~ Randomness ~

The clear and present danger posed by this deranged edifice built on the unstable foundation of subprime mortgages was not foreseen by the chief executives of America’s premier banks. It was not foreseen by government regulators, by Treasury officials or by the Fed. It was foreseen, however, by a handful of investors, who were aghast at the madness they saw on the Street and who used their prescience to make a fortune off the financial system’s calamitous meltdown. Some of their stories are told by Michael Lewis in “The Big Short.”

Roger Lowenstein’s account of endemic financial collapse is bookended by anecdotes about Robert L. Rodriguez, an unusually cautious fund manager. The prologue of “The End of Wall Street” describes a dream Mr. Rodriguez had in February 2006. He saw himself in a courtroom, being grilled about why his mutual fund had invested in Fannie Mae and Freddie Mac, two government-sponsored enterprises that, he dreamed, were already bankrupt.

Two things stand out in Mr. Cohan’s narrative. The first has to do with just how worried some Wall Street analysts and the federal government were about the liquidity crisis and the possibility of a dominolike collapse in the world financial markets in March 2008, six months before things really began to slide out of control in the fall, and just how many earlier warning signs there were in 2007, 2006 and even 2005 about the housing bubble and subprime mortgages. The second has to do with the power of the so-called butterfly effect (in which the flapping of a tiny butterfly’s wings can lead to a gigantic storm) in a globalized, interconnected world, where rumors fly around the planet by television and the Internet, where automated computer programs can magnify or speed up trends, where bad decisions made by a handful of powerful people can ricochet through a company or industry.

About Goldman Sachs’s present-day business practices, one “private equity investor” says this: “They view information gathered from their client businesses as free for them to trade on … it’s as simple as that. If they are in a client situation, working on a deal, and they’re learning everything there is to know about that business, they take all that information, pass it up through their organization, and use that information to trade against the client, against other clients, et cetera, et cetera.” The speaker stops short of labeling this as insider trading, but only barely, saying, “I don’t understand how that’s legal.”

Mr. Cohan raises the same question as he writes that the firm’s onetime dedication to its clients has evolved into something more ruthlessly self-serving. “Its primary source of profit has shifted from banking to trading,” he writes, “and the firm is intentionally quite vague about how, and precisely where, those trades are made or, equally relevant, from whom the profits are coming.” When “Money and Power” can boil down its arguments that clearly, it has welcome moments of toughness and precision.

Today’s populist mood has not deterred Sebastian Mallaby. In “More Money Than God,” his smart history of the hedge fund business, Mallaby does more than explain how finance’s richest moguls made their loot. He argues that the obsessive, charismatic oddballs of the hedge fund world are Wall Street’s future — and possibly its salvation.