Clever Geek Handbook
15 February 2026

The Last Tycoons

Recommendation

If investment banking and the history of big deals fascinate you, BooksInShort invites you to sit down with this compelling history of Lazard Frères & Co., from its humble beginnings through its astounding success. The stories of the dominant personalities who used the Lazard mystique to garner unbelievable fees are legendary. As a former journalist and Lazard banker, William D. Cohan has the skill and qualifications to tell this story. While he covers many of Lazard’s biggest men and biggest deals, he never bogs down in technical details. The author focuses on the firm’s leaders, and shows their personalities, strengths and foibles. These stories cover shocking self-interest and staggering amounts of money. This large book has a cast of hundreds; it is attributed carefully and well-indexed, though it could use a personnel timeline. Cohan keeps you on track by focusing on the men who led Lazard over the 157 years that it was a family firm. Many of the personal revelations are quite sensational and the book is almost always entertaining.

Take-Aways

  • Lazard Frères & Co. began as a mercantile firm owned by four brothers from France.
  • It initially funded San Francisco gold miners, but grew into a finance firm that traded currencies.
  • Lazard maintained separate, but linked, operations in Paris, London and New York.
  • André Meyer, a widely admired genius, helped create the merger-and-acquisition industry at Lazard.
  • Felix Rohatyn, Meyer’s greatest protégé, was Lazard’s best all-time rainmaker. He helped New York City avoid bankruptcy by restructuring its debt and served as U.S. ambassador to France.
  • Steve Rattner, another Lazard rainmaker, handled many huge media deals.
  • Bill Loomis focused on Lazard’s culture and was briefly CEO.
  • Heir, boss and billionaire Michel David-Weill controversially recruited Bruce Wasserstein, and ended up selling him his Lazard shares.
  • David-Weill cut a deal with Wasserstein to head off his partners’ dissension.
  • Wasserstein, a billionaire with many holdings, now leads Lazard as a publicly traded firm.

Summary

The Origins of Lazard

Lazard Frères & Company is a legendary Wall Street firm. Smaller than Goldman Sachs, Morgan Stanley or Merrill Lynch in their heydays, it built tremendous prestige and power. Lazard traditionally earned its fees with its brains rather than financial capital. For 157 years, its value lay in the wisdom of the great bankers that ran it. Lazard has provided advice, connections and business methods worth billions to clients who paid bountiful millions.

“Lazard Fréres & Co. stood apart, explicitly priding itself on being...superior.”

The firm’s four founding brothers began with a store in New Orleans, but after a fire destroyed it, they made an arduous move to San Francisco and focused on outfitting miners. By 1855, in need of a bookkeeper, they sent home to France for Alexander Weill, a young cousin. The firm evolved into a financial-services house that bought and sold gold and currencies. The brothers, their half-brother David Cahn and Weill signed a 14-year partnership agreement creating Lazard Frères & Co. in San Francisco and Lazard Frères et Compagnie in Paris. By the time the firm joined the New York Stock Exchange in 1888, it had seven partners. Nonfamily members joined as partners, but ownership remained in the family. In 1906, Lazard played a very significant role in San Francisco’s post-earthquake recovery. The firm’s vaults and records survived the complete destruction of its local offices.

“Its strategy was to offer clients the wisdom of its Great Men, the finest and most experienced collection of investment bankers the world had ever known.”

Frank Altschul, who became one of the first nonfamily partners in 1916, ran Lazard’s U.S. operations, becoming wealthy and influential. He managed the firm responsibly and helped European partners escape the Holocaust. Although he was sidelined when family member André Meyer took charge under a new partnership structure set up to separate the U.S. firm from its office in Nazi-occupied France, Altschul remained loyal. He “obviously felt betrayed by his partners. But somehow, in public, he managed a stiff upper lip.”

André Meyer

André Meyer, a grand-scale micromanager, got involved in the smallest details. However, his passion was for art, not for Lazard’s history. He adorned his Waldorf Astoria suite with priceless works from fashionable masters, but celebrated Lazard’s 100th anniversary in 1948 with as little pomp or ceremony as he could manage. To him, Lazard was a special place with certain lofty qualities that clients paid to experience. He fulfilled his dream of becoming a U.S. citizen in 1949, got drafted and spent two years serving in Germany, going often to see his family in Paris.

“The lucky few men – yes, always men – at Wall Street’s summit have always been portrayed as ambitious and brilliant...and unscrupulous and ruthless.”

Meyer had many friends among the social elite, including the Kennedys and Aristotle Onassis. Jackie Kennedy gave Meyer a new social circle and way of life. Even though he was disappointed when she married Onassis, he helped her negotiate a financial agreement with him. Meyer was also behind Lazard’s legendary “Matador Ranch” deal. The firm bought 800,000 acres (56 miles across) in Texas. Meyer was drawn by its oil and gas potential. Matador stock was $6 per share when Lazard offered $23.70 (almost $19 million in total). The firm divided the land into smaller parcels, survived a multiyear drought, and sold it for a price that paid its investors $10 to $15 million. Because of this kind of deal making and his absolute power at the firm, Meyer’s partners called him “Zeus.”

“The Great Men...amassed huge fortunes...but they refused to admit to anyone, least of all to themselves, that their pursuit of these riches led to relentless infighting.”

As Meyer aged and became very ill, he sometimes asked his protégé Felix Rohatyn if he wanted to run Lazard. Rohatyn knew that if he ever said yes, Meyer would cut him out of the firm. Rohatyn was happy to be Lazard’s rainmaker and let others deal with operations. Meyer died of cancer in 1979. Clients who had profited from his deal-making acumen praised him widely, and museums and auction houses divided his art collection. Rohatyn gave an emotional eulogy. Reportedly his voice cracked as he said that he still instinctively reached for the phone to call his mentor about deals. He noted that as “Zeus,” Meyer threw bolts of lightening, but he taught his star pupil to reach for perfection and to do it with style.

Felix Rohatyn

Rohatyn, the epitome of everything an investment banker stands for, was Meyer’s greatest protégé. Meyer taught him to study industries and watch for new developments. The two men became aware of Avis when Kinney System tried to expand, but failed to lasso Hertz and passed on Avis. Based on what they had learned about rental cars, Meyer and Rohatyn had Lazard buy a controlling interest in Avis for $5.5 million. They hired Robert Townsend to run it, and Avis went from losing $600,000 in 1962 to making $5 million in 1965. Lazard sold Avis to ITT for $20.3 million. André and Felix sold many companies to ITT over the years, sometimes sailing pretty close to regulatory and tax boundaries. Using their connections to get favorable tax rulings landed them in serious legal difficulties that they eventually escaped. Rohatyn, known as the Teflon investment banker, became extremely rich. Many people thought that working for him would be a great credential, but they found that he wouldn’t share credit. He also made life hard for anyone who showed independence or a desire for reward.

“André Meyer was busy in Paris transforming himself from a currency trader into the then far more prestigious and respected role of investment banker.”

Rohatyn became active in Democratic Party politics and sat on the Council on Foreign Relations. He is famous for helping save New York from bankruptcy in the 1970s by guiding the restructuring of its debt. He wanted to serve in a high public office, such as chairman of the Federal Reserve or Secretary of the Treasury, but it was not to be. He wasn’t ready to leave Lazard during Jimmy Carter’s term, and he was Ronald Reagan’s implacable foe. The fact that he supported Ross Perot over Bill Clinton didn’t help during Clinton’s presidency, when Rohatyn allowed his name to be put forward as Fed vice chair, despite Alan Greenspan’s power. His wife and friends saw the position as beneath him. But he thought his friendship with Greenspan would give him a real role. Republican opposition killed the possibility. Clinton appointed Rohatyn as ambassador to France. In 2006, he joined Lehman Brothers to chair its international investment advisory committee and to advise CEO Dick Fuld.

Michel David-Weill

Michel David-Weill joined Lazard Frères in 1956 at age 24. He was a European scion of Lazard royalty, the great-grandson of Alexander Weill. David-Weill remained a Frenchman; even when his time came to run the firm, he spent long periods away. The firm was undergoing a severe succession war, and his tenure as the all-powerful chair didn’t end the instability or internal battles. He gained power during the partners’ infighting by playing favorites. His ace in the hole was his status under the partnership agreement, which made his father, Pierre David-Weill, a prince under Meyer. Once his father’s generation was gone, Michel ruled. However, he was not a rainmaker. He needed others to make the deals that earned the money he alone apportioned to employees as salary and to partners as shares. Over time, he consolidated power and prospered.

“Michel was generally happy to reward his partners...if the pie kept getting bigger, he stood to make more and more money himself, as he had the largest profit percentage by far.”

The political way David-Weill managed the firm made strong disagreements inevitable. Sometimes things did not break his way no matter how much power he wielded. He opened the company to new businesses and recruited new people, including a Lehman brothers group dubbed the “Gang of Four” (though eventually six men came from Lehman in 1978). David-Weill tried to balance internal factions. He let Rohatyn have his way, but felt the need to put some bounds on him and the other partners. Periodically, he purged the ranks of partners who were no longer productive or those who earned his ire. When the remaining partners prepared a coup against him, he recruited Bruce Wasserstein, whom the partners deplored. David-Weill sowed the seeds for his own loss of the company when he gave Wasserstein management control. David-Weill later made a fortune from being bought out, but he resented losing control of what he saw as his family firm.

Steve Rattner and Bill Loomis

Steve Rattner, a paint manufacturer’s oldest son, came to investment banking via journalism. He graduated from Brown University and became a New York Times reporter in New York and London. He became friends with publisher Arthur Sulzberger and developed important contacts in government. When Rattner befriended gifted reporter R. W. Apple, he realized that his own true abilities might be more suited to a different path. He used his contacts with Carter administration officials, such as Bob Strauss, to open doors on Wall Street and joined Lehman. His professional peers were amazed how effective he was as an investment banker from his first day. He knew how to brief clients on products and could make complex subjects understandable.

“Before Rattner’s arrival at Lazard, the firm had quite purposefully not made group-head designations...Michel had the long-held view that specialist groups would balkanize the firm.”

In 1989, Rattner joined Lazard, and founded its media and communications practice. He generated huge fees, bringing him into competition with Rohatyn. When the media focused on Rattner, Rohatyn became irritated. Vanity Fair magazine’s hint that Rattner might succeed Rohatyn intensified their conflict. When the acrimony became destructive, David-Weill got them to resolve their public differences. However, Rattner’s subsequent appointment as deputy CEO angered other important partners, such as Ken Wilson, Ira Harris and Jerry Rosenfeld. They left within a 12-month period, as did Rohatyn. This terribly harmed Lazard’s M&A business but it gave Rattner the opportunity of a lifetime. By 1998, he was pushing for a Lazard IPO, which David-Weill saw as a play to force him to sell the firm. He would have none of it. Rattner soon had only two choices: side with David-Weill or with the other partners. He chose the partners and left Lazard in early 2000 to start the Quadrangle Group, his own billion-dollar private-equity firm.

“By Michel’s design, the matter of succession at Lazard...was always convoluted and fraught with peril.”

Bill Loomis had come to Lazard with James Glanville in 1978 with the Lehman “Gang of Four.” Loomis had been Glanville’s associate, not one of the four partners, but he had a long-term impact on Lazard. He was noted for writing memorandums (sometimes, but not always, ignored) to management about the organization, its culture and its future. Loomis was influential in getting Lazard to create M&A products that they could take to prospective clients, rather than waiting for clients to come to them. Loomis’s most influential period came when Michel David-Weill tapped him to help complete the merger of Lazard’s Paris, London and New York firms under Michel’s sole control, the first time one person had run all of Lazard. Months after the union, many top European partners began leaving. The merger of the three offices’ culture, technology and business approaches was not effective. To stop the flight, a plan was put forward to give top partners equity (not just shares of profits). David-Weill vacillated about the plan and began courting Bruce Wasserstein more openly. Loomis resigned and left Lazard as 2001 ended.

Bruce Wasserstein

Bruce Wasserstein came from a creative home in Brooklyn. His family ran Wasserstein Brothers Ribbons, which had the slogan “Ribbons Fit to Be Tied.” His sister, Wendy Wasserstein, a well-known gifted playwright, died in 2006 and his family is raising her daughter. Exceptionally bright, Bruce graduated from high school at 16, and finished the University of Michigan in three years. He was one of the first students to pursue a joint JD-MBA degree at Harvard. Joseph Perella recruited Wasserstein to join First Boston’s up-and-coming M&A group, which he eventually controlled. The aggressive unit did many deals, such as DuPont’s $7.6 billion takeover of Conoco, while beating out Mobil and Seagram (represented by Rohatyn).

“There was an increasingly loud chorus inside Lazard calling for Michel to think seriously about selling the firm. For Michel, of course, just the thought of a public Lazard was anathema.”

Where Rohatyn had personal charm and emphasized relationships, Wasserstein was less social and exercised his brilliance as an M&A expert. One coup was breaking up the 1984 Getty Oil-Pennzoil merger so his client, Texaco, could buy Getty. Pennzoil sued Texaco, winning a $10.5 billion judgment; Texaco soon filed for bankruptcy. Wasserstein developed a reputation for using extremely high leverage and very aggressive valuations to win deals, but he hated his nickname, “Bid ’Em Up Bruce.” Wasserstein and Perella did many deals, earning big fees as M&A bankers.

“The depth and breadth of Bruce’s control of the firm were not only unprecedented for Lazard; they were unprecedented for almost any financial institution.”

No one could have been more antithetical to the traditional Lazard culture than Wasserstein, but David-Weill thought he could help counteract the partners’ uprising. Even before Wasserstein took charge on New Year’s Day 2002, he was making pronouncements about changes in the firm. He used all the firm’s resources, including its short-term profitability, to consolidate his power while buying off partners, including David-Weill. He pushed out those who wouldn’t go quietly. Even though it is a publicly traded firm, Lazard became and remains Wasserstein’s company.

About the Author

William D. Cohan won awards as a journalist before becoming an investment banker. Cohan worked at Lazard for six years before moving to other investment banking positions.

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The Last Tycoons

Book The Last Tycoons

The Secret History of Lazard Freres & Co.

Allen Lane,
 


15 February 2026

Bad Money

Recommendation

Many readers already admire Kevin Phillips’s previous books, with their incisive analysis of U.S. politics. In this treatise, published just before the 2008 presidential election, his main concerns are the dangerous dominance of the financial sector in the U.S. economy and the fiscal implications of peak oil. Phillips covers many other hazards, from securitization to the real estate bubble. He provides historical background to explain modern financial circumstances, whacks both the Bush and Clinton administrations, and offers his take on everything from imperial England to the efficient market hypothesis. After he explains how and why the U.S. is teetering dangerously on the brink of disaster, BooksInShort is relieved to report that Phillips also offers some ideas about how it might rescue itself by going back to strong manufacturing, solid education and better regulations. This seems to be a fairly hasty overview of bad times, but the author can see beyond the immediate storm to the possibility of a brighter day.

Take-Aways

  • Finance has a disproportionate role in the U.S. economy.
  • Excessive reliance on the financial sector has doomed past empires and threatens to doom the U.S. in the very near future.
  • Blind faith in markets prompted reckless deregulation of the financial sector.
  • Former Federal Reserve Chairman Alan Greenspan presided over a series of bubbles, and failed to address some real monetary and economic problems.
  • Neither major U.S. political party is prepared to meet the challenges ahead.
  • The dollar’s links to oil are so strong that some experts refer to an “oil standard” in place of the old gold standard.
  • Spain, Holland and Great Britain became imperial powers thanks to their energy sources, and faltered when they relied on finance to sustain their dominance.
  • The U.S.’s 20th-century ascendancy depended largely on domestic oil reserves.
  • Peak oil, perhaps reached in 2005, means that oil production is at its zenith and is unlikely to grow.
  • A re-emphasis on wealth creation through manufacturing, education and political reform may allow the U.S. to step back from the brink of decline and recover.

Summary

Deceit and the Politicized Economy

The U.S. economy is weak and vulnerable, yet officials deny, obfuscate and understate the magnitude of the problems and the relationships among them. It is far from certain that the nation’s politicians will be able to deal with the damage wrought by its policies on debt and oil. Underlying both issues is a far broader, more pressing concern: the metastasizing financial sector. This sector includes shadowy institutions that are able to create money, like banks, but that, unlike banks, are not subject to regulatory scrutiny. Proponents say that the financial sector’s power made the economy more efficient and created wealth. That is nonsense. The growing dominance of finance in the U.S. political economy is a worrisome development. History demonstrates that when finance rises to such prominence, national decline is imminent – if not already under way.

Summer Heat

Late summer historically has been the season of credit shortages, bank failures and financial disasters. In late summer 2007, the markets trembled over subprime mortgages. Credit froze and the trading of collateralized debt obligations slowed so dramatically it was no longer possible to value them by looking at prices as bid and asked. The government deficit was about $11 trillion; private debt neared $40 trillion. Total debt had multiplied four times in 10 years. The financial sector equaled more than a fifth of the U.S. GDP, while manufacturing was only a bit more than a tenth.

“The most worrisome thing about the vulnerability of the U.S. economy circa [September] 2008 is the extent of official understatement and misstatement – the preference for minimizing how many problems there are and how interconnected they are.”

Major financial institutions had slipped out of the regulatory constraints imposed after the 1929 market crash. They went beyond banking to engage in insurance, brokerage, real estate and other businesses. These institutions invented financial products whose risks no one really understood, but whose rewards enriched their traders and executives. Few acknowledged that this put the U.S. in a debt bubble, that finance’s pre-eminence in the economy was a harbinger of decline, that the dollar depended for its backing (to the extent that it had backing) on oil produced and controlled by increasingly hostile entities, and that 2007’s U.S. leaders could not cope with the these facts.

“Outside the high towers of finance, the risks facing ordinary American households were growing.”

In September 2007, George W. Bush’s treasury secretary, Henry Paulson, told financial executives that unsound lending was to blame for recent financial instability, not “problems in the real economy.” Spun in the media, his remarks implied that Main Street did not need to fret. Most Americans had no idea how profoundly the financial sector’s problems would affect them. They were unaware that its share of GDP equaled the combined share of the seven Farm Belt states and the eight Mountain states. They did not know that the Financial Services Modernization Act of 1999 created new, dangerous financial system interdependencies by eliminating constraints and checks.

A Short History of Debt

The start of the U.S.’s transition to being a society of debt started in the 1970s. In 1977, TIME wrote, “The Affluent Society has become the Credit Society.” In subsequent years, financial deregulation and innovative products – like derivatives – allowed debt to swell tremendously, though gaps in official data make tracing its growth difficult. The most significant omission was private debt. The financial sector was in ascendance.

“Adam Smith would have been amazed at the new financial services sector and its close interconnection with government, politics and power.”

Margaret Thatcher and Ronald Reagan deliberately turned their economies away from the Keynesian economic orthodoxy that had prevailed since World War II. The Reagan years brought tax cuts, massive government deficits, the leveraged buyout boom, and the savings and loan crisis. White House free-market advocates promoted deregulation, but did not provide the needed oversight. The Federal Reserve arranged for a Saudi investor to rescue Citibank. Subsequently, it arranged a bailout for the junk bond sector. In the ’90s, President Bill Clinton helped bring powerful people from the New York financial industry into the Democratic Party, where they became a crucial constituency.

“Some opinion leaders in oil-producing nations believed that the invasion of Iraq mirrored a U.S. blueprint to pump and market large quantities of Iraqi oil...to break OPEC and drive down petroleum prices.”

By September 11, 2001 – when terrorists took aim at the U.S.’s financial hub, Manhattan – the U.S. was running enormous current account deficits, purchasing abroad what it could no longer make competitively. A few observers saw the risk. One wrote, “Measured by its level of indebtedness, today’s U.S. economy is the worst bubble economy in history.” Meanwhile, foreigners poured money into U.S. markets, even as the Middle East and Asia began building large foreign currency reserves. These reserves later became a major concern. As U.S. worries grew about collateralized debt obligations, including mortgage-backed securities (whose value depended on increasingly undependable U.S. borrowers), foreign investors stepped back.

“Petroleum-driven Anglo-American interest in the Persian Gulf goes back a long way. Denying that the motive is oil is often wise, though, and sometimes even necessary.”

The failure of any major U.S. financial institution would have global repercussions. Fed and Treasury officials seemed to have no alternative but support and rescue. By the early 2000s, rumors circulated of a “Plunge Protection Team” created to prop up U.S. securities markets, like the President’s Working Group on Financial Markets that Reagan established after the 1987 market crash. Such government support for financial services might have shocked Adam Smith, but old-fashioned mercantilists would have understood. To them, the goal of economic management was to maximize national wealth by any means necessary. In the U.S., this means supporting the value of financial assets, including homes.

“Looking back a decade...a perverse incarnation of millennial utopianism crested in...‘market triumphalism’ – the belief that history was ‘ending’ because near perfection had been achieved through the enthronement of English-speaking democratic capitalism.”

Home ownership is a cultural icon of English-speaking nations. It’s no wonder that the 2008 real estate crisis hit hardest in countries with British roots. Former Federal Reserve Chair Alan Greenspan presided over a sequence of bubbles, but the real estate bubble was perhaps the most serious. As it grew, home equity loans let people tap the rising equity in their real estate. The deleveraging when the bubble deflated promised a severe, long-lived depression.

Market Propaganda

Old-school Democrats like Harry Truman had little to do with the moneyed elite; Truman called them “bloodsuckers with offices in Wall Street.” Even Republican Dwight D. Eisenhower did not support tax breaks for the rich and Richard Nixon set the tax rate on earned income at a lower percentage than the rate on unearned income (i.e., dividends and interests). He said, “Because speculators thrive on crises, they help to create them.” However, Thatcher, Reagan and their disciples adhered to the Chicago School belief that markets were the most wise, efficient distributors of economic resources. The best thing the government could do for the economy was to step back and let the markets work without second-guessing. This ideology gave rise to deregulation, unrestricted financial innovation, the spread of speculation and the development of derivatives. The efficient market hypothesis said the market price was always, or almost always, the right price, because it comprised all the data available, including current facts and future probabilities.

“Real estate slumps drag out longer than the nine-to-eighteen-month stock market declines associated with mild-to-middling recessions.”

Until recently, the efficient market hypothesis was an article of faith, part of the economic religion that justified leaving hedge-fund traders, mortgage brokers, derivative engineers and investment bankers to their own devices. The government lived by the rule that the market is always right; it even manipulated statistics to make the rule seem truer than it was. When inflationary trends showed that cost-of-living adjustments (although expensive for the government), would lift retirees’ nominal income to keep pace with inflation, the Bureau of Labor Statistics changed the way it calculated inflation. It emphasized items with falling prices over those with rising prices. It even tried using “hedonics,” a calculation that said if a product’s quality rose, its rise in price was not really a rise in price. Such adjustments let the government underreport inflation.

“If banks are to be rescued because they are too big to fail, they must also become [like] a regulated public utility, too suitably behaved and too responsible to fail.”

Economic faith in the efficient market hypothesis received considerable support from that old-time religion, the Pentecostal “prosperity gospel.” The religion of the market resonated through the Republican Party’s increasingly pivotal evangelical Christian base. Preachers of the prosperity gospel told their eager, often uneducated, blue-collar congregants that God wanted them to be rich, and would answer their prayers with prosperity.

Asset-Backed Securities

Securitization was a form of financial engineering that packaged mortgages (good and bad ones, all in pieces), home equity loans and other debts into saleable securities. It let lenders reap fees from extending credit without taking on the risk of nonrepayment. U.S. financial institutions were responsible for most global issuance. Securitization essentially shifted risk from the financial institutions and companies most able to bear it to the middle-class citizens who were least able. U.S. borrowing rose in the ’90s because real incomes stagnated or fell. Americans borrowed to stay even.

“For both [political] parties, the bottom line is usually the same: the bottom line. Fund-raising. Money.”

The remarkable thing about securitization is not its rapid, massive growth or incredible risks. The remarkable thing is that the institutions and experts running this business really did not understand what they were doing. No one knew what these securities were worth or how they would act in a crisis. Financial deregulation created institutions with complex, opaque interrelationships. They could create money outside the regulated banking system, with liquidity moving through unregulated, uncontrollable channels into the economy.

The Coming Oil Shortage

Historically, energy resources have powered the emergence of empires. In the 17th century, the Dutch harnessed wind and water. In the late 18th century, coal was the key to Great Britain’s power. In the 20th century, abundant domestic oil underpinned U.S. might. However, the modern U.S. has put itself seriously at risk with its dependence on foreign oil. The West’s appetite for oil has long been the main driver of its Middle East policy. Great Britain invaded the neighborhood of Iraq in World War I and in 1941. The U.S. engineered a coup in Iraq in 1959 and, with Great Britain, invaded in 2003.

“American financial capitalism...cavalierly ventured a multiple gamble: first, financializing a hitherto more diversified U.S. economy; second, using massive quantities of debt and leverage to do so; third, following up a stock market bubble with an even larger housing and mortgage credit bubble; fourth, roughly quadrupling U.S. credit-market to debt between 1987 and 2007...and fifth, consummating these events with a mixed performance of dishonesty, incompetence and quantitative negligence.”

The world may be at or near the top of oil production or “peak oil.” Some experts say production crested in 2005, leaving insufficient oil for growing global demand. The geopolitical implications of peak oil are already unfolding. National – and nationalistic – state oil companies in China, the Persian Gulf and Latin America are challenging U.S. dominance of the global market. Indeed, in many cases, they have avoided the market by arranging extra-market supply deals. Because U.S. power has long depended on access to oil, the struggle for oil is, in fact, a struggle for power.

The petroleum-exporting countries have substantial dollar reserves. They could attack the dollar, if they wished. In fact, they seem to have been shifting more of their reserves to the euro and away from the dollar. The fact that the dollar is weakening even as oil prices rise is telling. In the past, suppliers priced oil in dollars and invested their receipts in dollars, so oil and the dollar strengthened and weakened simultaneously. As a result, the oil standard has replaced the gold standard. So the dollar’s weakening in the face of rising oil prices may be a symptom of a deeper, subtler realignment.

Dodging the Issues

U.S. institutions seem as incapable of dealing with these challenges as were the leaders of other faded empires. The parties aggressively curry favor with financial interests. The muscular populism that characterized the Democratic Party is gone. Dynastic succession (Bush Republicans and Clinton Democrats) is troubling. So many vested interests connect these dynasties that real reform is almost unthinkable.

The pattern unfolding in the U.S. is similar to 17th-century Spain, 18th-century Holland and 20th-century Britain: The rise of finance occurred simultaneously with the erosion of real national power. This means American capitalism is in crisis. The faded empires of Spain, the Netherlands and the U.K. all relied, in the end, on finance to guarantee their power. Finance did not honor its guarantee. Under Greenspan, the U.S. inflated its currency and fueled bubbles with drastic economic consequences. The debt bubble is likely to be the most devastating to U.S. prestige and power. Global power is shifting to Asia. So, is there hope for the U.S.? A new commitment to manufacturing, education and sound, serious financial regulation may provide an opportunity for a second chance.

About the Author

Kevin Phillips has been a political and economic commentator for more than three decades. A former White House strategist, he has been a regular contributor to The Los Angeles Times and National Public Radio. He has written for Harper’s and TIME, and is the author of 10 books.

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Bad Money

Book Bad Money

Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism

Viking,
 


15 February 2026

Fooling Some of the People All of the Time

Recommendation

Call hedge fund manager and author David Einhorn a glutton for punishment. In 2002, he first became skeptical of Allied Capital, a small business lender based in Washington, D.C. He shorted the stock, publicly criticized the company and earned the enmity of its management. Over the next six years, Einhorn feuded with Allied, growing increasingly outraged over what he considered bogus accounting. He repeatedly brought his findings to the attention of regulators and reporters, with little result. For years, Allied shares held steady or gradually rose. It wasn’t until after this book was published in 2008 that Allied stock cratered. Einhorn’s tale of his battle with Allied is often riveting, although at times he veers into levels of detail only a forensic accountant could appreciate. Still, BooksInShort recommends the book to investors seeking an inside look at high-level chicanery, a short seller’s strategy and a Wall Street war story.

Take-Aways

  • Allied Capital is a business development company that originates Small Business Administration (SBA) loans. It has been publicly traded since 1960.
  • Hedge fund manager David Einhorn sold Allied shares short in 2002, after research and interviews with its officials convinced him it engaged in accounting fraud.
  • Instead of carrying loans and portfolio companies at their market value, Allied ignored key factors, such as bankruptcy filings, when valuing such assets.
  • In 2002, Einhorn made a speech outlining the issues at Allied; its shares plunged.
  • Allied responded to the speech by attacking Einhorn and his motives.
  • Einhorn could not get regulators and journalists to be interested in Allied’s fraud.
  • Other Allied critics began to dig into the company and found massive loan fraud.
  • Allied subsidiary Business Loan Express (BLX) routinely made SBA loans to unsavory borrowers who put up overvalued capital.
  • In 2006, a Business Loan Express official was indicted on federal fraud charges.
  • In spite of the indictment and an SEC ruling critical of Allied’s accounting, the company continued business as usual as of early 2008.

Summary

Shady Accounting, a Short Position and a Speech

In early 2002, hedge fund manager David Einhorn of Greenlight Capital met with managers of another fund who thought they had spotted an opening for a short sale of the shares of Allied Capital Corp. Allied, a business development firm that had been public since 1960, made loans through the Small Business Administration’s 7(a) program and ran a real-estate investment trust that invested in small-business mortgages. Late in 1997, Allied had $800 million in assets, including a $200 million portfolio of investments in other firms. When Einhorn and Greenlight’s analysts began to look into Allied’s books, they spotted a worrisome trend. Allied marked down the value of troubled assets only reluctantly. When one of its companies ran into problems, Allied reduced the value of its equity kickers, but held the loan at cost. Then it took a small write-down, often followed by another small write-down. This seemed to be a clear example of accounting fraud. Einhorn thought Allied’s practices, when exposed, would send its shares tumbling.

“Allied’s management has had unending opportunities to answer my allegations, and I have not seen them once address the actual facts that form the basis of my allegations. They can’t.”

Suspicious that Allied was hiding bad news from investors, Einhorn recorded phone calls with the CFO and with people from its investor relations department. He didn’t attack Allied’s accounting, but simply asked questions about its practices. Allied officials told him that they didn’t begin to mark down the value of loans until they “believed that we had a permanent impairment of the asset.” This was an obvious breach of fair-value accounting, which mandates that companies value securities at the current price they’d fetch on the market, that is, it forbids them to hold investments at cost after they’ve lost value.

“Certainly, one of the biggest things I have learned from the Allied experience is the surprising reluctance of the media to dig into complicated financial stories.”

Allied’s CFO showed little regard for the truth, telling Einhorn that Allied’s credit losses were less than 1%, even though the firm specialized in high-interest mezzanine loans. In that niche, 3% would be considered a stellar loss ratio. Einhorn understood that Allied was valuing its assets at cost almost indefinitely, even if the assets’ true value dropped. To note just one signal of Allied mishandling, it took ownership stakes in some firms that remained in debt to it. In a circular process, Allied charged its portfolio firms, such as Business Loan Express (BLX), outrageous interest rates of 25% – much higher than the 15% it charged most other firms. Unable to pay such rates, BLX relied on Allied’s cash infusions to pay interest back to Allied itself. In turn, Allied propped up its income statement by reporting BLX’s interest payments as revenue, even though it had lent the money to BLX.

“I like stocks. I enjoy finding provocative opportunities on the long side. I am an optimist and want to participate in the market’s long-term positive trend.”

Convinced he had unearthed accounting fraud, Einhorn put 7.5% of Greenlight’s capital into a short sale of Allied shares at $26.25. A short sale is a bet that the price would fall. Greenlight’s short position in Allied went unnoticed until May 15, 2002, when Einhorn spoke at a fundraiser for the Tomorrows Children’s Fund, a charity that supports a New Jersey hospital for cancer-stricken children. Einhorn was one of 11 speakers who offered investment picks to ticket buyers. By the time he spoke, the market had closed. The next day, Allied shares plunged nearly 20% based on Einhorn’s speech, but he didn’t cash in his gains. He thought the opportunity was too compelling to take a quick gain.

The Spinning Begins

After the plunge in Allied’s shares, its officials hosted a conference call to defend themselves. During this call, Dan Loeb, manager of Third Point Partners, needled Allied CEO Bill Walton about flouting fair-value accounting. Allied tried to deflect Loeb’s queries, but it was engaged in “pyramid-scheme accounting”: Say Allied carried two investments at $10 million each; one held its value at $10 million, while the other fell to $5 million. The company would sell the first and keep the second on its books at an inflated value, hoping the investment would recover or that Allied’s overall growth would render the loss less relevant. Allied offered only a feeble defense, though Loeb had raised issues similar to Einhorn’s concerns. Walton, trying to undermine Einhorn’s research, lied that Einhorn had never contacted Allied about its accounting.

“I...was frustrated that the government was investigating the wrong party.”

After the call, Einhorn felt so confident about his investment decision that he shorted more Allied shares. Other investors started filing class action suits against Allied (these suits were later dismissed). But the tide quickly turned, in part because analysts leapt to Allied’s defense. Merrill Lynch called Allied’s response “meritorious.” Wachovia gave it a “strong buy” rating. No analyst checked with Einhorn, and when he contacted Wachovia analyst Joel Houck, he found Houck parroting management’s story. Supported by analysts’ endorsements, Allied shares bounced back to $25.

“Was the SBA really asking outsiders how to obtain its own loan numbers? Apparently, giving them the borrower’s name and address wouldn’t do.”

Allied shares took another hit in June 2002 when independent researcher Off Wall Street published a sell recommendation echoing some of Einhorn’s findings. Off Wall Street said BLX was using aggressive gain-on-sale accounting, which front-loads revenue and – inappropriately for BLX’s risky loan portfolio – assumes stellar loan performance. Rather than address the substance of the criticism, Allied portrayed itself as the victim of a vast conspiracy. Allied repeated the lie that Einhorn had never contacted the company. An Allied official told Bloomberg News that Einhorn and Off Wall Street wanted to “scare the little old ladies” who held Allied’s high-yield shares.

“The SBA’s lack of concern that taxpayers were being ripped off, are being ripped off and will be ripped off – all in its name – is nothing short of appalling.”

During the course of their long battle, Allied routinely accused Einhorn of scare tactics and shoddy research, and repeatedly charged him with slamming the company in a venal attempt to cash in his short position. CEO Walton urged shareholders to move their shares from margin accounts to cash accounts to thwart short sellers. His actions proved truly cynical. For example, he paid $46,000 for 2,000 shares of Allied shortly after Einhorn’s speech. Insider buying generally is a bullish sign, but in light of Walton’s $2.4 million salary and $10 million stake in Allied, his insider buy was little more than window dressing. Walton’s fortunes and Allied’s were so intertwined that he was motivated to lie about the company’s merits and his critics’ shortcomings.

Others Find Problems

Jim Carruthers of Eastbourne Capital Management contacted Einhorn in June 2002. Carruthers loved to mine court records and other public data to dig up dirt on companies. He found that Business Loan Express, Allied’s largest investment, had made suspicious loans in Michigan. In one loan to a car wash, the borrower had a previous federal embezzlement conviction. BLX lent money to a gas station that showed its property appraised at three times its actual value. One hotel had defaulted on its loan after its access road closed. Securities regulators had issued sanctions against a BLX loan broker who generated $40 million a year in loans. Einhorn learned that the head of BLX’s office in Richmond, Va., had a felony securities fraud conviction. These details, plus the high default rates, convinced him that BLX was making loans recklessly and perhaps fraudulently. BLX could report earnings, even though they were based on bad loans, and, through the SBA, U.S. taxpayers were on the hook for 75% of each debt.

“Now, it was no longer just Greenlight and a few others pointing to Allied’s shoddy accounting. The SEC gave our analysis its stamp of approval.”

In July 2002, Allied stock fell to $16.90 on disappointing earnings. Shares rebounded, held steady and didn’t fall back below that level until 2008 – so much for Einhorn’s hopes of a quick profit. His attempts to interest regulators, journalists and other investors in his findings fell on deaf ears. Convinced that he had discovered securities fraud, Einhorn fired off a detailed missive to the Securities and Exchange Commission. After all, in a white paper Allied had essentially admitted to following SBA accounting rules, rather than the SEC rules it should have obeyed. Einhorn provoked little interest from the SEC. He told his story to a reporter at Barron’s, the financial weekly, and to a manager at Wasatch Advisors, the second-largest holder of Allied shares. Neither was especially interested. Einhorn later gave The Wall Street Journal and The New York Times his analysis of Allied. Once again, the discussions yielded no stories.

“At its most basic level, Allied Capital is the story of Wall Street at its worst.”“A Ponzi scheme can exist in what economists call ‘stable disequilibrium.’ Though it is not permanently sustainable, it doesn’t have to fail in any given time frame.”

While newspapers and regulators weren’t jumping on the Allied story, retired real-estate developer Jim Brickman began looking into it. He found a number of unsavory details. One of Allied’s investments, Fairchild Industries, had defaulted on a loan from another bank and stopped paying Allied’s interest early in 2002. Yet Allied carried its debt investment at cost for months. In other cases, Allied refused to mark down the value of loans to and investments in struggling firms, because it was attempting to smooth earnings by timing write-downs, rather than recording them when it should have.

“Relative to most stocks, it has little institutional ownership. With the enormous fees it generates for Wall Street, there are plenty of financial incentives to support [its] scheme.”

In late 2002, Einhorn hired a private investigator to dig further into Allied. The investigator found many loans made by Business Loan Express that appeared to be frauds against the SBA. In one case, BLX gave $1.6 million for a Georgia hotel to a borrower who already had defaulted on one SBA loan. The investigator also found several defaulted gas station loans in the Detroit area, and bankers told him that BLX had earned a reputation as lender of last resort. Even so, the SBA made little attempt to recover taxpayers’ money or to crack down. Einhorn set up a meeting with SBA officials to explain the findings; their disinterest was nearly comical. In a classic bureaucratic boondoggle, SBA officials asked if Einhorn had the SBA loan numbers for the fishy loans. Einhorn was incredulous. He had provided the borrowers’ names and addresses, and the lender’s name, yet SBA said the information was worthless without the loan numbers. The Allied saga was beginning to weigh on Einhorn, but its stock price held steady.

“Allied’s general investor relations practice: Officials answer the easy questions and avoid the hard ones.”

In one small bit of progress, Wachovia analyst Joel Houck gradually turned bearish about Allied and lowered his rating. But instead of criticizing Allied, Wachovia simply decided in 2004 to stop reporting on it. Meanwhile, the media continued to ignore the story. After Barron’s decided not to pursue it, Einhorn flew to Dallas to take his shot at the New York Times by meeting with reporter Kurt Eichenwald. He seemed enthusiastic but never wrote anything.

“Allied does not disclose bad news unless it was really bad news.”

Finally the SEC began looking into the matter – but instead of focusing on Allied, the SEC investigated the possibility that Einhorn was manipulating the market for personal profit. Einhorn was forced to pay legal fees and burn up time complying with the SEC’s requests for e-mails and other documents. Meantime, a Harvard Business School professor prepared a case study about Allied that sided entirely with the company and described Einhorn’s questions as “a short attack.” The professor agreed to some changes suggested by Einhorn, who later discovered that the professor’s assistant previously had worked for Allied’s largest shareholder. Allied’s lies about Einhorn’s motives were bad enough, but the feud turned truly creepy in 2004, when Einhorn discovered that someone had stolen his cell phone records. The same thing had happened with the cell phone records of Herb Greenberg, the Marketwatch.com columnist who wrote critically about Allied, and another financier who had dug into Allied. The company later acknowledged that its private investigator had stolen its critics’ phone records, a practice known as “pretexting.”

An Indictment, but Business as Usual

Jim Brickman found more disturbing patterns of fraud in the Business Loan Express portfolio. In one case, the same $300,000 shrimp boat collateralized two loans totaling $1.85 million. The first one defaulted, as did other BLX loans on Gulf Coast shrimp boats. In fact, Business Loan Express conducted a massive fraud against U.S. taxpayers. Since 1998, the SBA has paid $280 million in guarantees for loans made by Allied’s BLX subsidiary. Instead of thanking Einhorn for bringing this fraud to its attention, however, the SBA seemed uninterested in pursuing his findings. Several theories speculate about why the SBA wouldn’t investigate obvious fraud. One is that it wants to be a seen as a “lender-friendly” agency and thus can’t crack down on a lender. Another is that the SBA doesn’t have the manpower to look into fraud allegations. Finally, Allied gives lavishly to political campaigns and cultivates relationships with Washington power brokers, none of whom would be pleased to see a division of Allied slapped for fraud.

“The consequence of Allied’s illegal action was the lightest tap on the wrist with the softest of feathers.”

In 2006, a federal grand jury indicted a BLX executive vice president and loan broker, plus two dozen other people for defrauding the SBA with bogus loans in Michigan. The most prominent person charged was Patrick Harrington, accused of originating nearly 100 SBA-guaranteed loans with fraudulent applications. Once his indictment became public in early 2007, Allied began to spin the story, saying it was the innocent victim of a rogue employee. Even so, BLX paid the SBA $10 million to cover fraudulent loans and put another $10 million in escrow. The indictments brought much-needed press and Congressional scrutiny of Allied. The SEC also began to look harder at Allied. In 2007, it issued a scathing order faulting Allied’s bookkeeping and valuations, and essentially siding with Einhorn. However, the SEC’s cease-and-desist order carried no fines or penalties. As of the book’s publication, no regulator, prosecutor or journalist had taken an interest in Allied’s practices, and it continued business as usual.

About the Author

David Einhorn is president and founder of Greenlight Capital, a long-short hedge fund launched in 1996 that has earned returns of more than 25% a year for its partners.

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