Extreme Money: Masters of the Universe and the Cult of Risk [Englisch] [Gebundene Ausgabe]

This is a "tell all" book surrounding the financial disasters that most people have heard about, but only a few understand. The author provides with high energy and more metaphors than atoms in the universe the financial underpinnings that created all the financial disasters over the past five years. This includes the failure of many of the big names of finance as well as those implicated in the sub-prime mortgage diabolical. A majority financial collapses leaving investors holding the bag is outlined in this book. More importantly, the book attempts to provide the "math" or the structure of how the financial mechanisms worked to produce large virtual gains leading ultimately to literal financial bankruptcy.

The author himself is a financial advisor with over 30 years of experience. The basic thread or meta message through the book is the inability to analyze and sometimes the resistance to accept the inherent risk in the investment structures that were producing huge returns for their customer base. The book provides the culture and attitude of those working in high financing which is pivotal to understanding the reluctance to understand the long term risk of the analyzed investment mechanisms. The author is probably complicit as a financial advisor for over thirty years, but that really isn't discussed in any great detail. He provides sage wisdom after the fact, but really was not the "ethical fighter" in the battle against the balloon ready to pop (not at least in this book).

So who might want to read this book?

This book probably will appeal to anyone who reads the Business section or listens to the news and sees guys with suits talking about how derivatives were responsible for the demise of someone, something, or even some country, and wants to understand what all the double talk means.

Also, anyone who wants to better understand his own investment strategy should read this book. There is one important thing that has not changed, the availability large pools of retirement funds. A great deal of 401Ks and other retirement funds are still out there with large pools of cash looking for investment opportunity. This was the starting point for the last calamity. These contrived financial structures (and opportunistic financial engineers) were just waiting to take a piece of America's retirement funds. This is really contemptible when you really think about it. There are few people that are immune while the financial "criminals" still on the loose looking for a way to manipulate the system yet again. The author spends considerable time illustrating how the "system" enabled this in the name of economic growth.

In addition, anyone who is wondering how the sub-prime mortgage problem occurred with a desire to understand the structures and mechanisms that created and enabled these financial disasters.

Finally, anyone who wants to know why countries like Greece and Iceland (you can add Ireland and many other countries to the list) have and continue to have financial problems. Everything seems great and then suddenly a single event creates a financial avalanche of bad debt.

Why I personally liked the book.

You almost always need an insider to get to the guts of the matter. In this case, an insider is needed that has tracked and analyzed all the problems worldwide. Many smart people fell into financial traps including Harvard University with all their financial and economic advisors. With that happening, what chance does the every day guy have of saying "no" to possible big returns using risky financial mechanisms? The chance is bettered with an education of what has failed. It goes without saying that Harvard now understands as does many governments, institutions, and other large mechanisms that felt like they could win big because they play big. Sounds like a professional gambler in Vegas, doesn't it?

I have to admit that I'll need to reread this book to really pick up the subtleties and nuances. The material is complicated at times and often the author makes it overly-complicated (my main complaint about this book). The diagrams in the book were generally not helpful because they parroted the text almost verbatim and really didn't provide any additional insight into the structure. I do believe that better diagrams would have been very beneficial in this book.

Overall, I'd recommend this book for those interested in how the practical financial world is evolving. The material will take some mental work, but worth the effort if the interest is great enough.

Satyajit Das presents an erudite, insider's view of the world of very high finance, far removed from the every day money transactions on "Main Street." This world is as different, and as counter-intuitive, as quantum mechanics is from classical Newtonian physics. Das has "paid his dues," working on both the "buy" and "sell" side in this ethereal world for 33 years. His 2006 book Traders, Guns and Money: Knowns and unknowns in the dazzling world of derivatives Revised edition (Financial Times Series) raised the specter of a "crash," due to leverage and the concentration of economic power, as opposed to the carefully promoted image of "risk management" that has been flogged by the salesmen for derivatives, including Alan Greenspan. As is well-known, the crash did come in 2008, requiring a massive government bailout as it is politely called (in actuality, it is the many who pay, and continue to owe so much to the few). The Few have survived, Masters again of the universe, and the good times (for them) roll on. Das does a fairly good job of making these whirlwind events intelligible.

Fittingly, his Prologue is entitled "Hubris." As indeed it was (and is). I was recently at a dinner in Orange Co. CA., and the consensus was the 2008 debacle was all Barney Frank's fault! Well, Das has a more nuanced, and comprehensive view. Starting with George Bush, who wanted home ownership to be as widespread as possible in America, and that meant more "affordable" products which led down a very slippery slope to a toxic asset cesspool that was somehow labeled "Triple A." The author fleshes out this story with abundant anecdotes; certainly the one most referenced is über-hedge fund manger Steve Cohen's $12 million purchase of a shark stretched over a weighted fiberglass mold entitled: "The Physical Impossibility of Death in the Mind of Someone Living." And, no doubt as intended, the shark was a wonderful metaphor for the business.

The book is divided into five parts. The first looks at the sheer faith involved in money transactions, and how it has involved from shells and silver coins to bits and bytes. The second part looks at financial "fundamentalism," an all too apt term, with the ground center of such thinking, which has come to dominate the world, being at the University of Chicago, with its arch-gnome, Milton Friedman. Personally, I think Naomi Klein, in The Shock Doctrine: The Rise of Disaster Capitalism covered this ground much better, but Das is incisive too, with a chapter entitled "False Gods, Fake Prophecies." Imagine being dominated by the thoughts of an individual who believed government should not be involved in the business of education or the national parks, as a small sample (ah, but it should be involved in enforcing contracts). Yet that has come to pass, since the so-called "free market" is the magic elixir that fixes all. The third part focuses on how we have become enthralled with debt (and drowned in it), all because one makes a higher percentage return when less actual equity is retained in a company (well, when one makes a return at all). In this part there are numerous diagrams which readily explain to the non-financial "layman" how those mortgages were "sliced and diced," and what the actual underlying assumptions were that governed the "tranches." In the fourth part, on the oligarchy that now governs us, Das explains how Ayn Rand has dominated the thoughts of so many of the elites, and reminds us, fittingly again, of a particular S-M scene in The Fountainhead (Centennial Edition Hardcover). And I shuttered to learn that now Fed Chairman Bernanke was attending Milton Friedman's 90th birthday party. More frightening still, is Bernanke's thesis that the real problem is a GLUT of global savings! The concluding part, and epilogue are not optimistic; featuring Bernanke's comment that the future will be "unusually uncertain."

Das repeatedly references his financial story to both the popular and academic culture. There are plenty of "bon mots," like: "Greenspan excelled at lacquering a slate of ignorance with a thin coating of knowledge." Das also refers to the "Greenspan put," meaning that there was always an assumption the Fed would bail Wall Street out of any folly; an assumption that came to pass. Das quotes Martin Baker on the magic formula of hedge funds: "Take a speculative cocktail shaker. Add four parts public ignorance, and 33 parts greed. Toss in a little perceived genius...Season generously with mystique. Add apparent publicity shyness to taste. Serve in opaque tumbler of awed, to ill-informed media coverage." Das even works in my favorite quote (and proverb for paranoids) from Thomas Pynchon's Gravity's Rainbow (Penguin Classics Deluxe Edition): "If you have them asking the wrong questions, you don't have to worry about the right answers."

But that is also the problem with this book. I hate to say it, since in general I like the references, but there are simply TOO many, madly tacked together at times, and they simply don't work. And Das throws them at the reader staccato style, bam, bam, processing the relevant and the irrelevant like the trader he once was. For example, one paragraph of three sentences goes from an expert at the Heritage Foundation to another commentator on the 2008 Beijing Olympics to Lillian Hellman. He does this repeatedly. Another swings from Arundhati Roy to John Steinbeck. He ties in Edward Abby's comment about growth and cancer cells; aphorisms from Yogi Berra and Mark Twain, and obscure 16th century Portuguese writers. Erudite yes, but also slap-dash, lacking a central thesis that holds it all together. At times, it dazzles; at others, it was simply exhausting, and seems to reflect Baker's comment above about tossing in a little perceived genius.

Overall, though, a book well marked-up, with passages that will be reviewed, and re-reviewed in the future. 4-stars.

Extreme Money is Satyajit Das's account of how a culture of corruption led to the great financial and mortage collapse at the end of the first decade of the twenty-first century and the ensuing financial and monetary crises. It mixes scenes depicting actors at extremes of elation and despondency with the history of events, using the purchase of works of art as markers and icons for the mood and the people.

At the book's core is a solid chronology and a lot of detail, and the book is valuable for that. But it disappointed me in a number of ways. First, the story begins with mood and atmosphere, then lurches into finance and back to atmosphere without a clear alignment between one and the other. There is no guiding structure (eg. atmosphere-event-atmosphere). Second, the level of detail is inconsistent, alternately glossing over details of financial instruments and swamping the reader in them. Often the reader is left searching for an explanation of how a financial instrument works, and how it is supposed to work. (An appendix might help here, or else a more complete introductory section on the topic.) Third, the role of government in the mess is treated quickly and forgotten. The careful reader will realize that the government not only created the mess and set up the incentives, but also punished the people who tried to stop the avalanche. The reader immersed in atmosphere will forget it in the parade of horribles of greed and irresponsibility.

Fourth, and perhaps most damning for the reader uneducated in financial matters, there is almost no description of the proper and responsible use of the financial instruments in question. What is "hedging"? When are CDOs the right instrument to use? Before reading this book, the reader would be well-advised to prepare by reading Thomas Sowell's Basic Economics 4th Ed: A Common Sense Guide to the Economy and Peter L. Bernstein's Against the Gods: The Remarkable Story of Risk, at least. Without such preparation, the reader gets the idea, apparently shared by many members of Congress, that every derivative financial instrument is the work of the devil.

Finally, the author admits to having acted as a hired gun during the crisis, fighting for one party on one side and another party on the other. This involvement ought to have been admitted up front, and squared with the condemnatory tone of the book as a whole.

Extreme Money reads as a moral condemnation of bankers, brokers, traders, speculators, regulators, and elected officials. It fails to examine the other side of the coin. In this it is like a book condemning the various problems of motor vehicles without recognizing that they contributed mightily to public health by removing millions of tons of horse manure from city streets and that they contribute to prosperity and quality of life by harvesting food quickly and moving that food--still fresh--quickly from farm to consumer, by moving heavy firefighting apparatus quickly to where it is needed, by transporting the injured and sick swiftly to treatment, and by allowing people more freedom to work at jobs for which they are better suited, improving productivity and making all of us more prosperous.

In other words, it makes a moral case without preparing the reader to make a serious moral analysis of the financial system, the financial collapse, and the players in it. It paints an incomplete picture that is liable to lead to wrong conclusions and wrong actions, to the harm of us all.

Postscript: As an alternative to this book, I recommend Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. It avoids the problems I find in Extreme Money and paints a very clear picture of the actual paths of money and power.