The Devil’s Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . and Are Ready to Do It Again – it follows Nicholas first book, and in this book he has a much better ability to articulate the significant of financial technology in lay terms. For example, derivates are essentially loan mechanisms. As new loan mechanisms, they initially competed with the old style of actuarial loans, e.g., mortgages, bonds, etc. He also discusses LTCM in hind sight – that they were so big that they were the derivatives market. Thus, there performance could not be derived from past historical data (since that data did not include their influence). Moreover, as the market started to learn their techniques (become efficient), it actually started to guess LTCM’s moves and arbitrage them!
Category Archives: Financial
A Random Walk Down Wall Street
This book covers a lot of the history of financial markets – covers a lot of the history of finance, from tulip speculation and the East India Trading company, to today’s models. Updates in the revised edition include CAPM, its rise as a fad, and its decline when studies by (I believe Fama) showed that its predictions didn’t all hold up. It also covers the Fama-French model. The part I found most interesting about the discussion is that CAPM concludes that no premium should be paid for non-systematic risk because it can be diversified away.
While America Aged
Roger Lowenstein, While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis – an interesting read on some of the worst pension abuses. It reaffirmed my believe in balance – the worst political situation is when any interest group gains a foothold which allows them to run their agenda at someone else’s expense. The NY teacher’s at one time would retire at 130% of salary! Can you imagine that? And this was after 30 years of service. Do you think anyone would not retire on the first day possible?
The End of Wall Street
Another book about the rise and fall of LTCM.
Inventing Money
Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It – a technical take on LTCM compared to Lowenstein’s version + bibliographic information on the main players. Unlike Lowenstein, Nicholas doesn’t let the reader ease into, even guess, how the assumptions of volatility, liquidity, and normality impacted LTCM. He is quite direct. I also liked the explanation of derivative trades as off-book since they are effectively highly leveraged.
What the Dog Saw
This book is not an original creation by Gladwell. Instead, it is a collection of articles he had written before. There really isn’t a common theme like his previous books.
I bought the audio CD strictly so I could listen on my way to work. If you want to read the written word, note that all of the stories can be found online. Here is the list, in what I thought was the order of interest.
The Talent Myth – Are Smart People Overrated? Story about Enron and the talent they hired.
Million-Dollar Murray – Why Problems like Homelessness May Be Easier to Solve Than to Manage. A tale of strange economics.
The Pitchman – Ron Popeil and the Conquest of the American Kitchen. Do you know how to sell? Ron Popeil is the amazing
Most Likely to Succeed – How Do We Hire When We Can’t Tell Who’s Right for the Job? A powerful tale about the challenge of hiring – most of us are terrible interviewers.
Open Secrets – Enron, Intelligence, and the Perils of Too Much Information. A claim that Skilling and others at Enron are not guilty of deliberately deceiving the world.
Dangerous Minds – Criminal Profiling Made Easy. A commentary that profiling does not work as well as we may have been lead to believe.
What the Dog Saw – Cesar Millan and the Movements of Mastery
Connecting the Dots – The Paradoxes of Intelligence Reform
The Art of Failure – Why Some People Choke and Others Panic
Blowup – Who Can Be Blamed for a Disaster like the Challenger Explosion? No One, and We’d Better Get Used to It
Blowing Up – How Nassim Taleb Turned the Inevitability of Disaster into an Investment Strategy
John Rock’s Error – What the Inventor of the Birth Control Pill Didn’t Know About Women’s Health
The Ketchup Conudrum – Mustard Now Comes in Dozens of Varieties. Why has Ketchup Stayed the Same?
True Colors – Hair Dye and the Hidden History of Postwar America
The Picture Problem – Mammography, Air Power, and the Limits of Looking
Something Borrowed – Should a Charge of Plagiarism Ruin Your Life?
Late Bloomers – Why Do We Equate Genius with Precocity?
The New-Boy Network – What Do Job Interviews Really Tell Us?
The Agile Organization and 2008 Financial Meltdown
The author’s talk about organizations having two networks, a formal network based on the rules and regulations, and an informal network based on trusth that gets things done. The author’s argue both are necessary for a healthy organization.
I couldn’t help thinking of the housing financial meltdown here in 2008. It seems that the informal networks ran over the formal networks, which destroyed checks and balances. When this caught up with the market, investors were stuck. They couldn’t trust anyone at the investment banks. Since the informal network is based on trust, they died, and the financial markets collapsed. The injection of money from TARP didn’t accomplish anything. The real problem was trust, which money doesn’t fix. Likewise, the money injection would be exactly what the formal organization would propose because that is what they control. Washington is still struggling to reestablish trust – the balance between reporting rules and restrictions on conflicts of interest (proprietary trading). If the rules are too restrictive, then everyone learns to work around them, and tries to capture their regulators.
Why I Left Goldman Sacks
Why I Left Goldman Sachs which is the author Greg Smith’s tale of joining Goldman Sachs in the early 2000’s during its heyday. He ended up leaving in 2011, and he talks about the change in culture that drove him to go. He went out with a flash, writing a New York Times Article.
In the end, I couldn’t help coming away with the feeling the author was young, spoiled and naive.
When Genius Failed
The Only Guide to a Winning Bond Strategy You’ll Ever Need
The author’s go through an examination of the different classes of bonds. You will learn that most bonds are NOT for you! They are made for institutional investors. Recommended.