Book Reviews – Page 17 – The Aleph Blog

Book Review: Eat People

Posted on 4 March 20114 March 2011 by David Merkel

You are either going to love this book or hate it.? Why?? The author’s style is in-your-face, something that I don’t prefer.? I agree with him intellectually, but I develop it differently.? Capitalism is morally good because creates an environment where the one that delivers goods and services that people want get rewarded.

As my son Peter said when he saw the title, “Doesn’t that conflict with Psalm 14, where we are not to take advantage of people, and implicitly “Eat them?”? I said that it had to do with labor productivity, and that the book had a bad title.? There is no way to avoid the troubles from technological change except to become wise about technological change, and benefit from it.? Now, some don’t have good parent(s), but there isn’t much that can be done about that.? There are many coming out of bad situations that have overcome bad beginnings with significant effort.

Th book puts forth the idea that those that deliver the most service get rewarded.? But, there are many ways to do that.? The author focuses on businesses that have been created as a function of low marginal costs via the internet.

Now, am I such an entrepreneur?? My asset management business is only possible because I am reasonably well-known on the internet for honest talk on investing.? I started my business for a small amount of money, and offer asset management services at low cost to upper middle class people.? But I am not going to scale the way that a Google or a Facebook does.? To do that, you have to be doing something entirely new and different, filling needs that people have, but did not know they have.? That is hard to do.

The author has many good points including that vertical integration rarely works, that if you find processes that allow you to do more with fewer people, you will make additional money, and release labor to more productive areas.? He also has some clever ways of categorizing mankind into those that produce and those that don’t, especially affecting politicians who cozy up into crony capitalism, which in the present day is as great of a threat as socialism.

Finally, he focuses on how one locks users into a system that allows the entrepreneur to develop a significant revenue stream, even in the face of torrent sites, etc.

This book is well written for the area it serves.? However, it is not as Rich Karlgaard says on the cover, “Every entrepreneur should read this book.”? No.? Relatively few entrepreneurs will benefit from this book whose businesses are not purely virtual.? That’s where the scaling and low marginal cost come in.? Not every business will be that way.

Quibbles

I found George Gilder’s comments on page 220 to be dumb.? Profits are not a measure of altruism.? Neither the buyer nor the seller is altruistic.? Both are looking for gain.? Profits are a measure of meeting the needs of buyers, relative to the supply of those wishing to meet those needs.

Who would benefit from this book:

Entrepreneurs in the internet space will benefit from this book.? Other who want clever writing about entrepreneurship related to the internet will also benefit.

If you want to, you can buy it here: Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs.

Full disclosure: This book was sent to me by the publisher after I asked for 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.

csissoko@sissokodesign.c

Book Review: Fatal Risk

Posted on 18 February 2011 by David Merkel

When I came to work at Provident Mutual, I gained a friend who reported to me.? Roy was a real character.? He had his rules for life, and they all made sense to some degree.? When he opined on why we did business the way we did in the pension division, he would say,”We’re the good guys.? We are out to save the world for 0.25% on assets plus postage and handling.”

I like working with the good guys; that is my style, if I can achieve it.? Too many are purely out for personal enrichment, leaving aside the harm/good they do to others.

Roddy Boyd is one of the good guys.? If you haven’t read his stuff before in the papers/magazines in which he has written, you will benefit from his book on AIG.

This book has some real insight to it.? It focuses on the years where AIG stopped being a mere insurer, and started being a player in the capital markets.

That said, it contains new data on M. R. Greenberg, especially regarding his war years.? I found it very insightful, and helped me understand why he was the boss that he was. (I worked at AIG 1989-1992.)? He was one tough man in both war and business.

Boyd interviewed as many as would talk with him, and excluded material that would not be confirmed by two parties.? I felt that was an ethical way to deal with information not yet publicly known.

The driving force behind AIG’s push into financial services was a need for income uncorrelated with the P&C insurance cycle.? That also led to derivatives, commodities trading, airplane leasing, and expansion of the domestic life business, by purchasing SunAmerica and American General (both mistakes via overpayment in my opinion, and I know this business).

This expansion took a toll on AIG and as it could not grow profitably organically anymore at a 15% rate, it began to borrow money, both explicitly and implicitly, so as to lever a falling ROA (return on assets) into a 15% ROE (return on equity).

Greenberg oversaw the expansion into financial services, though not the imprudent risk taking after he was kicked out.? He also managed the increase in debt and implicit debt — most of that occurred under his watch.? But those that followed him were nowhere near his equals.? They could not manage that which was unmanagable by lesser mortals.? Martin Sullivan should have broken up the company on day one; that was his failure.? No one but Greenberg could manage the monstrosity.? If he had remained there, I suspect the company would have blown up in 2010-2015, with him screaming all the way down.? I think it was a mercy to him that he got kicked out.

When everything blew apart, no one could grasp the whole picture.? Greenberg was gone.? AIG was undermanaged.? No one knew the whole story, and all of the correlations hinging on subprime lending: direct lending through the consumer finance arm, investments in the insurance companies, guarantees through the mortgage insurance subsidiaries , securities lending collateralized by subprime in the domestic life companies, and guarantees at AIG Financial Products.

The effort at diversification ended up being an exercise in concentration.? Nothing grows to the sky.? Big firms tend to rot from within and that was the case for AIG, Greenberg or no.? I think Greenberg got sucked into the Wall Street earnings game, and it eventually got too big for him.? It was certainly too big for his successors.

This was a great book.? I loved every minute of reading it.? I could not put it down.? Roddy is one of the “good guys” and fights for what is right.? But he is fair; he does not take someone to task unless he has incontrovertible evidence.? Thus those who are suspected, but have no ironclad case against them walk, which is as it should be.

One more note, this book had a really good balance in how it would leave the main story to explain a concept, and the broader financial world.? It left the main focus on AIG, while explaining how it fit into the broader picture.

Quibbles

The book is not available yet.? I read an advance version, and there were some small errors that I expect will be eradicated when it goes to print.

Who would benefit from this book:

Anyone who wants to know more about AIG wold benefit.? This is the best AIG crisis book yet.? Beyond that, readers wanting to understand the complexity of the financial system, and how it led up to the crisis will benefit, as AIG was a microcosm of the greater panic.

If you want to, you can buy it here: Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide.

Full disclosure: This book was sent to me by the author, unsolicited.

Book Review: Never Buy Another Stock Again

Posted on 2 February 2011 by David Merkel

With this book review, I put a knife to my throat.? Alas, I have been investing in individual stocks for over 23 years, and have done well the whole way.? Is it time to abandon my craft?

No, and I think the author would agree.? He is making a relative argument but the title phrases it in absolute terms.? On average, the advantage of investing in stocks is smaller than commonly believed, and for investors that can’t keep their wits about them when all is going wrong, the results are worse still.

This book attempts to infuse common sense (ordinarily sorely lacking in investments) into readers who are retail investors.

One nice feature of the book is that the author recapitulates everything in each chapter in a closing section entitled “Boiling It Down.”

Another nice feature of the book is that the author went and interviewed clever asset managers to flesh out his own understanding of the topic.? That helped produce a much richer book.

Quibbles

I don’t go in for using stop losses.? I analyze risk, and there will be a tiny number that really hurt, but the cost of using stop losses is missing the frequent snapback rallies, which on average in my experience more than pay for the losses.

Also, in this environment, where everything is so correlated, because of ETFs, he recognizes the difficulty of achieving real diversification.? But in his asset allocation advice, it is as if he forgot this.? If I were rewriting his asset allocation chapter, I would have introduced the concept of the credit cycle, and why good asset allocators vary their positions based on the opportunity offered, rather than a more static view of asset allocation.

I also would have given a little more credit to value investing.? If you are going to be anything but a trader, you may as well focus on value.

But on the whole, this was a very good book, and these are quibbles.? He writes very well, far better than me.

Who would benefit from this book:

Most inexperienced to moderate investors would benefit from this book.? It would help them to avoid common mistakes in investing, as well as make them aware of modern problems in investing that classic texts would not have been aware.

If you want to, you can buy it here: Never Buy Another Stock Again: The Investing Portfolio that Will Preserve Your Wealth and Your Sanity.

Full disclosure: This book was sent to me, because I asked for it, after the publishers offered me a copy.

Book Review: Uprising

Posted on 1 February 2011 by David Merkel

It is really easy to compare growth rates of emerging and developed markets and the developed markets feel inferior.? But imagine this practical example: a toddler could say to a teenager, “Percentagewise, I am growing faster than you.”? The teenager would respond, “Percentagewise? You don’t know what it means, kid, and I am growing faster than you inch-by-inch.? Your day will come, kid, but cool your jets for now.”

So it is for the developed versus emerging markets, with the premier matchup being the US versus China.? There is an undeserved inferiority complex in the US over China at present.? China has a lot of people, but the US is far more productive per person.? The Chinese may have a variety of show projects that evidence technical brilliance in copying Western technology, but it is all a thin veneer over a society that is much poorer, particularly in rural areas.

The concentration of power in the hands of the Chinese government makes everything look more impressive, but it also distorts the reality, because investments flow into GDP whether they are good investments or not.? GDP can grow very rapidly, and be an illusion, because productive capacity can be built up in areas no one wants, like Japan in the late 1980s.? Remember how bright Japanese bureaucrats were relative to US businessmen?? After 20 years of decline with no end in sight, we should be able to lay to rest the idea that state capitalism is effective.? After all, the Japanese are considerably more productive than the Chinese.? If Japan couldn’t do it, why should we think that China can?

Yes, the emerging markets will grow as a percentage of global “GDP”.? But there are a lot of structural changes that have to occur before they can become even close to the productivity of the developed nations, particularly the US.

What’s that you say?? The US owes China, not vice-versa.? True enough, but China will get paid back in cheaper dollars, one way or another.? Their neo-mercantilism will fail as it did for the mercantilists.? Those that try to force the world to do their bidding, like China, tend to lose.? The US will find a wayto give China the short end of the stick — possession is nine-tenths of the law, and the debts are denominated in US dollars.? China will get back less than they gave, which is their reward for forced industrialization.? Add to that forcing their banks to lend in dodgy situations, and industrialization that misestimates global demand.

Now, the author’s book is far more polished and nuanced than my screed here.? It is a very readable 340 pages of text, with few graphs, from which I learned a lot.

The main point is that the development of soft institutions that allow for greater societal flexibility and growth are no small things.?? The willingness to give people freedom to develop their businesses as they like is no small freedom.? Property rights are a major part of human rights.? The emerging markets, particularly China, don’t have that yet.? As the Third Way failed, and Japan, Inc. failed, so will China, unless it allows for freedom, but that will require cultural change that would eliminate the dominance of the Communist Party; can’t see that happening soon.

Quibbles

None.

Who would benefit from this book:

Almost any investor would benefit from this book.? Those that think the US or the West are being out-competed, and will lose to the Chinese, will benefit from this book.? Everyone should read this book.

If you want to, you can buy it here: Uprising: Will Emerging Markets Shape or Shake the World Economy.

Full disclosure: This book was sent to me, because I asked for it, after the publishers offered me a copy.

Book Review: The Little Book of Sideways Markets

Posted on 20 January 2011 by David Merkel

I appreciate the cleverness and rigor that Vitaliy Katsenelson brings to value investing.? Value investing needs its popularizers, and Katzeneson does a very good job in explaining how good investing is a search after quality, growth, and value.

I don’t view value investing quite the same way… my views of value investing are a hybrid of the continuing concern view of Katzenelson and Dreman, and the resource conversion view of Marty Whitman.? Both views are correct, but depend on the market situation to make either one work.

I like the author’s views a lot.? I get to the same place he does, but I don’t follow the exact same procedures.? If you need more data, refer to his prior book, and read it in detail, because it is more comprehensive.

Quibbles

The book is a small improvement over his last book Active Value Investing, with some of his blog essays tossed in.

Who would benefit from this book:

Almost any investor would benefit from this book, aside from those that have read his prior work, Active Value Investing.? That was one of the first books I reviewed here, and it is still a good one.

If you want to, you can buy it here: The Little Book of Sideways Markets.

Full disclosure: This book was sent to me, because I asked for it, after Vitaliy offered it to me.

Book Review: Inflated

Posted on 15 January 201120 June 2017 by David Merkel

This book was not what I expected.? I expected a book on the current crisis, and got a book on monetary/credit policy over the whole of the existence of the US.? What is more, unlike most books that cover a long sweep of history, this book is even, and does not overemphasize the recent past, which is a humble thing for an author to do, because we don’t know the full ramifications of recent actions yet.

Now, I respect the writings of Chris Whalen at Institutional Risk Analytics and elsewhere — a bright guy.? But this outperformed my high expectations.? Some books I glide through because I know the topic well.? This was a book where I thought I knew the topic well, but found that I did not know as much as I thought, and so I read more slowly than I usually do.

But this book changed my view on financial crises.? Whether one is under a gold standard or a fiat currency standard, the main order for assuring stability is the regulation of banks and credit.

In the same way that people need help in verifying whether a drug is effective or food is pure, they need to know that promises to pay will be honored.? It does not matter what backs the currency if banks are allowed to overlever, or mismatch assets long — there will be a financial panic, and it is not due to gold, silver, or fiat money necessarily, but that that banks made promises that could not be kept under all scenarios.

Yes, I think it is better to be under a gold standard, because it restricts the power of the government.? But that is not the main issue with financial crises; we need to restrict that ability of banks to borrow short and lend long; we also need to restrict their overall leverage.? Do that, and crises disappear — also, banks are far less profitable, and that is a good thing.? We will get fewer banks, and bright people will go to more useful places in the economy.

Other things that stood out to me were the First and Second National Banks of the US, and how their creation led to booms, and dissolution led to busts.? Lincoln is unique in every way, even in monetary policy terms, as he created unbacked paper money to fight the civil war, which funded a lot of it.? After the war, the return to the gold standard, much as it should have been done, was depressive, but it was an effect of paying off the war.

I came away from this book with a more balanced view of US politics — many of those I like came off worse, and those I did not like were shown to have been better than I thought — with the exception of Lincoln, who in hindsight seems to be a radical in most senses.? I am very glad that slavery is gone, but not the way that it got done.

Quibbles

Ignore Roubini’s introduction.? Better Whalen should have gotten a real intellect like James Grant or Caroline Baum.

Also, in the middle of the book, in WWII, the US spends far more than its GDP on the war.? I get it, but I think it would be more reasonable to classify defense spending inside GDP so that we can see what proportion of national output is going to the war effort.

Who would benefit from this book:

Anyone with a moderate intellect or better could learn from this balanced account of America’s monetary and credit policies.? It is very well written; those with little knowledge will learn much, but those with greater knowledge will still learn something.

If you want to, you can buy it here: Inflated: How Money and Debt Built the American Dream.

Full disclosure: This book was sent to me, because I asked for it.

Book Review: The Million Dollar Financial Advisor

Posted on 29 December 2010 by David Merkel

This is not a normal book for me.? I am not a natural marketer by any means.? I have read a lot of marketing books in my time, but I am not a natural marketer.? I am reluctant to put myself forward, and boast.

But marketing does not have to be that way.? What if you could maintain and attract clients by giving them consistent attention, contacting them once a month and being a friend to them?? Now, granted, you have to give them good service, but what a lot of people are looking for is someone that they trust, who is out for their best interests.

You don’t have to be the best.? Show clients that you care, and give them high quality service as a wealth manager, and the question of the best returns goes out the window.? Just don’t blow it and lose a lot of money in the process.

As I read this as an investment advisor, I realized this book was best suited for wealth managers, but I concluded that the main lesson was show your largest clients personal care; their trust in you will grow, and they will stick with you unless you really blow it.

Indeed, one hallmark in the book is taking a lower-risk approach with client assets — most wealth managements clients are not looking for their manager to hit the cover off the ball, they just want him to reliably hit singles over time.

What I take away from this as an asset manager is to take moderate risks that are prudent for clients, and keep in touch with clients.? Show them that you care about them, and business becomes more sticky.? Also, if you can do it, ask your clients for referrals.? Remember, the best advertising is via word of mouth.

I write this as one growing an asset management business.? For me what would work well is to sub-advise wealth managers because I am good at beating the equity market, but I will continue to manage the assets of small investors for best return.

Quibbles

As with most marketing books there is the usual amount of boasting.? This one is better, in that these people have been tested and now have stable practices.? Still, you have to endure the jargon…

Who would benefit from this book:

All young wealth managers would benefit from this book.? Beyond that, I think most small investment advisors could learn from this book.? Caring about your clients is a core value to any business, but often gets forgotten in investing.

If you want to, you can buy it here: The Million-Dollar Financial Advisor.

Full disclosure: I bought this book.

Book Review: What Investors Really Want

Posted on 18 December 2010 by David Merkel

Meir Statman wants to tell us about the human condition.? We make bad economic decisions regarding investments.? That comes mostly from having multiple desires regarding investing that are inconsistent.? What are our problems?

We look for free lunches.
We think he past is prologue.
We get hopeful.
We want to look like a winner for friends.
We follow the herd.
We are reckless with money not easily earned.
We save too little.
We want an option on riches, and a guarantee against poverty.
We are loss averse.
We are tax averse.
We want to be accepted into exclusive investments.
We want our investments to reflect our values.
We want fairness.
We want our progeny to thrive.
We don’t know what we are doing, can someone teach us?

The spirit of the book says to me that most people don’t have the vaguest idea on what to do with investments.? They invest for many reasons, many of which are not economic.

This is a reason why pension plans should strip the investment authority away from participants, and put it in the hands of trustees.? Face it, only 20% of people at most know how to invest.? Amateurs have a hard time? distinguishing between the long-run and the short-run.

My take is that one has to unemotional, Vulcan-like, in investing, in order to be successful.? Our feelings, whether of fear or greed, deceive us.? We must resist and suppress our feelings in order to be good investors.? And as for me, it took me 5-10 years to get there.? By the time I was done, I created a system that tied my hands when I would be tempted to make a rash decision.

Quibbles

Page 84 demonstrates how short-sighted people pay up for flexibility, paying credit card rates for extra cash. On pages 96-97, he managed to convince me by bad arguments that the old system of segregating capital and income is correct.? Truth, a market-base spend in rule would float with the 10-year Treasury yield, with adjustment for how optimistic we are about the stock market.? Unless the income taken from an endowment floats with the market, it is not possible to be fair across eras.

The book describes our problems in economic decision-making, but provides no cure.? The last chapter tries to make up for it, by suggesting that an intelligent mix of paternalism and libertarianism would be the best solution.

Yes, that would be the best solution, but the devil is in the details, and the author spells out few of them.

Who would benefit from this book:

Anyone wanting to understand why he makes bad economic decisions would benefit from this book.? That would include most of us, and me.? As you read it, think of how you would change your behavior for your good.? Personally, I have designed my buying and selling methods in the stock market to avoid these troubles, but it means I have to have no emotions in the market, and that is tough to do.

If you want to, you can buy it here: What Investors Really Want.

Full disclosure: This book was sent to me, because I asked for it.

On Book Reviews

Posted on 11 December 2010 by David Merkel

When I started Aleph Blog, I had no idea that I would do so many book reviews.? When I wrote for RealMoney, my wife noted that I stopped reading books.? “Don’t have time,” was my reply.? It’s not that I have more time now, but that I am using my time better.? I always have a book with me, and when I get a break, I read.? My wife tells me she could never read a book that way.? I tell her that I must do it that way, or the books will not get read.

One surprise to me is that the publishers are so free with their books.? When I ask for a book, I get it 80% of the time.? And I get books that I would never have thought of asking for.? PR flacks contact me and ask if I am willing to do something special for their author.? The answer is usually “no,” but for special books I will do more.

The books that I ask for usually get better reviews than the ones that come gratis.? There is a degree of self-selection here; I choose books that I am likely to like.

I receive books.? They presently fall into these categories:

Read, but not reviewed (7 at present)
Reading (1 book at a time)
Hot books (3 at present)
Waiting (10 books)

I read the books that seem the most promising.? Since I never promise to review a book, occasionally a book will get dropped from the review queue after a scan.? My objective is to highlight good books for readers, and warn on popular books that should be avoided.

But let me point out a bias of mine.? I think it is hard to write good books on asset allocation, technical analysis, or quantitative investing.? Why?? The books overpromise and underdeliver.? There are no easy solutions when all you need to know is the math, because the computers at hedge funds mop up those inefficiencies easily.

I would like to write a piece on how to write a good investment book, but I shy away from writing it, because I have never written a book, and who am I to dictate to those who made the effort to write a book.

But all that said, I have been asked by readers to rank my book reviews.? Well, here it is.? Please understand that the rankings are often close, and I don’t put a lot of weight into them.? I did my best, but if there is no link to buy the book at Amazon, it is because I think no one should buy it.? Note to Michael Covel: to that degree, you are on my buy list.

So here is my list of book reviews, sorted by category and rank:

Review	Amazon Stars	Category	Rank in Category	Amazon Widget
Book Review: Financial Shenanigans	5	Accounting	1	Financial Shenanigans
Book Review: Quality of Earnings	5	Accounting	2	Quality of Earnings
Book Review: Early Warning and Quick Response	4	Accounting	3	Early Warning and Quick Response
Book Review: Dynamic Asset Allocation	3	Asset Allocation	1	Dynamic Asset Allocation
Book Review: 7Twelve	2	Asset Allocation	2
Book Review: The Flexible Investment Playbook	1	Asset Allocation	3
Book Review: Co-opetition	5	Business	1	Co-Opetition
Book Review: Warren Buffett on Business	4	Business	2	Warren Buffett on Business
Book Review: All the Devils are Here	5	Crisis	1	All the Devils Are Here
Book Review: Street Fighters	5	Crisis	2	Street Fighters
Book Review: Complicit	5	Crisis	3	Complicit
Book Review: Confidence Game	5	Crisis	4	Confidence Game
Book Review: Slapped by the Invisible Hand	4	Crisis	5	Slapped by the Invisible Hand
Book Review: 13 Bankers	4	Crisis	6	13 Bankers
Book Review: Financial Shock	3	Crisis	7	Financial Shock
Book Review: When Giants Fall	2	Crisis	8
Book Review: The Volatility Machine	5	Economics	1	The Volatility Machine
Book Review: Priceless	5	Economics	2	Priceless
Book Review: Fault Lines	5	Economics	3	Fault Lines
Book Review: Where Keynes Went Wrong	5	Economics	4	Where Keynes Went Wrong
Book Review: Monetary Regimes and Inflation	4	Economics	5	Monetary Regimes and Inflation
Book Review: Making Sense of the Dollar	4	Economics	6	Making Sense of the Dollar
Book Review: Secrets of the Moneylab	3	Economics	7	Secrets of the Moneylab
Book Review: The Economics of Food	3	Economics	8	The Economics of Food
Book Review: Manias, Panics, and Crashes	5	History	1	Manias, Panics, and Crashes
Book Review: Devil Take the Hindmost	5	History	1	Devil Take the Hindmost
Book Review: This Time Is Different	5	History	2	This Time Is Different
Book Review: 100 Minds That Made The Market	5	History	3	100 Minds That Made the Market
Book Review: The Trouble With Prosperity	5	History	4	The Trouble With Prosperity
Book Review: The Wall Street Waltz	5	History	5	The Wall Street Waltz
Book Review: Mr. Market Miscalculates	5	History	6	Mr. Market Miscalculates
Book Review: Reminiscences of a Stock Operator (Annotated Edition)	5	History	7	Reminiscences of a Stock Operator Annotated Edition
Book Review: The Myth of the Rational Market	5	History	8	The Myth of the Rational Market
Book Review: Wealth, War & Wisdom	5	History	9	Wealth, War and Wisdom
Book Review: Once in Golconda	4	History	10	Once in Golconda
Book Review: The Last of the Imperious Rich	4	History	11	The Last of the Imperious Rich
Book Review: Fallen Giant	4	History	12	Fallen Giant
Book Review: A History of Interest Rates	4	History	13	A History of Interest Rates
Book Review: The Intelligent Investor	5	Investing	1	The Intelligent Investor
Book Review: The Aggressive Conservative Investor	5	Investing	2	The Aggressive Conservative Investor
Book Review: Dear Mr. Buffett	5	Investing	3	Dear Mr. Buffett
Book Review: The Only Guide to Alternative Investments You?ll Ever Need	5	Investing	4	The Only Guide to Alternative Investments You’ll Ever Need
Book Review: Margin of Safety	5	Investing	5
Book Review: Buffett Beyond Value	4	Investing	6	Buffett Beyond Value
Book Review: The Only Three Questions That Count	4	Investing	7	The Only Three Questions That Count
Book Review: Super Stocks	4	Investing	8	Super Stocks
Book Review: The Dick Davis Dividend	4	Investing	9	The Dick Davis Dividend
Book Review: Diary of a Hedge Fund Manager	4	Investing	10	Diary of a Hedge Fund Manager
Book Review: The Elements of Investing	4	Investing	11	The Elements of Investing
Book Review: Outperform	4	Investing	12	Outperform
Book Review: Market Indicators	4	Investing	13	Market Indicators
Book Review: Why are we so Clueless about the Stock Market?	4	Investing	14	Why Are We So Clueless about the Stock Market?
Book Review: TradeStream Your Way to Profits	3	Investing	15	TradeStream Your Way to Profits
Book Review: 7 Commandments of Stock Investing	3	Investing	16	7 Commandments of Stock Investing
Book Review: Higher Returns from Safe Investments	2	Investing	17
Book Review: Buying at the Point of Maximum Pessimism	1	Investing	18
Book Review: Soros on Soros	5	Macro Investing	1	Soros on Soros
Book Review: The Alchemy of Finance	5	Macro Investing	2	The Alchemy of Finance
Book Review: The Great Reflation	5	Macro Investing	3	The Great Reflation
Book Review: The Predictioneer?s Game	5	Miscellaneous	1	The Predictioneer’s Game
Book Review: Navigating the Financial Blogosphere	4	Miscellaneous	2	Navigating the Financial Blogosphere
Book Review: Book of isms	4	Miscellaneous	3	The Economist Book of isms
Book Review: While America Aged	5	Pensions	1	While America Aged
Book Review: Pension Dumping	5	Pensions	2	Pension Dumping
Book Review: Easy Money	5	Personal Finance	1	Easy Money
Book Review: That Thing Rich People Do	5	Personal Finance	2	That Thing Rich People Do
Book Review: The Bogleheads? Guide to Retirement Planning	4	Personal Finance	3	The Bogleheads’ Guide to Retirement Planning
Book Review: The Insured Portfolio	4	Personal Finance	4	The Insured Portfolio
Book Review: How to Be the Family CFO	1	Personal Finance	5
Book Review: Finding Alpha	5	Quantitative Investing	1	Finding Alpha
Book Review: Investing By The Numbers	5	Quantitative Investing	2	Investing by the Numbers
Book Review: Triumph of the Optimists	4	Quantitative Investing	3	Triumph of the Optimists
Book Review: Quantitative Strategies for Achieving Alpha	4	Quantitative Investing	4	Quantitative Strategies for Achieving Alpha
Book Review: The Complete Guide To Option Pricing Formulas, and Derivatives	4	Quantitative Investing	5	The Complete Guide to Option Pricing Formulas
Book Review: Models on Models	4	Quantitative Investing	6	Derivatives Models on Models
Book Review: Two Books on Options by Anthony Saliba	4	Quantitative Investing	7	Option Spread Strategies? Option Strategies for Directionless Markets
Book Review: The Guru Investor	3	Quantitative Investing	8	The Guru Investor
Book Review: Beating the Market, 3 Months at a Time	3	Quantitative Investing	9	Beating the Market, 3 Months at a Time
Book Review: The Fundamental Index	3	Quantitative Investing	10	The Fundamental Index
Book Review: Nerds on Wall Street	3	Quantitative Investing	11	Nerds on Wall Street
Book Review: Expectations Investing	2	Quantitative Investing	12	Expectations Investing
Book Review: What Works on Wall Street	2	Quantitative Investing	13	What Works on Wall Street
Book Review: Quantitative Equity Investing	2	Quantitative Investing	14
Book Review: The New Science of Asset Allocation	2	Quantitative Investing	15
Book Review: The Quant Investor?s Almanac 2011	1	Quantitative Investing	16
Book Review: Fortune?s Formula	5	Risk Control	1	Fortune’s Formula
Book Review: Risk and the Smart Investor	5	Risk Control	2	Risk and the Smart Investor
Book Review: No One Would Listen	5	Risk Control	3	No One Would Listen
Book Review: MarketPsych	4	Risk Control	4	MarketPsych
Book Review: Who Can You Trust With Your Money?	4	Risk Control	5	Who Can you Trust with Your Money?
Book Review: The Flaw of Averages	3	Risk Control	6	The Flaw of Averages
Book Review: The Club No One Wanted To Join	3	Risk Control	7	The Club No One Wanted To Join
Book Review: Think Twice	2	Risk Control	8	Think Twice
Software Review: Dragon NaturallySpeaking, Version 11	5	Software	1	Dragon NaturallySpeaking Home, Version 11
Book Review: The Heretics of Finance	4	Technical Analysis	1	The Heretics of Finance
Book Review: Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell	3	Technical Analysis	2	Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell
Book Review: Trend Following	2	Technical Analysis	3	Trend Following
Book Review: The Ten Roads to Riches	4	Wealth	1	The Ten Roads to Riches
Book Review: Rich Like Them	4	Wealth	2	Rich Like Them

If you want to read a review, click on the left link.? If you want to buy, click on the right link.

Full disclosure: 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.)

Full disclosure: This book was sent to me, because I asked for it.

Book Review: All the Devils are Here

Posted on 9 December 2010 by David Merkel

Have you ever seen a complex array of dominoes standing, waiting for the first domino to be knocked over, starting a chain reaction where amazing tricks will happen?? I remember seeing things like that several times on “The Tonight Show with Johnny Carson” back when I was a kid.

When the first domino is knocked over, the entire event doesn’t take long to complete — maybe a few minutes at most.? But what does it take to set up the dominoes?? It takes hours of time, maybe even a whole day or more.? Often those setting up the dominoes leave out a few here and there, so that an accident will spoil only a limited portion of what is being set up.

Those standing dominoes are an unstable equilibrium.? That is particularly true at the end, when the dominoes are added to remove the safety from having an accident.

Most books on the economic crisis focus on the dominoes falling — it is amazing and despairing to watch the disaster unfold, as the leverage in the system is finally revealed to be unsustainable.

This book is different, in that it focuses on how the dominoes were set up.? How did the leverage build up?? How was safety ignored by so many?

The beauty of this book is that it takes you behind the scenes, and describes how the conditions were created that led to a huge creation of bad debts.? I was a small and clumsy kid.? My friends would say to me during sports, “There are mistakes, but your error was so great that it required skill.”

The same was true of the present crisis.? There were a lot of skillful people pursuing their own private advantage, using new financial instruments which were harmless enough on their own, but deadly as a group.? So what were the great financial innovations that enabled the crisis?

Creation of Fannie and Freddie, which led to an over-issuance of mortgages.
Securitization, particularly of mortgages.? This led to a separation between originators and certificateholders. (And servicers, though the book does not go into servicers much.)
Having parties that guarantee debt, whether GSEs, Guaranty Insurers, the Government, or credit default swaps [CDS]
Loosening regulations on commercial banks, investment banks and S&Ls.
Regulatory arbitrage for depository institutions.
Loose monetary policy from the Federal Reserve, together with a disdain for regulating credit.? They saw Mexico and LTCM as successes, and thought that there was no crisis that could not be solved by additional liquidity.
Bad rating agency models, and competition among rating agencies to get business.
Regulators that required the use of rating agencies for capital modeling.
The broad, misinformed assumption that real estate prices only go up.
The creation of Value-at-risk, a risk management concept that has limited usefulness to true crisis management.
The creation of CDOs that did not care for much more than yield.
The development of synthetic CDOs, which allowed securitization to apply to corporate bonds, MBS, and ABS not owned by the trusts.
The creation of subprime loan structures, where are that was cared for was yield.
The creation of piggyback loans, so that people could put no money down for a home.

There are no heroes in this book, aside from tragic heroes who warned and were kicked aside in the hubris of the era.? Goldman Sachs comes out better than most, because they saw the crisis coming, and protected themselves more than mot investment banks.

I learned a lot reading this book, and I have read a dozen or so crisis books.? I didn’t learn much from the other books.? In this book, the authors interviewed hundreds of people who were integral to the crisis, and read a wide variety of sources that wrote about the crisis previously.

I found the book to be a riveting read, and I read it cover to cover.? I could not change into scan mode; it was that well-written.

This is the best book on the crisis in my opinion, because it takes you behind the scenes.? You will learn more from this book than any other on the crisis.

Quibbles

They don’t get the difficulties of being a rating agency.? There is the pressure to get things right over the cycle, and get it right on a timely basis.? These two goals are contrary to each other, and highlighting that conflict would have enhanced the book.

Who would benefit from this book:

Anyone willing to read a longish book could benefit from this book.? It is the best book on the crisis so far.

If you want to, you can buy it here: All the Devils Are Here: The Hidden History of the Financial Crisis.

Full disclosure: This book was sent to me, because I asked for it.