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© 2012 Wiley Periodicals, Inc.Published online in Wiley Online Library (wileyonlinelibrary.com).DOI 10.1002/jcaf.21786

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Exile on Wall Street

David M. Cannon, Joseph H. Godwin, and Stephen R. Goldberg

BOOKS REVIEWED:

Mayo, Mike, 2012, Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Them-selves (Hoboken, NJ: Wiley).

Mike Mayo is a top-ranked banking and finance analyst. He started his career at the Fed and worked on Wall Street at several top firms. Speaking truth to power has cost him jobs. In 2008, he was on Fortune’s list of the “8 Who Saw the Crisis Com-ing.” Exile on Wall Street chroni-cles the last 20 years in the bank-ing industry, and the author’s personal struggle to warn inves-tors and banks about problems of excessive compensation, exces-sive risks, aggressive accounting, and opaque disclosures. A key message from Mayo is that the financial crisis hasn’t changed anything. The author’s personal history is interwoven into the story. He chronicles pressures from drawing attention to an industry with enough clout to influence politicians, the press, and analysts.

MAYO AT THE FED

Chapter 1 describes Mayo’s early experience at the Fed. Fol-lowing Glass-Steagall, enacted

during the Great Depression, the primary business of banks was to accept consumer deposits and make loans. For many untroubled years, banking industry opera-tions were summarized by the 3-6-3 rule. Borrow at 3 percent, lend at 6 percent, and be on the golf course by 3 PM. After par-tial repeal of Glass-Steagall in 1999, the wall between invest-ment banks and consumer banks was dissolved. Coupled with the interstate banking law of 1994, banks could grow faster and take greater risks. The second chapter describes Mayo’s experi-ences in his early years on Wall Street and learning the culture and importance of not biting the hand that feeds you, and that it is more important to be loud than to be right. Chapter 3 describes the author’s experiences at Credit Suisse and paying the price for making a negative (although cor-rect) call on the banking indus-try. The next chapter describes personal opprobrium thrown at the author from high-level execu-tives in the banking industry for making calls with which they were not happy. The fifth chapter discusses the beginning of the subprime crisis and its effect on banks.

Mayo was ahead of the curve on foreseeing problems

in the industry, but even he underestimated their magni-tude. Numerous insights are provided throughout the book on personalities of key execu-tives, their reactions to crises, and the opaqueness of banks’ investments, such as subprime-related financial instruments. Chapter 6 describes the vortex of the financial crisis and dis-appearance of major financial institutions including Lehman Brothers. At the core of this story are risky loans, overly aggressive banks, and inept regulators viewing banks as clients rather than entities to be kept in line. Chapters 7 and 8 present a disturbing history of Citi (now Citigroup). The chapters chronicle a 200-year history with multiple incidents of ignoring regulators, disdain for analysts, and then repeat-edly asking the government for bailouts, such as the crisis from Latin American sovereign debt in the 1980s and the subprime crisis.

In the ninth chapter, Mayo presents his views of an improved version of capital-ism. He believes regulators consider problems in a rearview mirror and will never be able to adequately anticipate issues of the future. He presents his

70 The Journal of Corporate Accounting & Finance / July/August 2012

DOI 10.1002/jcaf © 2012 Wiley Periodicals, Inc.

AN INSIGHTFUL BOOK

Exile on Wall Street is well written, easy to read, and insight-ful. For readers interested in an additional perspective on the perpetual challenges and issues in the financial sector, Mayo’s story is highly recommended.

The concluding chapter presents Mayo’s philosophy of life. Paul Volcker, former Fed chairman, reportedly responded to someone bragging about how much money he had made with the comment “I have some-thing that he will never have: enough.”

ABC approach to improved financial-sector performance: Accounting standards requiring greater transparency, Bankruptcy rather than too big to fail, and reducing financial industry Clout so the deck is not stacked in favor of insiders and against outsiders.

David M. Cannon, PhD, CPA, CISA, is an assistant professor at Grand Valley State University. Dr. Cannon’s teaching interests are in accounting information systems, management information systems, and manage-rial accounting. His research areas include accounting information systems and methodological issues in accounting research. Joseph H. Godwin, PhD, CPA, and Stephen R. Goldberg, PhD, CPA, are professors of accounting at Grand Valley State University. Their teaching and research interests focus on financial accounting, international accounting, financial derivatives, and economic value added. They have written articles in a number of academic and practitioner-oriented journals.