs. Nobody in the big Wall Street Investment Banks (including Citigroup, Merrill Lynch, Bear Stearns, and yes, Lehman Brothers) cared that what they were doing, selling 'crappy bonds' to unsuspecting investors, was anything but ethical. The abuse of trust and the greed has been documented widely since then.

In the telling of the stories of individuals' search for truth about the innovative investment products coming out of Wall Street, Lewis points the finger straight at the ratings agencies, Standard & Poor and Moody's, for facilitating the widespread fraud that culminated in the eventual collapse of such names as Bear Stearns and Lehman Brothers, with hallowed institutions such as AIG and Citigroup needing vast infusion of cash from the US government to stay afloat. All these are the stuff of legends now.

The Big Short relates how a few investors, would be fund managers, decided that the sub-prime mortgage market, which spawned the now notorious CDOs (Collaterised Debt Obligations), was bound to fail one day, when people start to default on their mortgage loans which they could not afford in the first place. When this would happen in a Wall Street flushed with CDOs was the great unknown. By conventional wisdom, mortgage repayments carried little risk of defaulting, so any investment product based on these mortgages would also carry little risk. And the ratings agencies gave them their stamp of approval, without understanding the complexity of the CDOs.

True enough, our protagonists were proven correct at the end, which netted them not a small sum of money. The book can be heavy going at some points as Lewis tries to explain the more technical aspects of investments in bonds. He readily admits that the subject is not simple, and this perhaps has taken the enjoyment out of reading Lewis this time around. Perseverance is needed, but at the end of it, it is still a good story.

Bank Bust

By now, many books have been published on the 2008 Financial Crisis that engulfed almost the entire civilized world. Nobel Laureate Paul Krugman has written about it in "The Return of Depression Economics". Gillian Tett's "Fool's Gold" is another, and Alex Brummer's "The Crunch" is yet another. First published in 2008 and updated in 2009, "The 'Crunch" focuses on the failure of Northern Rock and the crisis that it precipitated for the British financial system. This British-centric focus is different from the many books already written on the financial crisis of 2008, which are more centred on Wall Street and the US. And if this is missing from your mental history of this most momentous event up till now of the 21st century, then you can read it up here. This book does go into details on the people whose actions unwittingly caused the near meltdown of the financial situation in Britain, and this is not referring just to Adam Applegarth, the rogue CEO of Northern Rock who single-handedly almost brought Britain's financial system to its knees. Of course the problem really originated in the US through the uncontrolled sub-prime lending by banks and the subsequent investments in these toxic assets the world over.

This book takes a look into the triumvirate of the Bank of England, the Financial Services Authority and the  Treasury. An invention of Gordon Brown, then Chancellor of the Exchequer, it worked well enough in regulating and managing the financial flows and investments in Britain, which was centred on London. Indeed London succeeded in becoming a major financial centre in the world. While this worked well in good times, it failed to hold up when crisis hit. During the meltdown, these 3 parties descended into a finger-pointing stance, impeding the institution of necessary policies and actions quickly to overcome the run on Northern Rock and shoring up the rest of the banking system. This book makes for fascinating reading, and the chapter on the Central Bankers, which relates the life of key people such as Mervyn King, Governor of the Bank of England,  Ben Bernanke of the Federal Reserve, Jean-Claude Trichet of the European Central Bank, and how each approached the financial crisis makes for absorbing reading.

In the end, hindsight is always perfect, and Brummer concludes the narrative by deconstructing the whole episode from various angles to draw 'painful lesson' from it. A good read.

Harry's Bar

I haven't raced through a book as quickly as this one. No, I didn't just skim over it. I pretty much read it cover to cover. You just must appreciate the tight narrative of the book "The Story of Harry's" by current owner, Mr Mohan Mulani. It is concise yet it has managed to bring out the story of home-grown (i.e. Singapore) jazz bar complete with a narrative of its founding by Mr Jim Gelpi, a Louisiana native expatriate in Singapore, the author's involvement, first as a customer, then an investor and ultimately its sole owner. All of which makes for fascinating reading. The author has even slipped in a chapter on his life before Harry's. This account is to lead up to why and how he eventually ended up giving up much of his original business ventures into developing the Harry's business and brand. After all, by his own admission, he is not familiar with the restaurant and bar business, being more experience and having made his fortune in the trading business (consumer electronics products) and in property and real estate investments. The author draws out an important lesson from the failure of this early part of his business ventures, which is to be honest and to honour one's obligations in business.

Against this backdrop, Mr Mulani then narrates the development of Harry's Bar, which is located in Boat Quay. It is still there. He also writes about the key people whom he relied on in the early years to run the business, and the people who regularly came by after a hard day's work in the central business district just a stone's throw away from its Bar on the banks of the Singapore River, including the infamous Nick Leeson who wrecked Barrings. Just as interestingly he has included brief narratives of the many jazz musicians who have played at Harry's over the years. The book is interspersed with pertinent photographs throughout the book that lends intimacy to the stories. The book even has a discussion of the origin and and development of the Harry's well-known business logo.

Within this fascinating story, Mr Mulani has weaved in material one would expect to find only in business books - building up the Harry's chain of bars and restaurants, brand making while expanding the business, and a look into future ventures. There is even a chapter distilling the business wisdom that he had spent a lifetime learning.

I would recommend this book to anyone looking for a quick but good read. Along the way, you would pick up a gem or two regarding starting and growing a business. But above all, you will get a glimpse into one of the iconic brands in the F&B industry in Singapore.

p.s. If you buy the book, you can claim a free bottle of Harry's Premium Lager upon presentation of the book. Now that's what I call good value for money. This offer is good till April 2011.

Fool's Gold

The worst of the storm seems to have passed, so it is time that people looked back to learn some lessons from the greatest financial meltdown in recent times. Fortunately we have the lessons of the Great Depression 80 years ago to thank. Had it not been for the lessons of that Depression, America would not have put in place certain policies that would prop up the banks and keep capital flowing. They got flak for it, but as  it turned out, the US government inadvertently profited from their massive spending of public money as it returned ownership of many banks it acquired a year ago at huge profit.

But why did the meltdown happen in the first place? I suppose this has been written about, dissected, argued in the press, books, TV, the World Wide Web, and any media that is available today. But for me, nothing beats sitting down with a book to learn about the background and history of this financial crisis. One of these is a book written by Gillian Tett - Fool's Gold, in which she recounts how 'unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophe'. Yes the financial crisis has its roots in investment banks looking for ways to minimise the risks on the loans that they advance to businesses, like the securitization of mortgage loans. They came up with the idea of aggregating such debt and selling them to the consumer, you and I, and enticing us with high interest returns. Bank interest rates has been depressed for a long time now, since the days of ex-Federal Reserve Chairman, Mr Alan Greenspan, so any investment that gave returns of more than 1% is attractive. Of course, the typical interest earned on these debt instruments was considerable higher.

Debt securitization is an accepted and valid method of spreading risks, and according to Ms Tett, that was what some finance whiz in JP Morgan, led by Peter Hancock, did. They created BISTRO - Broad Index Secured Trust Offering, which later, much to Hancock's original team at JP Morgan's concern, morphed in the synthetic collateralized debt obligation, or CDO for short. And so the train of financial engineering and innovation was sparked, but eventually turned for the worst as people threw risks to the wind to reap obscene amounts of money. Risks didn't matter so long as people were willing to buys these CDOs, until some people could no longer continue paying for their houses (they weren't credit worthy to start off with) and the whole deck of CDO cards began to crumble and the shockwave reverberated throughout the globe. Of course this is a highly summarised account of what happened. Much more was happening behind the scenes and this book tries to give an account of these goings on, to explain how the world got into such a financial mess.

As fascinating read indeed.