Book Reviews: Fatal Risk and The Monster

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Boyd, Roddy. Fatal Risk: a cautionary tale of AIG’s corporate suicide. Wiley, 2011.

Hudson, Michael W.  The Monster: How a gang of predatory lenders and Wall Street bankers fleeced America and spawned a global crisis. Times Books/Henry Holt and Co., 2010.

It is fair to say that the average American does not understand what caused the global economic crisis.  The sub-prime mortgage industry played a major role, but did not cause the meltdown by itself.  Financial innovations, such as CDOs, CMOs and CDSs, also contributed.   To explain what spawned the global meltdown to those without an MBA, two engaging new books use the stories of companies and their managers.

In Fatal Risk, Roddy Boyd tells the story about AIG, a company whose management analyzed and modeled risk better than anyone else in the financial business yet ended up needing an $85 billion government bailout.  In The Monster, Michael W. Hudson covers the sub-prime mortgage business through the stories of Ameriquest and Lehman Brothers.

Fatal Risk: From 1962 CEO Hank Greenberg built AIG into the largest and most risk averse financial company on the planet by knitting together a collection of insurance companies from around the world.  Then in 1986, seeking additional growth opportunities, Greenberg raided Drexel Burnham Lambert and launched AIG Financial Products, entering in the market for equity options and derivatives.  Even before CEO Greenberg was forced out in 2005, management changed its focus from risk control to profit maximization.  New management leveraged the business, scrapped the internal controls and ruined the company, nearly bringing down the global financial system in the process.  Roddy Boyd has written a very readable chronicle about a complicated subject.

The Monster: The sub-prime industry was spawned in Orange County CA, home to four of the nation’s six largest sub-prime lenders.  This is a story of Ameriquest Mortgage, the leader in the sub-prime industry, and about its CEO Roland Arnall.  The methods used by Ameriquest and other sub-prime lenders to make loans to unqualified borrowers included falsifying documents, forging signatures, misrepresenting interest rates, inflating appraisals and charging exorbitant fees.  These loans were bundled and sold on Wall Street to unsuspecting investors by firms such as Lehman Brothers, which bankrolled lenders such as Ameriquest.  In this excellent read, author Michael Hudson uses the rise and fall of Ameriquest and Lehman to tell the story of the industry that helped bring about a global crisis.

© Reviewer: Meg Trauner & Ford Library – Fuqua School of Business.
All rights reserved.

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