Book Review: The Wizard of Lies

This is the best book that I have read on the Madoff scandal so far.  Why is it great?

  • It is well written.
  • There are few if any factual errors in the text.
  • She talked with a wide number of people to try to get the full story.
  • It’s neutral.  it doesn’t takes positions on a wide number of unanswered questions, and treats what Madoff says with skepticism.
  • It takes you through the previously unwritten history of the scam, where the only real doubt is when the scam started — did it start in the early ’90s, late ’80s, or in the ’60s?  We still don’t know.

Now, I have reviewed the books by Markopolous, and the Madoff “victims.” Each tries to make themselves look good.  The author of this book has no dog in the fight, and nothing to prove.

According to this book, Markopolous discredited himself via crude behavior, fear of retaliation, and inability for the SEC to understand simple quantitative investing concepts.  The “victims” did not exercise common prudence.  The biggest red flag over any investment business is no independent custodian, and that was glaring with Madoff.

Yes, they were victims, but they were people who should have known better.  To call oneself a victim here is to call oneself stupid.

There will be another article after this one to explain why the Madoff Ponzi lasted so long, and why the recoveries ended up so much higher than anticipated.

Book Structure

The book starts with the blow-up, and then reverts to telling the life story of Madoff, progressing to the eventual demise, but with many blow-ups averted in the interim.  After that, one-third of the book deals with the aftermath, with the suicides, estrangement, and aggressive lawyers that recover far more than was originally expected.

It’s quite a tale.  I learned a bunch here, and recommend the book to you.

Quibbles

None.

Who would benefit from this book:

If you want to understand how Madoff did it, this is the book to read.  If you want to get a feel for how to avoid con men, this book will also be useful.  Give it to your overly credulous brother-in-law.

If you want to, you can buy it here: The Wizard of Lies: Bernie Madoff and the Death of Trust.

Full disclosure: The publisher asked me if I wanted it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Quibbles

The main difficulty is this: just because A follows a similar power law to B, does not mean that A & B have something in common.  There are often spurious correlations.

Who would benefit from this book:

Most serious investors and academics could benefit from the book.  It will challenge your preconceptions.  That doesn’t mean that everything Mandelbrot writes is correct, but most of his criticisms of MPT are correct.  The question becomes what to replace MPT with?

If you want to, you can buy it here: The Misbehavior of Markets: A Fractal View of Financial Turbulence.

Full disclosure: I bought the book with my own money.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.