Book Review. “Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves,” by Mike Mayo.
Mike Mayo witnessed a disaster: America’s real estate crash. Mayo is a certified financial analyst. He’s spent a career analyzing the value of America’s major financial firms. In 2008, Fortune magazine recognized Mayo as one of “Eight Who Saw the Crisis Coming.” Mayo therefore has unique credibility in understanding the flaws in our financial system—and why the biggest bailout and regulatory drive in our nation’s history has changed nothing.
Exile on Wall Street is mostly an autobiography. Mayo describes the challenge of getting his first job on Wall Street, which only came after Mayo spent five years at the Federal Reserve reviewing applications for bank mergers. Once Mayo joined the ranks of analysts, he faced the conflicts built into the financial system. As an analyst, Mayo was frequently expected to work hand & glove with the investment bankers competing for business from America’s largest banks. Mayo, however, saw his job as providing frank advice based on careful research. That approach sometimes earned him enmity from executives at banks he was charged with analyzing.
Mayo provides an in-depth look at the history of Citigroup and his interactions with the company. Citigroup was too big to fail in 2008. In fact, Mayo notes that Citigroup or its borrowers received government support or bailouts numerous times over its history. City Bank of New York played a major role in the 1929 stock market crash, the Penn Central bailout of 1970, the Latin American sovereign debt crisis of the 1980s, and on up to today.
Citigroup lobbied hard for the repeal of the Glass-Steagall Act in 1999. That didn’t stop Citigroup from leading the bailout charge in 2008. Mayo recognized the problems with Citigroup’s growth strategy for years. Read Mayo’s book to understand how too many CEOs play a double game: trumpeting free market risk-taking while evading responsibility and ultimately seeking taxpayer bailouts.
Mayo offers some solutions that address flaws in the current system. Accounting and auditing functions need to be overhauled due to conflicts of interest that undermine accountability. Mayo contends that bankruptcy is the solution for the handful banks “too big to fail.” Organizations too large and unwieldy to manage risk do not deserve government protection. Allowing Citigroup, for example, to bear the results of its continued risk-taking would ultimately accomplish more than another raft-load of regulations.
Mayo saw the problems in the banking industry before many others. His book provides a keen look at the problems that persist to this day. The crash of 2008 ultimately changed nothing for the better. Mayo starts the dialogue on what needs to change to prevent another crisis.
The Wall Street Journal recently profiled Mayo as an analyst gadlfy who has stayed in the game. If Mayo is a gadfly, it is time to put some gadflys in charge.