It’s been said that those who don’t learn history are doomed to repeat it. Nowhere is this more true than in the business world. These nonfiction narratives about business disasters, market peaks, and scandals ranging from Enron to the leveraged buyout of RJR Nabisco by KKR capture precarious situations and very, very expensive mistakes. Read on and wise up. There are no how-tos here, but these classic books are just as much about human fallibility and greed as they are about business and economics.
The biggest LBO isn’t necessarily the best.
This book is considered by many to be the very best nonfiction narrative about the business world. Without delving into the minutia of LBOs (leveraged buyouts, for the uninitiated), this is a book about what happened when F. Ross Johnson (the RJR Nabisco CEO) bid against Henry Kravis and George R. Roberts of KKR to buy out RJR Nabisco’s shareholders and take the company private. This LBO was unprecedented in its scale, and competing bids were financed with a considerable amount of debt. A bidding war ensued, and both Johnson and the cousins from KKR were seen as hubristic players who believed they couldn’t fail. This is a cautionary tale about the peak of a market cycle, and the dangers of unchecked ego in business. Barbarians at the Gate is, for some, an illustration of coldhearted capitalism at its most ruthless.
If it seems too good to be true, then it probably is.
Perhaps no name is as synonymous with moral bankruptcy as Bernie Madoff’s. In Wizard of Lies, Diana Henriques explains how Madoff swindled investors for years with his $65 billion Ponzi scheme until his arrest in late 2008. This is considered to be the definitive account of Madoff’s crimes, and Henriques provides her reader with a more detailed picture of the scheme than ever before. Henriques is tough on the SEC, too: Investigators didn’t wise up to Madoff’s tricks despite years of reports that something fishy was going on. This is a chilling read about a man who had everyone—friends, family, and investigators—fooled.
Sometimes home values fall.
No book encapsulates the financial crisis of 2008 as successfully as Andrew Ross Sorkin’s Too Big To Fail. Sorkin reconstructs the collapse of Lehman Brothers (and its extraordinarily controversial CEO Dick Fuld) and the subsequent panic that gripped the nation’s major financial institutions. Sorkin makes everything, from predatory lending to over-leveraging, crystal clear to his reader, and draws back the curtain on the admittedly complex but equally fascinating workings of the financial system. What is most striking, perhaps, out of all of Sorkin’s revelations in this not-slim volume, is the realization that the U.S. economy may be, to some degree, dependent on institutions that are interconnected in ways that it would be impossible to quantify or fully understand.
4. Liar’s Poker
Corporate culture matters.
Salomon Brothers. The name might not ring any bells with non- Michael Lewis-reading Millennials, but to anyone who keeps an eye on the financial services industry, it’ll sound more than a little familiar. This company (specifically, employee Lewis Ranieri) is often credited with having invented mortgage-backed securities; Lewis documents the eccentric and fratty culture of the place in Liar’s Poker. Lewis spins an engrossing tale about CEO John Gutfreund’s tenure at the company and the growth of the junk bond market. He also provides valuable context for Salomon Brothers’ ensuing scandal in the treasuries market, and trader Paul Mozer’s attempt to illegally corner it.
Just because mark-to-market accounting is legal doesn’t mean you should use it.
In 2001, things got ugly for Enron Corporation, an American energy company whose demise is charted in Bethany McLean and Peter Elkind’sThe Smartest Guys in the Room. The company had—in short—done some weird, circular accounting that allowed them to value subsidiaries at values far higher than what they had actually produced. In turn, these subsidiaries didn’t produce enough return to support the debt they were taking on to finance their growth. In some cases, the same asset was being pledged multiple times. McLean and Elkind ultimately paint a damning portrait of a massive failure of accounting practices and corporate greed.
Creatively interpreting disclosure laws will cost you.
In case you missed Martin Scorsese’s Oscar-nominated film, this memoir follows Jordan Belfort’s time at the brokerage firm Stratton Oakmont, which defrauded investors (mostly those who had been talked into penny stocks) but bankrolled Belfort’s numerous expensive tastes, including a rather prolific Quaalude habit. Feminists, beware: If you don’t like reading about women being objectified, then Belfort’s memoir will come as an unpleasant shock. The Wolf of Wall Street chronicles the high-flying lifestyle of an executive with a creatively-oriented moral compass. And for those who’ve been wondering, that yacht in the movie? The one originally built for Coco Chanel? That was real.
Insider trading is illegal. Period.
You’re not allowed to trade on information that isn’t publicly available. Those are the rules. Despite this generally well-understood fact, however, there’s persistent temptation to break it and game the system. This is exactly what happens in Den of Thieves, which describes the insider trading scandals of the 1980s, particularly those perpetrated by Michael Milken and Ivan Boesky. Milken, the “Junk Bond King,” would eventually be indicted in an insider trading investigation when it came to light that he had been sharing privileged information with Boesky in an attempt to manipulate stock prices. Pulitzer-winning reporter James B. Stewart gets to the heart of the scandal in Den of Thieves, and tells a compelling story about greed and hubris.