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2010 book stats
25 books started
25 books finished
9,304 pages read
90% digital
13% fiction
16% by non-white-guys Why does this matter?
The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders
Connie Bruck
read on December 1, 2010

I closed out the year reading about the same topic that I started it with, which seemed fitting. Michael Milken, Drexel Burnham, and the rockin' '80s. This book was actually written even before Den of Thieves, so it has very few details on the federal case against Milken. In fact, the book doesn't really cover his illegal activity very much at all... it's not even that condemning of him. It pretty much paints him as a visionary that bent the rules as he trail blazed into a brave new world.

At first I didn't like it. The book doesn't have the narrative that Den of Thieves (DoT) does, so reading it second makes it seem quite boring in comparison. There is no drive, just a timeline of events. But what it lacks in drama it makes up for with detail- the book goes into a lot more detail of the junk bond process, how it started, and how it took off. It gave background that I didn't get from DoT. More than anything else though, I hadn't really realized just how much Milken and DBL changed finance. He pretty much invented the corporate takeover.

Another quick takeaway here was just the power of investing in things that other people aren't into. The book has a long chapter on Carl Icahn and how started off making his fortune trading options. He was really interested in them at a time when no one else really was, right when they were beginning to get traded (before Black-Scholes), and found a way to make a killing.

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M. Mitchell Waldrop
read on December 1, 2010

If you're like me, this book changes the way you think about science- which, as far as I'm concerned, changes the way you think about everything.

Complexity is about the first ten years of The Santa Fe Institute, a think-tank that studies complexity research. Complexity itself is, unsurprisingly, not something I can sum up in one sentence very easily. It is essentially the study of how systems change when there are many (millions) of agents in the system.

Take water, for example. There's nothing very complicated about a water molecule: it's just one big oxygen atom with two little hydrogen atoms stuck to it like Mickey Mouse ears. Its behavior is governed by well understood equations of atomic physics. But now put a few zillion of those molecules together in the same pot. Suddenly you've got a substance that shimmers and gurgles and sloshes. Those zillions of molecules have collectively acquired a property, liquidity, that none of them possesses alone. In fact, unless you know precisely where and how to look for it, there's nothing in those well understood equations of atomic physics that even hints at such a property. The liquidity is "emergent".

The whole book is how that emergent effect is found in other systems as well, and the implications of what changes and how. It really is a revolutionary way to look at things. The classical Newtonian way that we've been studying science for the last few hundred years has been studying static systems- changing only one variable at a time and seeing what laws we can deduce from that change and what that means in terms of the real world. The complexity idea does the opposite. It starts with the real world, with complex and imperfect systems, and finds what makes them tick.

I don't have a quote for it, but a great example from the book was the idea of technology in economics. In neoclassical econ theory, technology is something that just happens over time that improves productivity. Without electricity one firm can make 200 widgets with their fixed resources, and with electricity they can now make 10,000. The idea of where technology comes from isn't addressed. I never realized how crazy that was. Technology is one of the main drivers of increased efficiency and production, it's extremely important to econ, but econ just sort of assumes that it spontaneously happens over time.

Complexity describes technology in a different way, as an emergent feature of developed economies. It describes how you need a certain base amount of technology 'principal', which then allows further technology to develop. (For instance, think of all the tech that became possible after electricity, or engines, or vaccines were 'discovered'). There is a certain critical amount of technology necessary in a system, and after you pass it that economy can explode into a more productive era. The implications of this on policy are important. Should we send financial aid to countries that have not yet passed this mark? Will that aid actually help the economy?

This was a really remarkable book. It was published in 1992 and I'd love to get an updated version or followup that describes whatever progress SFI has made on these issues since then.

Addendum 2017: Looking back, this book fundamentally changed my perspective on complex systems. In the years since reading this book, I've come across the idea of emergent behavior countless times. Particularly in physiological and sociological settings, and in ways very fundamental to how those systems might work. Two favorite examples being that reasoning is an emergent property of a diverse group of people, and that consciousness is an emergent property of billions of neurons. For me, thinking of systems in terms of their emergent properties (or, more accurately, thinking of observable properties as emergent outcomes of a large set of individuals) has been a true paradigm shift. In our world of "big data" I think this is only going to become a increasingly necessary tool for understanding.

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The Amazing Rise and Scandalous Fall of Enron
Bethany McLean
read on December 1, 2010

The most striking note to me about this biography of the Enron collapse is how so many brilliant people can have such a startlingly short sighted view with their management of the company. At every possible turn, Enron's managers decided to maximize short term accounting profits instead of long term cash flows. 

I understand management's need to meet/beat earnings expectations, and to some degree I'm sure earnings management is a consideration at all public companies. But Enron took it to such an extreme that the real story is how they got away internally for so long. And it isn't that they necessarily ever did anything illegal - just the sum of their actions and intentions were so fraudulent that they had to be convicted of something.

“People did not know the difference between mark to market earnings and cash” says a former trader. “No one ever talked to me about cash, says another. It wasn’t on our annual review or included in our targets. It had nothing to do with how we were measured for our bonus. It was nothing we were paid for, so who cares?” He adds, “I knew we had no cash and that our earnings were susceptible to manipulation. This is a game. I know that, everyone knows that. But it was a game we were winning!”

Frankly though, the book was relatively kind to a lot of the management. It didn't judge Skilling (CEO) or Lay (Founder/Chairman) too harshly. In fact, it left open the possibility that they were ignorant to the whole thing. It was clear that they shouldn't have been, but better to be ignorant than willfully fraudulent.

The most inspiring takeaway from the book is that it's such a shining example that everyone can still be wrong. The financial press loved Enron. Hardly anyone had anything negative to say about it. Hell, their bonds were investment grade just days before the bankruptcy. (Not sure if that's a fair measurement though, since bonds downgrades often are what send you straight to BK). Anyway, everyone thought everything was peachy, which I love. Just shows that markets really aren't that efficient, and that great opportunities are there for folks that do their homework.

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How the Surprising Science of Happy Couples Can Help Your Marriage Succeed
Tara Parker-Pope
read on November 1, 2010

Just look at the cover. How refreshing is the idea of a book on marriage and relationships based on scientific study, on falsifiable hypotheses, instead of self-help platitudes and moral/religious aphorisms? Parker-Pope is a former health journalist who got divorced after 17 years and decided to turn her focus on marriages to see what she could have done different. The result is a pretty decent introduction to a lot of the (relatively recent) work that's being done studying marriages, sexuality, and happiness.

Some highlights:

  • Women can smell out a preferred partner's scent in from their dirty t-shirts. The "smells" they find most attractive belong to males with specific genes that are most different than those of the women. Incredible! Men cannot do the same. However....
  • All else held constant, men will tip an ovulating stripper twice as much as a non-ovulating one, and they'll tip half as much to a women currently on her period. (Hard to imagine exactly how other variables would be held constant here.. but interesting - there's no leading theory on how men are able to sense this).
  • Having children pretty much always makes a marriage worse, by about 10%. All the way until they move out. (Kiddos do raise other levels of satisfaction.. probably to a net gain.. but still they always make marriage worse.) The takeaway here: go ahead and have kids if you want them, but don't ever do it to try and save a marriage.
  • It costs $240,000 to raise one child to age 18. That doesn't include any opportunity cost either (stalled career, time off work, etc). That's a LOT.
  • Disagreement about household duties are a major source of marriage trouble. It's a good idea to work them out equitably among both partners.
  • Happiness may be genetic. Typically people spend their whole lives at a pretty constant level of overall happiness. Twins separated at birth are also typically equally happy, despite being raised differently and living in totally different conditions.
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Po Bronson
read on November 1, 2010

This was essentially Liars Poker: Part Two, but even more condemning. To be fair, this one is entirely a work of fiction, but I get the feeling there is some experience there to back it up. (I'm actually not sure about Bronson's background. My impression is that he was a trader/salesman turned novelist, but maybe not). Anyway, Bombardiers was highly entertaining, hilarious, and just vicious in it's depiction of Wall Street chop shops. I would say it's Liar's Poker meets Glenngary Glenn Ross. If you want to wrap your head around salesmanship, this'll get you there. It's everything everyone hates about car salesman, turned up to 11. Really fun, easy reading. Choice bits:

According to Sid Geeder, who did this better than anyone, success was only a question of how much they could lie before they felt guilty, and then how much guilt they could take before they suffered psychological malfunction.

One rather unrelated bit that struck me was one of the bond saleswoman's marriage plans. She and her partner were getting hung up on a prenup and found marriage law "limiting". So instead, they each formed personal corporations (think Jane Doe, LLC). They transferred all their personal assets to these corps, and then instead of getting married, they just merged corporations.

There was a long list of tax write-offs for acquiring a company but practically none at all for marring a man. And in case anything went wrong with their relationship, it was much easier to break apart two corporations than to go through the messy legal hassles of divorce.

Also, this may be pushing copyright boundaries, but page 284 of the paperback version is the best sales pitch I've ever come across, and it would just be unfair not to include it here. Definitely my favorite passage of the book

Since when is investing in corporate bonds not in your bylaws?" Sidney reasoned. "You just have to get it out of your head that this has anything to do with foreign governments. New Lincoln, Inc. is a United States corporation that will be listed on the New York Stock Exchange, file 10Ks with the IRS, and adhere to all regulations governing interstate commerce. It's partly owned by bluechip companies such as Ingenesis, Martin Marietta, and General Electric, which guarantees you I'm not selling you junk. Look, I can understand how you feel: the bonds are unusual, no question. It even took me a few days to get used to them, to see how much sense they made. Twenty years ago, they weren't even selling mortgage-backed securities in the open markets, but it took some visionary people to realize how much more efficient the market would be if we did. Ten years ago, nobody would touch junk bods with a ten-foot pole. But along came the visionaries. You have got to do a little soul-searching here. You have got to ask yourself whether you're a visionary investor, or whether you're just another sheep in the flock. Thats really the question here. There question is not whether these bonds would outperform CMO's in a down-rate environment, or whether Moody's labels these AA or AAA. The question at hand here the question you have to ask yourself is whether you've been studying portfolio investments all your life over there so that you can play it safe. I mean, do you really go to cocktail parties and brag about not having posted a loss in thirty-four consecutive quarters? Or do you brad about buying Microsoft in '84? That's what we've got here. We've got Microsoft in '84, and the ball is in your hands. You can play, or you can take a seat and watch. I'll say it again, you can play, or you can take a nosebleed seat in row ZZ next to a fat lady dumping popcorn down her throat. I said soul-searching, and I meant it. Men have only a few opportunities like this in their life. Men dream about chances like this. I'm talking not just being part of financial history. You've got a chance to be part of world history. I'll lay it out for you. All these foreign governments around the world are suddenly picking up on democracy and turning themselves around. But democracy is an American invention, and we ought to be the ones capitalizing on it. We really should be charging a royalty. We should be licensing democracy. But until someone figures out how to accomplish that, the best thing we can do is turn these countries around ourselves. Why let someone else profit from it? Look, in the eighties, for a while this technique became really popular to buy a shitty company with bonds and turn the company around real quick to pay off the bonds. We kept doing it and we kept doing it until there weren't any shitty companies anymore. And then it occurred to us, 'Hey! Why limit ourselves just to companies?' Why not scoop up shitty countries, fix 'em up, and sell for a big profit? And I'm telling you, there's some real dogs out there that need a face-lift. And you've got to ask yourself whether you've got the balls to play this game. Have you got the gonads to be a part of history? Are you a man who, when the opportunity arises, can let them all hang out? In ancient Greece, they used to have eunuchs guard the women, because the eunuchs were safe. They didn't take risks. When the men went off to war, when the men charged into battle, the eunuchs were at home combing the women's hair and sipping tea. And you've got to ask yourself: you've got to ask yourself whether you're a eunuch, or whether you're a man. There's no middle ground here. Eunuch or man. Man or eunuch. Are you on earth to comb hair and sip tea, or are you on earth to fuck?" 

There was a long pause on the line. 

"I'm no eunuch," the trust manager responded shyly.

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Kevin Guilfoile
read on November 1, 2010

I've been in the mood to read stupid fiction for a little while. I used to read Dan Brown's books, and thought they were great. I saw this one billed as "Dan Brown for smart people", so that was enough for me to give it a shot.

It was good. Sure, why not. I don't know, who cares? Six months from now I won't remember a thing from this book. It was fun to read but I finished it feeling the same way I would after a night of drinking alone and watching TV.

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read on October 1, 2010

I sometimes hear about people having a book that they go back and re-read once per year. I've never had that book. I can't actually think of any book that I've read more than twice come to think about it. Anyway, this book probably comes as close to being worth such a status as I've come across. I guess time will tell, but it screams re-readability.

The book is is the memoir of a somewhat fictional stock trader from the early 1900's. All throughout he imparts knowledge he's picked up from a life of trading. A lot of it is absolutely still relevant today. The psychology of buying and selling- how to hang on to winners and ditch losers, etc. Lefèvre writes many of the things Buffet or Graham would- as far as not being emotional and only trading when you are sure about what you're doing. It's almost all stuff that you've heard before, but it's very well presented, and told in such great context that the lessons really shine through.

Towards the end the book begins to lose that feeling of timelessness though. Lefèvre spends quite a bit of time talking about stock manipulation, where one trader's activity can affect the market. In the '20s this was pretty easy to do. Markets weren't exactly as deep as they are today, and one trader with a decent pocketbook was able to move prices fairly easily. Unfortunately, those opportunities are gone these days- so while this discussion was entertaining, it didn't carry the same weight as other parts of the book.

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And Other True Tales of Madness, Love, and the History of the World from the Periodic Table of the Elements
Sam Kean
read on September 1, 2010

This might be the first book I've read this year that has nothing to do with any of the others. No behavioral econ, no finance, no psychology... just chemistry and physics. Good times! I saw it billed as an accessible, informative, erudite explanation of interesting stories from the history of chem/physics. Sort of like a Malcolm Gladwell-esque book about the periodic table, but with real science to back up the claims. By and large, the reviews were dead on. The book is chock-a-block full of really, really interesting anecdotes and history from chem and physics, and includes enough actual science-talk to make you feel smart, but not enough to make you feel dumb.

A few of my favorite bits:

  • Holy crap gallium is awesome! It looks like solid aluminium, but melts at something like 80 deg fahrenheit. This means you can be holding a clump of it in your hand and have it melt into something exactly like mercury, right there in your hand! ...! (The book is named after an old chemists trick of making a tea spoon out of gallium. When you stick it in your tea, it melts, scaring the crap out of people)
  • Explanation of aluminium vs aluminum. Apparently aluminium was once the most expensive and rare metal! Aluminium bullion was worth more than gold. Then John Hall figured out how to make loads of it for next-to-nothing. He ended up starting Alcoa and renaming the product Aluminum.
  • I finally learned what the vacuum tubes in old school computers did. The vacuum was necessary for an electrical charge to only be able to move one way. That was the only way to keep a one way current going, until they figured out semi-conductors in germanium and then silicon. That's how they got the transistor. Then they finally figured out how to etch the whole thing on a single piece of silicon, which is literally the same design we're using today, just like a billion times smaller.
  • The universe is 90% hydrogen, 10% helium. The rest is rounding error.
  • Every element up to lead is created inside stars. All the ones (naturally occurring) heavier than lead are created during supernovas, when a star blows up with enough force that all the atoms around it collide and fuse into new elements. What?! (Elements are also made via radioactivity, but that's less interesting)
  • There is an awesome theory that the Sun has a twin sun that it orbits with called Nemesis, which has it's own planets and asteroids orbiting it, and that each solar systems get close to each other every 20 million years or so, resulting in the regular asteroids that hit Earth every 20 million years or so and kill everything. Nemesis? Awesome name. The theory doesn't pan out, but it sounded so good.
  • Maybe the most interesting bit was that humans don't have any way to sense if they're getting oxygen. That terrible feeling you get when you hold your breath? That's just your body saying "too much CO2!" It knows when you're not exhaling, but has no oxygen sensors. Which means, if you walk into a room filled with say, pure nitrogen gas, you would breathe in and out like normal and have no idea that you're about to pass out and die. Because you're body is still exhaling the CO2, you would feel just dandy until you got light headed and died. So weird.
  • Lots more neat stuff. Einstein-Bose condensate, the coldest place in the universe was Boulder, lasers, sono-luminescense, lots of good stuff. Definitely a good one to read again sometime.
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Tim Harford
read on September 1, 2010

I'm staring grad school now, so I should say I'll likely be reading a bit less, and probably writing less about the books I read as well. One of my first courses in in microeconomics, and I figured it wouldn't be a bad idea to run through a fun refresher on some of the basics before class. That's pretty much what this book is. Tim Harford writes an entertaining and highly accessible book about how markets work, and how the sometimes don't work. It's pretty basic, which was actually kind of frustrating. He talks about inefficiencies in taxes but dances around terminology like "deadweight loss" - and does the same later when discussing externalities. Really, this is a lay-person book. But that's also the strength of the book, in that it boils everything down to very basic lessons. It was an enjoyable refresher, and while I didn't really learn anything new, I guess you could say it reminded me of a few things I had forgotten. Good times, but not as good as Harford's more recent "Logic of Life".

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Why We Drive the Way We Do (and What It Says About Us)
Tom Vanderbilt
read on August 1, 2010

I swear I didn't do it on purpose, but this is pretty much a behavioral finance book where the dollar signs are replaced by cars.

The main takeaway from the whole book is that human beings are tremendously poor judges of risk. We don't think anything we do while driving is dangerous, because we've never been in a fatal car accident. So we listen to the radio, we speed, we yawn, we make phone calls, etc.. and every time we get home safe that behavior is reinforced. Worse yet, even if we very narrowly avoid an accident due to reckless/negligent driving, we still pat ourselves on the back. "Wow, I can't believe I swerved out of the way while going so fast, I must be a great driver!" 

Another interesting thing: The safer cars get, the more reckless we drive. Forty years ago cars were moving coffins- they were big and steel and sharp and had no airbags or seat belts or crumple-zones or antilock brakes etc etc. Today we have comparatively super safe cars, but the same fatality rates... We keep pushing car companies to develop more safety features, and every time we get them, we collectively drive like bigger boneheads. Driving is a system of fat tails, but we pretend it's not. A fatal accident is a black swan... it's something our personal risk models don't account for. We all realize, on some level, that driving is dangerous. But we don't just how dangerous our behaviors are until the actual event happens, when it is obviously too late to adjust. We're left with a whole population of drivers that don't understand how risky their driving is.... everyone that does understand is dead.

There's also discussion of traffic congestion, which works in a similar way. If there's too much traffic in an area, the natural impulse is to build more roads. But then congestion falls, attracting more cars, and before you know it (and in some cases instantaneously) the bigger and newer roads are just as crowded. The actual answer, paradoxically, is to destroy roads.

These findings really aren't surprising if you think about it. People respond to incentives. The underlying message throughout the book is: Driving produces externalities. We cannot allow traffic decisions to be made on the margin by individuals, or we will always encounter a tragedy of the commons. The externalities must be internalized - gas tax, congestion tax, tolls, etc.

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Micro-Lending and the Battle Against World Poverty
Muhammad Yunus
read on July 1, 2010

For quite some time I've heard positive things about the work of Muhammad Yunus and his Grameen bank. His program was the birth of micro credit- something I never heard about while in school but once I left I started seeing all kinds of stories about the difference it was making in poor communities. I definitely understand the power of credit and leverage, but I wasn't convinced that giving unsophisticated poor people small loans was going to make a long term positive change. I wanted to understand the economics behind the Grameen bank.

In that regard, this book fails miserably. It seems written for the very people meant to receive the loans, not for anyone seeking a rigorous understanding of low income economics. Yunis is an econ professor, so I'm very disappointed by his approach here. The book is almost entirely anecdotal. It never discusses actual theory, it just shows example after cherry-picked example of how his system is great and can work all over the world. It was a huge bore actually, and left me with far more questions than I went in with.

Yunus' bank seems to be more of a ponzi scheme than anything else. He clearly demonstrates how extremely poor people benefit from initial loans. He highlights many cases where people just need ten dollars or so to 'own their own capital and means of production', which creates far higher profits for them than before. That would make sense, if he stopped there. But Yunus thinks that as soon as they pay off a loan they should immediately apply for another, larger one. This doesn't make sense to me. His ideal world is everyone owing him more and more money as they become more and more productive- but they're never free of his debt. 

I'm not saying Yunus is wrong, or that micro credit isn't helpful. This book just didn't make the case for any of it.

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The Rational Economics of an Irrational World
Tim Harford
read on June 1, 2010

Despite the title, I expected this to be a typical behavioral econ book about all the different ways that people are silly and irrational. I've read plenty of books like that before, and don't really tire of them. I was ready for more examples of framing biases, endowment effects, etc. The premise of this book is actually the opposite. Essentially, Harford argues that in almost all cases (at least, in cases where people are performing familiar tasks - that is, not wacky one off lab experiments) people are strictly rational. The book makes a great case. It is very approachable. It reads like a Malcolm Gladwell book but you can tell it's written by an actual economist. It's much more rigorous than Gladwell.

Anyway, the main concept that I think is worth preserving here is that Harford argues how very, very small preferences- or very small imbalances in initial endowments- can have devastating social consequences at scale. He spends a lot of time describing what he calls "rational racism"- where it actually makes sense rationally for a business owner to not hire minorities, on account that he expects them to be less educated. Disturbingly, it is then rational for minorities not to invest in education, on account that they aren't going to get hired anyway. Make no mistake, Harford finds racism deplorable, but if we can ever get rid of it, he argues that we need to understand that what is causing it isn't just ignorance and hate, but rather very rational people making logical choices.

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Inside the Race to Stop the Collapse of the Global Financial System
Henry M. Paulson
read on June 1, 2010

It really goes without saying that I had to read this book. Paulson, perhaps more than anyone else on the planet, knows what went down in Sept 2008. (It's probably one huge, hazy blur to him- but still). Too Big To Fail, the Sorkin book, bothered me in that it took a lot of liberties with disclosing what really happened vs what the author thought would sound good in a book. Sorkin wrote specific dialog that took place in ultra high level meetings- meetings where the people their don't talk- so I imagine a lot of it was made up. Paulson's word first hand.

 I started reading this in February, and didn't finish until June. That's how boring the first half of the book is. It took me five months to get through the first 100 pages. They're not about anything. Part autobiography, and part preemptive defense. It was garbage.

About when the timeline hits late summer 2008 things start kicking into gear. It was interesting to read Paulson's opinion of the events, though honestly, there wasn't anything in there that truly benefitted from his first hand perspective. It seemed sort of evident to me that he was constructing the book based on loose memories and looking through the meetings he had scheduled in his calendar. Still, he does offer more color on TARPs creation and passage than any other book I've read, and I thought the inside-baseball on the bill was probably the highlight of the book.

As expected, Paulson spends quite a bit of time defending his actions. He also adds a bunch of unnecessary bits here and there about how George Bush handled the whole thing brilliantly as well. Not brilliantly I guess, but he praises W. left and right for never letting politics get in the way of his decisions, etc etc. Not relevant material.

Paulson wraps things up with suggestions for how to change the system for the better, so that this never happens again. Most of his tips are remarkably un-republican. He advocates strong regulation going forward, and says incentives need to change on Wall Street. Eh. Given that he had a couple years as Secretary before everything blew up, not to mention his career as Goldman CEO, I feel like if he truly thought the system needed changing he would have acted on it before the crisis. Overall, this was not the best book I've read on 2008, but not a waste of time either. I'd call it a push.

Update: Seven years on (now Spring 2017) there are passages from this book that stick with me. I hint at it above, but I remember Paulson describing the incredible stress he and his department were under, and how he wouldn't sleep for days and would be puking into trash cans in between meetings with the President and House Speaker, trying to convince both that if they don't bail out the banks (political suicide) that they would likely blow up the world economy. Almost a decade later this remains a touchstone for me whenever I get stressed dealing with my own problems at work.

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Roger Lowenstein
read on May 1, 2010

The one sentence review of this book is "the longest newspaper article I've ever read." It is concise, clear, and presents the facts in comprehensive but still approachable way. What it isn't, is a good book.

It has no narrative, no drive. It moves through the financial crisis chronologically, and honestly it just feels like someone picked out highlights from the WSJ over those two years. I'm not sure why the book is even broken into chapters, since each one is exactly like the last. Too Big To Fail covered this same content, but as a narrative. The characters had depth and motivations. A good example is when Joe Gregory at Lehman stepped down with Callan, the young CFO. TBTF had spent a long time talking about Gregory's relationship with Fuld, how he had appointed Callan and supported her, the mistakes that both of them made, etc, such that when they stepped down I actually cared, and I knew how big a hit it was to Fuld and how it changed the culture of the firm. In this book, the same scene is one sentence long. It goes something like "that week Joe Gregory, a Lehman exective, and the CFO Erin Callan abruptly resigned." Weak. And I'm not picking and choosing... TBTF covered pretty much every topic in more detail and in a more engaging way.

During the second half of the book, things pick up a little bit and become more engaging. This is during the actual Sep-Oct 08 timeframe, during those few weeks where the whole system was just falling apart. Still though, as a whole, this book seems like cliffs notes for TBTF. It covers all the content, but leaves out the good parts that really make it worth reading. I'm very surprised it's by Lowenstein, the same author of When Genius Failed, which was an extremely engaging account of the LTCM disaster.

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How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It
Scott Patterson
read on May 1, 2010

This is essentially a book that tracks the careers of five or six different kids that went on to become Wall Street giants by inventing financial engineering. Essentially, these are the guys that had just the right mix of talents and interests at just the right point in history (tech revolution) to become mega millionaires. 

Straight away, I was surprised by the mention of Ed Thorp. He's the guy that wrote Beat The Dealer, the godfather of card counting and a central figure in Bringing Down The House, which I read a few months ago. Turns out Thorp followed that up by writing Beat The Markets and also became the godfather of quants! I had thought that reading about card counting was just a fun diversion - but turns out pretty much every quant on Wall Street got started counting cards and reading Thorp's books.

Anyway- not too much to say about this one except it really showed me that these guys are in a totally different class than me. When Peter Griffen was 19 he was a freshman at Harvard. By that age he had already read Thorp's book, and convinced people to give him 200K to invest in warrant-convertible bond arbitrage strategies. He put a satellite dish on the top of his dorm to be able to run a real-time trading office from his freaking dorm room. He flew himself to New York on weekends to meet up with the Wall Street traders he "met" making trades over the phone. My freshman year I was still intimidated by girls. I mean, holy hell.

So yeah, the book describes about five other people pretty much just like that, who are both gifted and motivated and ambitious beyond any reasonable standard, and their not-improbable rise to success. It also mentions how their automated and high frequency trading schemes almost broke Wall Street during the previous crises, but that wasn't really the focus.

All in all, a great book to motivate an aspiring 12 year old, or depress an aspiring 26 year old.

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Inside the Doomsday Machine
Michael Lewis
read on May 1, 2010

Michael Lewis' contribution to the 'books about the financial crisis' library is unique in that he chose to tell the story of the very few folks that saw the meltdown coming, bet the farm, and came out on top. The book follows a couple different groups of folks who all did the right research, had the proper skepticism, and came out ahead.

Most interesting to me was the story behind the folks at Cornwall Capital- a capital management firm started by two dudes in their early thirties who didn't want to work for anyone else. They had $130,000 in a Schwab account - and limited Wall St experience - and decided they could make a living off of making good investments. They were value investors, but their real talent was finding "event" based stocks (M&A targets, bankruptcies, litigation, etc)- and buying options on them which they believed were mispriced. Basically, they figured that the Black Scholes pricing model assumed a bell curve model of future price probabilities (ie, a stock is more likely to go up/down by a little than by a lot). In may event-situations, that is not true. The stock will either go up a lot, or down a lot after the event - but not a little. Anyway - these two guys turned their own $130k into a couple million with these good bets, then saw the impending crisis and bought mezzanine level subprime CDO default swaps, and made $80 million. Nice.

Anyway, through these different stories, Lewis exposes how rigged/idiotic the entire financial industry was, at least from the point of view of these guys, who of course turned out to be right. I liked especially the treatment he gave to the ratings agencies - who he correctly depicts as broken, ignorant institutions that played a massive part in this whole disaster, but that the mainstream press hasn't really paid any attention to. Frankly, I think the NRSROs are the single most important thing that need to get fixed in the aftermath of this crisis, but so far that hasn't been a talking point at all in Washington. Oh well, maybe next time!

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A True Financial Thriller
Harry Markopolos
read on May 1, 2010

The Harry Madoff story is actually very interesting. I didn't know much about it because frankly, when the news first broke, the press didn't really make me care. They all focused on lame human-interest drama. The so-and-so-lost-their-whole-life-savings-boo-hoo angle. I just thought "diversify" and changed the channel. However, the story is really fascinating. Madoff ran a 60+ billion dollar hedge fund for 20+ years without ever making any investments, and without being caught! He never even was caught, and likely would not have been. The 2008 crises caused a flight to safety, and his non-fund obviously couldn't handle the redemptions, so he imploded. But still, the idea that such a big scheme existed is crazy- and there must be an amazing story behind it to read.

This book is not that story. This is one of the worst books I've ever read. I only made it to the end out of morbid curiosity.

This book is nothing more than a victory lap for Harry Markopolos, the absurdly annoying, egomaniacal douchebag who wants credit for bagging Madoff. Markopolos is a terrible writer. Really, really bad. I really can't believe the garbage that made it past the editors here. I love complaining, and I could go all day long on this guy. But I won't. I'll just leave it at this: Markopolos is not a writer or a journalist. He did some equations that led him to believe Madoff was a fraud, and then obsessed over them for ten years. Then he wrote a book about those ten years. He did no additional research for the book. There is nothing in the book about Madoff's actual operation. Just the facts that Markopolos thought were true, repeated over and over again and again and again- followed by much whining about how he was right the whole time and no one would listen and how he deserves everyone's apologies and recognition.

It is terrible. It is just awful. But the good news is that it made me curious about what actually was going on inside Madoff's "lipstick" building for all that time, and hopefully I can track down a legitimate book by an actual journalist that's interested in more than getting a shiny gold star.

One last thought: It's interesting that none of the big five investment banks had any exposure to Madoff. Markopolos makes it pretty clear that in speaking to people at those banks, and at many other sophisticated hedge funds, that pretty much everyone on Wall Street knew. Yet the SEC received "only" a half dozen or so tips about Madoff in the last ten years or so- five of them from Markopolos. Makes you wonder about where the incentives are for these folks. I mean, Madoff was competition, so I imagine anyone running a fund would want him out of business, since it was impossible to compete with him. But at the same time, if you knew he was a fraud, then doesn't it help you to have all your competitors money go down the crapper once it blows up? Interesting trade off, but it looks like the clear choice was that everyone in the know kept their mouths shut.

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A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen
Christopher McDougall
read on April 1, 2010

Last November I ran the Seattle half-marathon. In my "training", I think the longest I ever ran was about 8 miles, which seemed at the time to be pretty close to 13 and so a pretty good place to stop. I was blown away by how sore I was after running the 13. I mean bad. I could barely walk that night and the next day. I really like running - I think it's peaceful and it feels really natural. Not to say it feels good or comes easy, I think what I mean is that I enjoy how basic a human function it is. It is the most quintessential exercise. No frills, no shortcuts.

Anyway, the day after the half-marathon, I decided running just isn't for me. I'm a 200 pound guy, and I feel like if I spend the next few years running then I'd pay for it for the rest of my life. Blown out knees, constant joint pain, etc. It just didn't seem worth it.

However, I was bothered and disappointed by that conclusion. If I enjoyed running because it was a core human experience, then how could it actually be bad for me? That question is exactly the premise of this book. McDougall investigates the circumstances around the world's best runners to find out what makes them tick, and why their bodies haven't yet turned to ash. It's a fantastic book that manages to do three things: 

First, it exposes a sport a had no idea even existed, Ultrarunning. Apparently, there are people that run 300 mile continuous races. Or 150 mile ones in 125 degree heat. I really cannot comprehend this. There are people that have run one marathon per week, minimum, for several years. Second, McDougall argues that running shoes are garbage, and makes a great case for it. Apparently, humans were born to run... barefoot. When using running shoes, your stride is modified because you can land on your heel. Running barefoot would never allow this because it hurts way too much. When barefoot, you land on the midsole. This shortens your stride and makes you slower- but doesn't destroy your body and gives you endurance. And lastly, the book also has a compelling narrative story about an unlikely race in the-middle-of-nowhere Mexico where the greatest runners in the world faced each other.

Anyway, fantastic book. If I do start running again, which now I hope I do, I'll need to give barefoot a try.

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The Rise and Fall of Long-Term Capital Management
Roger Lowenstein
read on April 1, 2010

I ended up coming across this book because given all the other finance books I'd been reading lately, Amazon's computers thought I would be into this one also. For whatever reason, I figured this book was about the 2008 crises and went ahead and got it. I was way off- it was about the last crises that happened, when Long Term Capital Management failed.

In all the reading I've done during and since the 2008 crisis, I've heard the "LTCM bailout" mentioned a lot, but didn't really know anything about it. Turns out it was a hedge fund created by some of the smartest guys in the industry (led my John Merriweather, former Soloman banker, a big fan of Liar's Poker). Merriweather was joined by Merton and Scholes, the guys who pretty much invented options pricing, and later won the Nobel prize for their work. I remember learning their models in college investment courses, it was a bit surreal to see how they actually applied it themselves.

Anyway, I was a huge fan of the book. LTCM was all about math- they were the original quants. Their strategy was just to nail the equations and manage risk with calculated certainty. LTCM made around 40% returns per year for the first three or four years it existed. It was a huge success. Unfortunately, their models gave them extremely tiny profits, so in order to really make so much money they needed to be highly leveraged. Of course, then Russia defaulted on it's loans, put a wrinkle in global finance, and everything went to hell. Bam. Bankrupt. It's hard to believe that guys this smart still get rich and greedy, and then get stupid.

Well written, and an incredible story. Like Liar's Poker, I can't believe I had made it so far in my life without reading this. Lowenstein has a book about to come out on the 2008 crisis, so now I'm really looking forward to that.

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A Financial History of the World
Niall Ferguson
read on March 1, 2010

I really don't know what I was expecting out of this book. I think Amazon recommended it to me, and it just seemed like a no-brainer. You know how the very first chapter of any intro econ or finance book (or whatever) is always the easiest assignment of the year, because those few pages are always just some interesting back story and not real meaty? That's pretty much what I figured this book would be. For a while, I was right. But pretty soon it really opened up and became a lot more comprehensive than I expected.

This was much more a history book than a finance one. (The author is a historical writer, not a finance guru). It explains, in surprising detail, the emergence of: cash, bonds, stocks, insurance, and then finance bubbles and housing markets in general. The book was written right before the 2008 disaster really hit the fan (post Bear, pre Lehman), so it offered an interesting perspective that's hard to come across, someone writing about the 2008 "credit crunch" without making reference to the armageddon of that September.

I'm getting off topic, and don't really know how much I even have to say- but the book was great and better than I really expected. There are some really slow parts (ug, is insurance ever exciting?) but for the most part Ferguson focuses on a narrative that kept me engaged and interested, and overall it served as a great general history of finance. There was very little in this book that I already knew going into it, so... great ROI?

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read on February 21, 2010

I judge books by their covers. Everyone does, but I think I do it more than others. What can I say, I love graphic design, so it seems natural. I also love dogs. And racing. And especially the rain. So I bought this book immediately without any idea what it was about.

Halfway through, I thought I had made a mistake. It's literally told in the first person by a dog, who is as smart as a human, but I guess not smart enough to find a way to let on about it. He's a sweetie though, and does a convincing job of being a stereotypical loyal and slightly goofy mans-best-friend. After a lengthy exposition, the conflict finally takes center stage and drives the story well. It turned out quite delightful, by the end I was pleasantly surprised by what I could learn from racing in the rain.

There was one line in particular that went something like "to remember is to disengage from the present." It was in the context of the main character's memories (lack thereof) of races he'd won. I thought it was a clever and well executed presentation of the idea that life should be lived in the moment. Anyway, not bad for a gamble on nice cover.

Oh yeah, one last thing. I also enjoyed that the book took place in Seattle. I'm not used to seeing places that I'm familiar with in books or movies. I guess people that grow up in New York or Vegas or San Francisco must be numb to it, but I always get a thrill out of seeing the space needle on film or in this case, reading about a dog that lives on Capitol Hill and plays fetch at Volunteer Park.

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Michael Lewis
read on February 21, 2010

This book is full of some really fantastic quotes. It's a hilarious look into a bond salesman's world in the late 80's, and also provides great insight on how mismanaged Salomon Brothers was at that time. More than anything the book just describes the firm's downfall from this rookie salesman's perspective, and it's tough to watch.. but also, like I said, hilarious.

I could probably write on for a ways about the book, but I'll just put in my favorite quote from it and let that speak for itself.

"Uuuuuhhhhhhhhh," he continued, in a slightly different key. He began to hyperventilate into the phone.

And you want to know how I felt? I should have felt guilty, of course, but guilt was not the first identifiable sensation to emerge from my exploding brain. Relief was. I had told him the news. He was shouting and moaning. And that was it. That was all he could do. Shout and moan. That was the beauty of being a middleman, which I did not appreciate until that moment. The customer suffered. I didn't. He wasn't going to kill me. He wasn't even going to sue me. I wasn't going to lose my job. On the contrary, I was a minor hero at Salomon for dumping a sixty-thousand-dollar loss in someone else's pocket.

Lastly, I'll just say that Michael Lewis has another book coming out very soon called The Big Short, (which I'm very much looking forward to- it's about the recent calamity), and I'm not sure if it's because of the press for that book or what but all of a sudden Lewis is everywhere. And I don't mean on TV- in the few weeks since I've finished this book I've come across references to it all over the place (eg, "big swinging dicks" in Boiler Room). Anyway, I've just realized that it's an extremely influential book- so I'm disappointed it took me this long to figure that out and read it.

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The Inside Story of How Wall Street and Washington Fought to Save the Financial System--and Themselves
Andrew Ross Sorkin
read on January 1, 2010

I don't really know how to characterize this book. It's somewhat like Den of Thieves, in that it sort of dramatizes actual events. Sorkin is an (alarmingly young) financial columnist for the New York Times, and writes the inside story of the financial crash of 2008. The book covers the Bear Sterns sale to JPMorgan, Lehman's filing, AIG's various issues, TARP, and the Wachovia sale to Wells Fargo. More importantly, the book covers all the deals in between that no one ever heard of... everything that almost happened but fell through at the eleventh hour. The book ends right after TARP was implemented, when Treasury directly injected cash into all the major banks, becoming socialism-esque investors in each of them.

For the most part, it's an extremely engaging book. It was really interesting to see behind the scenes at the big Wall Street firms. Mainly, it was just a great refresher on everything that went down in 2008. The book makes pretty much no effort to analyze how or why the crisis happened, and only in the epilogue it opines on any lessens we might or should learn from the whole ordeal.

I'm left uneasy about the whole thing though.. because I still don't know what, besides the basic timeline and factual events, was fact vs fiction. I don't know if Sorkin is a great investigator with deep, well connected sources... or if he just completely fictionalized the entire thing. If this book is all true, it's an amazing accomplishment. If not, which is certainly what I suspect, then the book should be very clear about it.

Hank Paulson has a memoir coming out next month that will actually have an insider's perspective. I'm anxious to see how much of it will be in line with this book.

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James B. Stewart
read on January 1, 2010

A great read covering several insider trading scandals in the mid 80's, during the height of the corporate takeover boom on Wall Street. It gives a lot of interesting color about the backgrounds of key finance power players at the time. Specifically, it covers pretty much the entire lifetimes of Ivan Boesky and Michael Milken.

Boesky was an uneducated nobody that somehow convinced people to let him manage their money, and parlayed that into becoming the foremost arbitrageur on Wall street. Of course, almost all of his great investment calls were simply inside info he got from his circle of informants. Boesky was definitely intelligent, insofar as he had the street smarts and tenacity to bully his way to the top. I mean, what's more impressive, a brilliant arbitrageur- or someone that almost gets away convincing the world they are a brilliant arbitrageur?

Milken on the other hand, seems like a legitimate genius. A powerful combination of book smarts, street smarts, the ability to stay focused, and the complete disregard for anything in his life other than work. The book starts out talking about how Milken worked 10 hour workdays, and that number seems to increase every chapter. By the time he's making $500M per year, he's up to frequent 20 and 22 hour workdays. The typical labor supply curve is always backwards bending, where there is some point at which a person decides they're making enough money and would prefer to spend less time working and more time at leisure. Milken does not fit this mold. He pioneered the junk bond market, and became such a big player that he pretty much controlled the entire market. His decisions and tactics would define the market, which gave him interesting opportunities.

If anything, I wish the book were a bit more technical. It's written very well, but definitely targeted for a mass market, and doesn't try to go over the reader's head. Michael Crichton fans would be very comfortable here- except that this book isn't fiction. I wish it spent more time on technical details- I think more details about Milken's trades and strategies would be interesting- though I'm sure I'll be able to find that elsewhere.

A few other issues as well. First of all, the second half of the book is really slow. All of a sudden you realize you're reading about actual events instead of a fiction Wall Street thriller. I guess that's to be expected, but it's a shame and an effort to sludge through it. At 500+ pages, when the 'second half' is slow, that's saying something. Of course- maybe that's just because I'm far more interested in stocks and bonds than I am in subpoenas and grand juries. The first half is all self made millionaires doing huge deals, the second half is lawyers and lawyers and lawyers.

One more complaint: I'm not sure if it's correct or incorrect, but Stewart's use of commas drove me absolutely crazy. He inserts them inside the names of law firms and investment banks- all of which are named after the six or so founding partners. The entire book he's writing about Goldman, Sachs and Wachtell, Lipton and Drexel, Burnham, Lambert, and almost never (with the exception of Drexel) shortens the names to just the first. It makes many sentences very confusing.. and seriously, can he not just say "Goldman"? It's just very odd to see those firms written out with commas.

Last (and least) of all, I was bummed to finish the book and realize that it was written in 1992. The events in the book wrap up in 1991 or so, so the conclusion doesn't have any of today's perspective- or the fun of a "where are they now" conclusion. I guess that's what wikipedia is for.

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The Inside Story of Six M.I.T. Students Who Took Vegas for Millions
Ben Mezrich
read on January 25, 2010

It's hard to resist a book about MIT geniuses turned card counting experts and make millions in Vegas. This book is a fun little diddy about the MIT team's exploits and success, and ultimate demise. The book itself isn't really that well written, but it was certainly good enough to keep the story moving, which is all I really wanted. In a way, this book was actually very similar to Den of Thieves. Smart people gaming the system for quick cash. Card counting isn't illegal... but close enough to it that you never want to get caught- as the book makes pretty clear.

If anything, the book was a bit depressing to read knowing full well that I'm not as smart as these guys. I really hate it anytime I read about someone younger than me making a boatload of money... even these guy's day jobs were making them rich, outside of the tens of thousands they made each weekend in Vegas. It's always encouraging though to read about folks that beat the system with their ingenuity. It's often easy to assume that the systems that are currently in place are there because they're good, because they've been vetted and are fool proof. Turns out no, it's all just a crapshoot.

Oh well. Fun spacer book to read in between the heavier finance ones I've been doing.

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