Take a photo of a barcode or cover
A review by chris_chester
Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough
3.0
After reading [b:The Big Short: Inside the Doomsday Machine|26889576|The Big Short Inside the Doomsday Machine|Michael Lewis|https://d.gr-assets.com/books/1446581171s/26889576.jpg|6654434] and coming to grips with the moral hazard that under-girded the real estate bubble, I was curious to see how whether the same forces were at play in another famous era of Wall Street excess: the 1980s.
In this spectacularly detailed work of journalism, Bryan Burrough introduces us to RJR Nabisco and Ross Johnson, the man at the helm during one of the most crucial periods in the history of the corporation — and indeed even the subsidiaries like Reynolds Tobacco, which itself has roots going back more than a century. Burrough paints a picture of an executive wildly out of touch with the lives of everyday people, but through graft and good fortune, wields a truly stunning amount of economic power.
Burroughs meticulously walks us through the process of how Johnson came upon the idea of taking the massive company private in a leveraged buyout, introducing us to a gigantic cast of characters who coalesce together in a bidding war to decide the fate of RJR Nabisco.
What is important to understand, particularly in the context in which I was reading it, is the system of incentives that motivated all the players involved.
Ross Johnson and his management group stood to take payouts in excess of $100 million, guaranteeing massive windfalls at the expense of the shareholders and employees. Most of the banks, investment groups and lawyers chomped at the bit to rake in their own fees ranging from as "low" as $25 million to the hundreds of millions as well. The LBO artists like Nick Forstmann and Henry Kravis, oddly enough, came off as the sanest actors. Buy a company blowing money on corporate jets and inefficient processes and it kind of makes sense to squeeze out that extra cash.
None of these monsters stood to lose in the slightest bit from what they were engineering. Whether the company itself was a success was almost incidental to their well-being. Hell, with the exception of Forstmann Little, none of the buyout firms were even playing with real money. Their giant cash offers were structured mostly on junk bonds — debt vehicles that investment banks could foist on their clueless institutional investors knowing full well they were likely to fail.
What is striking to me about all this is how Burrough sort of refrains from even making a judgment on these proceedings, even in the Afterword he penned for the 20th anniversary of the book's release in 2008. He points out the similarities between crappy securities like credit default swaps on credit debt obligations on sub-prime mortgages and the junk bonds that Ross Johnson's deal depended on, but he doesn't take it a step further.
But why not mention of the moral hazard involved? Why no commentary about the intrinsically evil nature of Wall Street?
At least in Michael Lewis' book, he can put some kind of message about the incredible moral hazard that underpins in the Western economy in the mouth of one of his principal characters. They say rather plainly that Wall Street is knowingly screwing over the American people. The closest Burrough has to offer is Ross Johnson, who flippantly describes the three rules of Wall Street: "Never play by the rules. Never pay in cash. And never tell the truth."
But it's buried in there. I can understand the urge as a journalist not to editorialize, but for crying out loud, he barely digs into why the junk bonds were a bad deal.
Instead we get an excess of details like what was on so-and-so's birthday cake or that a former executive's name is "Jigger-balls." Unraveling the timeline of this story was a spectacular journalistic feat (I can only imagine what his notes looked like), but until and unless an author in this space can take a stand and call a spade a spade, his work can only be classified as a partial success.
In this spectacularly detailed work of journalism, Bryan Burrough introduces us to RJR Nabisco and Ross Johnson, the man at the helm during one of the most crucial periods in the history of the corporation — and indeed even the subsidiaries like Reynolds Tobacco, which itself has roots going back more than a century. Burrough paints a picture of an executive wildly out of touch with the lives of everyday people, but through graft and good fortune, wields a truly stunning amount of economic power.
Burroughs meticulously walks us through the process of how Johnson came upon the idea of taking the massive company private in a leveraged buyout, introducing us to a gigantic cast of characters who coalesce together in a bidding war to decide the fate of RJR Nabisco.
What is important to understand, particularly in the context in which I was reading it, is the system of incentives that motivated all the players involved.
Ross Johnson and his management group stood to take payouts in excess of $100 million, guaranteeing massive windfalls at the expense of the shareholders and employees. Most of the banks, investment groups and lawyers chomped at the bit to rake in their own fees ranging from as "low" as $25 million to the hundreds of millions as well. The LBO artists like Nick Forstmann and Henry Kravis, oddly enough, came off as the sanest actors. Buy a company blowing money on corporate jets and inefficient processes and it kind of makes sense to squeeze out that extra cash.
None of these monsters stood to lose in the slightest bit from what they were engineering. Whether the company itself was a success was almost incidental to their well-being. Hell, with the exception of Forstmann Little, none of the buyout firms were even playing with real money. Their giant cash offers were structured mostly on junk bonds — debt vehicles that investment banks could foist on their clueless institutional investors knowing full well they were likely to fail.
What is striking to me about all this is how Burrough sort of refrains from even making a judgment on these proceedings, even in the Afterword he penned for the 20th anniversary of the book's release in 2008. He points out the similarities between crappy securities like credit default swaps on credit debt obligations on sub-prime mortgages and the junk bonds that Ross Johnson's deal depended on, but he doesn't take it a step further.
But why not mention of the moral hazard involved? Why no commentary about the intrinsically evil nature of Wall Street?
At least in Michael Lewis' book, he can put some kind of message about the incredible moral hazard that underpins in the Western economy in the mouth of one of his principal characters. They say rather plainly that Wall Street is knowingly screwing over the American people. The closest Burrough has to offer is Ross Johnson, who flippantly describes the three rules of Wall Street: "Never play by the rules. Never pay in cash. And never tell the truth."
But it's buried in there. I can understand the urge as a journalist not to editorialize, but for crying out loud, he barely digs into why the junk bonds were a bad deal.
Instead we get an excess of details like what was on so-and-so's birthday cake or that a former executive's name is "Jigger-balls." Unraveling the timeline of this story was a spectacular journalistic feat (I can only imagine what his notes looked like), but until and unless an author in this space can take a stand and call a spade a spade, his work can only be classified as a partial success.