A Review of Mike Mayo’s “Exile on Wall Street” (and GIVEAWAY)

I received a copy of Mike Mayo’s Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves* a week and a half ago. As the title suggests, the book is about his experience as a securities analyst covering banks.

First things first. Who is Mike Mayo? According to the inside flap of the book, he’s “…one of the top-ranked banking and finance analysts of the past twenty years. Mayo was the only analyst to testify during the Senate Banking Committee hearings in 2002 on conflicts of interest on Wall Street, and in 2010, he testified again, this time as the first analyst to speak on the causes of the crisis.”

My thoughts on the book

Overall, I liked the book very much. It was an easy read and gave a nice overview of what happened in the years leading up to and following the housing crisis. Along the way, the author discussed the problems he had trying to be an honest analyst. When he was critical of banks, they shut him out and wouldn’t give him access to their management. He was even fired for his honesty. I applaud his efforts to put investors first.

Reading the book, it’s very clear that Wall Street is a racket. It’s heavily loaded in favor of the bankers and investors are only important because they provide money. Something needs to be changed.

I enjoyed the personal aspects of the book like when he shared about his struggles to land his first banking job. He ended up working at the Fed in the merger-approval area after working briefly at IBM. He spent five years at the Fed and eventually landed a job at UBS. Mayo’s honesty in his reports didn’t do him any favors with his employers. At one point he was fired from his job a Credit Suisse and spent six months unemployed.

When it came to his discussion of the causes of the housing debacle, I felt he was too easy on the politicians and their role in helping create the crisis. The lack of detail here could be because he was writing about the crisis from his perspective. Whatever the case, he left the impression that politicians (both Democrats and Republicans) played a minor role in the creation of the crisis.

The best part of the book was his discussion on fixing capitalism. From the book:

To fix the banking sector, should we rely more on government regulation and oversight or let the market figure it out? Tougher rules or more capitalism? Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that’s not capitalism.

I can understand the appeal of certain regulation. If we’d had the right oversight in place, we would have limited the degree of the financial crisis, which included bailouts measured in hundreds of billions of dollars, and millions of people losing their homes due to foreclosures. But we also would have sacrificed innovations in credit and a vibrant financial sector. Over the past century, our economy probably would not have grown as fast or been anywhere near as dynamic. Moreover, the real problem with regulation is that it often doesn’t work very well, in part because it’s always considering problems in the rearview mirror. The financial system today is almost dizzyingly complex and moving at light speed, and new rules tend to address fairly precise things. They ban specific types of securities or deals or trades instead of addressing larger principles.

He goes on…

A related issue is that regulation can sometimes trigger unintended consequences. Another section of Dodd-Frank cut the fees that a bank can charge a store for debit card transactions. As you can imagine, banks are not about to simply shrug that off. It adds up to billions each year. Instead, they’ll make it up somewhere else—most likely by charging consumers for other services, as in no more free checking. The bottom line? Consumers will now pay more for the convenience of using a debit card, and will likely never see the benefits from the lower costs to merchants. This is—let’s face it—price-fixing by the government, and it shows why measures like this don’t really help things in the long run. If the government were to set a cap on how much McDonald’s could charge for Big Macs, it wouldn’t take long before the price of fries went up to cover the difference.

I agree. Unfortunately, our politicians don’t seem to be listening.

Overall, Exile on Wall Street* is a great read. It’s easy to understand and not at all mundane. I highly recommend it to anyone who’s interested in learning more about the housing crisis and the interworkings of the banking industry.

Now you have a chance to win a copy of the book from AllFinancialMatters. If you’re interested, please leave a comment below. I’ll randomly select and announce a winner on Friday. Before you enter, please consider my two rules:

1. You must be a resident of North America (I will not ship internationally).


2. You can only enter one time.

*Affiliate Link

21 thoughts on “A Review of Mike Mayo’s “Exile on Wall Street” (and GIVEAWAY)”

  1. Sounds like a good read.

    The way he discusses the regulations from your excerpt may indicate why he comes across as being easy on politicians – the actual outcome is usually not the intended outcome. Not that this is an excuse not to hold politicians responsible for their part.

  2. Everyone knows what the problem is, but no-one (at least ones in power) want to fix the system. SEC and the banking industry is a revolving door, where the same people being regulated are also the regulators. Eliminate lobbyist (make it a criminal offense punishable with jail time for bribing government officials), etc. Make is a crime that regulators can’t work for the industry they are regulating (since it is just more bribery).

    Of course, removing from Washington anyone who thinks that an entity can ever be ‘too big to fail’, and hence must be bailed out. Drop Fannie/Freddie/GSOs — no more taxpayer bailouts of private corps (including failed company pension plans — let them sue).

    Oh, and btw — add me to the list, would like to read this book!

  3. JLP
    Thanks for the suggested read, and opportunity.
    I’m curious why one commenter suggests banning lobbyists is the answer. All too often they are the only ones who fully understand the laws as they are written, largely because of the incentives they have. I also wonder what the author has to say about community banks or loan associations that are not corporately driven, and if it is possible to regain some local stability through more local community based lending.

  4. Dan) I said a ban on lobbyist because congressional representatives are _supposed_ to represent the constituents in their districts, and not the interests of multi-national corporations. Lobbyists have been repeatedly tied to bribery/corruption, with Jack Abramoff as the most famous example, who was indicted for what has become common practice: bribery of elected officials to sway votes.

    Also, lobbyists (representing corporations) are now the primary authors of all legislation. Look at the massive bills that have been flying through congress, and try to say with a straight face that it was drafted by a congressman. The “Energy Independence and Security Act of 2007” has language that only a corporation with a vested interest in manufacturing their CFL lightbulbs (GE) could have written it. What better way to push your new product than to effectively ban the cheaper alternatives?

    More recently in the news is the announcement that Newt Gingrich (GOP presidential candidate) was receiving $25-$30k a MONTH from Freddie Mac GSO (totaling over $1.6 million) for his ‘historian’ skills — of course not for his political connections on the hill (*sarcasm*).

    Lobbying is legalized bribery of government officials — and the practice should be eliminated.

  5. I am interested in reading something on the roots of the financial crisis that is based on experience and facts rather than naive opinion. Some people just talk before thinking and I really enjoy reading all the thoughts on this blog!

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