Notes

The financial crisis of 2008 was one of the largest economic depressions in the history of the United States. Fools Gold is an expose-style book about a group at JP Morgan known as the 'Morgan Mafia,' along with CEO Jamie Dimon and others who helped contribute to the economic crisis by creating an idea that got way out of control and helped to destroy much of their industry. During the middle of the 1990s, the workers at JP Morgan decided they wanted to take on one of their biggest financial issues-when people that borrow do not pay back their loan. The idea seemed nice, the risk of repaying would vanish and in response banks would lend out more money and more businesses would develop. In order to try to accomplish this feat, numerous more hours had to be put in by many employees at JP Morgan. The workers assembled derivatives, a form of contract between two people where the seller agrees to compensate the buyer in the situation where a loan goes into defaut. securitization, which traditionally involved lenders selling their loans to an investment bank. The investment bank “bundled” the loans together and sold pieces of the bundle to pension funds and other investors. The original lenders, having offloaded their loans, could make new ones. The investors acquired a slice of the loan bundle and its interest income without having to go to the trouble of meeting and assessing the borrowers. Win-win, again.

The Morgan group broke new ground by securitizing not just loans but credit derivatives. They industrialized the procedure, selling securitized debt and derivatives on an extraordinary scale. It got very, very complicated.