How to Survive and Prosper after a Financial Misfortune: A Complete Guide to Your Legal Rights after Bankruptcy, Foreclosure, Repossession, and Eviction Book

Almost 10 years on the crash subsequent to the one Lowenstein writes about in Origins of the Crash, is this book still relevant? What, if anything can it still teach us? As Twain allegedly said: "History doesn't repeat itself but it often rhymes." Howard Marks has stressed the constant cyclicality of the market. The fact this shines through in Lowenstein's account, means that anyone with an interest in financial history will find this book invaluable.

Origins of the Crash is a concise anatomy of bubble of the 90s. Lowenstein's central thesis is that the zeitgeist of the period, belief in unchecked free markets to solve the worlds problems, ultimately seeded the disasters of the decade. There are more detailed accounts of each of the episodes described (Den of Theives for the LBO boom, The Smartest Guys in the Room for the Enron scandle), however Lowenstein excels in weaving them together to paint his general thesis that unchecked free markets will tend to find work arounds for any obstacles in their course.

A rough sketch: the LBO excesses lead to caps in CEO pay by the Clinton administration, but unperturbed, the use of stock options that did not need to be expensed became a mainstay of CEO pay. Perversely this encouraged focus not on the company, but rather stock price. This led to behaviour exemplified at Enron that focused on away from its core strengths, but rather towards branding it as a new-economy company to increase P/E ratios and thus higher share prices on the same earnings: "Quite simply, over the four years that followed Skilling's 1996 elevation to president, Enron's net income, as reported by the company, rose from $1.08 a share to precisely $1.12. That is growth of less than 1 percent per annum. ...the Enron bubble was as much a public relations phenomenon as it was an accounting phenomenon." To sustain this, executives required sycophantic auditor, analysts, lawyers and politicians (all eager for fees and political contributions) - how else would it get the smooth constantly increasing earnings, favourable recommendations and light regulatory touch required to perpetuate this? And once they delivered this investors would lap up the shares, causing prices to rise. The CEOs would exercise their options, be granted more, thus trapping the everyone in an endless cycle (the Raptor SPVs at Enron best typified this - they hedged Enron against an decrease in its stock price, with Enron stock as collateral...). But as Lowenstein states: "The main components of the scandal - the unvarnished greed, the conspiratorial neglect by gatekeepers, the hysterical attention to share price - were simply too common to think that Enron as unique."

In many ways, the Epilogue is almost cathartic - Lowenstein is looks at the after math and attempts to sum up what he sees. He laments the gradual loosening of standards - the 1929 crash he argues was "mostly confined to a handful of brokers, bankers, and stock pool operators. In the '90s, despite the greater burden of regulatory supervision, the abuse spread beyond Wall Street to Main Street corporations...". Lowenstein (almost prophetically) seems resigned to the fact "yes, there will be more bubbles and more crashes. And given the nature of the beast, Wall Street may be incapable of genuine reform." I would hazard a guess and say what was probably a bit depressing for Lowenstein is that less than a decade on, a similar dance had spread from Main Street corporations straight into the neighbourhood street of every day America, leading to the 2008 crash.

Ultimately, there was probably more elucidating observation than: "And it is the chief lesson of the scandals that the culture of a community, more than any laws, provides the moral determinant for its behaviour." More than anything, this is the key takeaway for me. But also touches on one of the key things that I think is missing from the account - despite the bad apples, there were many other people out there genuinely trying to do good. Although Lowenstein briefly touches on a few - Arthur Levitt at the SEC, the few analysts who gave frank assessments - I feel that their brief cameos could have been further extended. Further, despite the frauds like Enron and Worldcom; over the same period there have been genuinely innovative companies like Amazon and Google. Perhaps this isn't the right book for that, and including them would only have muddled the concise and punchy message that Lowenstein was seeking to deliver. Nevertheless, that is worth keeping in mind as one reads the account of the 90s. With that caveat in mind, definitely recommended as must-read for anyone interested in financial history.