The Great Money Binge: Spending Our Way to Socialism Review

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The Great Money Binge: Spending Our Way to Socialism ReviewThose trying to understand how we got into the financial crisis and how we might get out of it have no shortage of books to choose from as we head into the holiday season, but one fine place to start would be with the new offering by a veteran of the Wall Street Journal editorial page, George Melloan, issued under the title, "The Great Money Binge: Spending Our Way to Socialism."
Amity Shlaes gets things rolling with an introduction making the point that Republicans and Democrats alike are capable of economic policy errors, noting that at the Camp David retreat at which President Nixon closed the gold window and imposed wage and price controls, Milton Friedman himself was in attendance. Mr. Melloan doesn't flinch from this conclusion in his own text, either. "What transpired under a Republican administration, albeit with a Democratic Congress, in the second half of 2008 will discredit Republican claims to be for small government for years to come," he writes. That sentence alone is worth the price of the book.
So are Mr. Melloan's insights into the inner workings of the Wall Street Journal. The editor, Robert Bartley, was the son of a professor of veterinary medicine at Iowa State. Mr. Melloan was an Indiana farm boy. Their colleague Jude Wanniski was the son of a coal miner. As Mr. Melloan memorably puts it, "We Journal editors were a rather proletarian lot to be promoting capitalism." They did a pretty good job of it, though, and so does Mr. Melloan in this book.The Great Money Binge: Spending Our Way to Socialism Overview

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The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen Review

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The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen ReviewThe controversy around the Laffer curve is made by those who do not understand the fundamentals of economics: people respond to the incentives. Ask yourself this simple and easy question, would you work hard (or at all) if someone took out of your wallet $4 for every $10 yo earned? What about $5, $6 or more? The fact of the matter is the top 1% of income earners pay 40% of the taxes collect while the bottom 50% pay 3%.
The current economic conditions is bad, but it will get worse if money is stolen from a group of people in the name of so called "fairness". The Laffer curve allowed the world we live in today. It allowed the Bill Gates, Steve Jobs, and the Michael Dells of the world to make everyone's better. There would be no laptops, iPods, Amazon.coms if the courageous entrepreneurs in our economies were not allowed to reap what they sowed. People do not work so that they can pay the government. They work to improve themselves, and that is the point of this book.The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen Overview

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When Genius Failed: The Rise and Fall of Long-Term Capital Management Review

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When Genius Failed: The Rise and Fall of Long-Term Capital Management ReviewA somewhat didactic narrative history of the hedge fund Long Term Capital Management. Nicholas Dunbar covers the same subject in his book "Inventing Money." Both books present a blizzard of details about who did what and when. Too much detail. The general reader would better served by a medium sized article. Nevertheless if you're a finance buff interested in the nitty-gritty then read both books. Dunbar has a physics background and his book is more technical, while Lowenstein comes from journalism and his narrative flows better.
LCTM began operating in 1994, set up by John Meriwether formally head of the bond-arbitrage group at Solomon Brothers. He put together a star-studded cast that included three (1997) Nobel prize winners in economics. Their basic strategy was something called convergence arbitrage. In essence this strategy says buy two bonds that you think will track one another. Go long on the cheap one and short on the other; you make money if the spread narrows. In theory you are protected from changing prices as long as the two vary in the same way. To make the big bucks LCTM was after they took a gigantic number of highly leveraged arbitrage positions all over the world. To get high leverage you borrow for the position, like buying a stock on margin. LCTM got really high leverage by avoiding something called the "haircut," which is an extra margin of collateral banks usually demand, but forgave LCTM. Why would banks they do such a thing? Because they were blinded by the glitter of the cast, and in some cases the banks themselves were investors in LCTM. By 1997 convergence arbitrage opportunities in bonds began to dry up, everyone was doing it. So LCTM applied their strategy to stocks. Find two stocks that will track on another and go long and short with borrowed money. This is not easy. Stocks are less amenable to mathematical analysis than bonds, and after all these were the bond guys from Solomon, they were out of their depth. You might ask how can you borrow most of your stock position when the Federal Reserve requires 50% margin (Regulation T). Answer: don't really buy the stocks, instead buy derivative contracts that simulate stocks, an end run around Regulation T. Even with all this leverage LCTM would claim that the fund was no more risky than the stock market, meaning a stock index. In 1998 the markets went against LCTM, with the "flight to quality" (US government bonds) as investors panicked. The fund suffered from what reliability engineers call "common mode error." Spreads got wider not narrower across the board, and LCTM's capital base began to shrink as their positions lost money. At a certain point they would have to start liquidating positions, and the market impact of such large scale selling would cascade across their portfolio. The fund would "blow up."
The above gives a flavor of the material Lowenstein provides, only in much greater detail. If that's what you want, buy the book. Is this a tale of human folly or just plain bad luck? Answering that question is not easy, one needs to grasp a large amount of technical finance theory, and understand what happened in the particular case of LCTM. This book will help.When Genius Failed: The Rise and Fall of Long-Term Capital Management Overview

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When Markets Collide: Investment Strategies for the Age of Global Economic Change Review

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When Markets Collide: Investment Strategies for the Age of Global Economic Change ReviewI bought this book because it won the Financial Times Book of the Year Award (not a top ten winner or something, #1 mind you). Historically, a reliable guide (e.g., the masterpiece China Shakes the World, and theoretically dubious but highly provocative Friedman's World is Flat). It has dawned on me belatedly that advance praisers probably don't read their books. All these absolutely glowing endorsements by serious people...for a book that *clearly* isn't top notch.
T. Bojko's review may seem harsh, but it's spot-on. I can live with the ponderous writing style. I initially thought the big words concealed some new or profound thinking...but not at all.
The problems are: 1. there's almost nothing new or inspired about the "markets of tomorrow," and 2. there is nary a sliver of new, actionable advice about investing. The whole thing is a compendium of the superficial. Seeking to cut a swath a mile wide, it is everywhere one inch deep.
In regard to the first, the following are superficially summarized: global trade/capital flows (rightly footnoted to Martin Wolf, but Wolf's own columns are better on this); a cocktail of snippets on behavioral finance - called a "cocktail" - just read Shiller straightaway; some stuff on global trade and commodities, see latest Economist; a paraphrase of Taleb's colorful insights (just read Taleb directly); a woefully weak primer-not-really on securitization; a brief primer on asset classes that repeats everything I've got in a dozen other finance books; and too much material on IMF (e.g., not a single mention of Basel). I agree the topics per se are important, but most of them here are superficially derivative of other, better works.
Here are the four insights from Chapter 2: we are coming from a period of aberrations, many puzzles; too many dismissed them as noise; the inability to distinguish signal from noise is a bad thing; the adjustment caught people off guard. I'm not kidding. The blinding insight is: take care to distinguish signal from noise! Noise bad, signal good....
Strangest of all, in my opinion, is that the author appears to have nothing to add to the field of risk management, which stuns me given his unique vantage point. Risk management is reduced to a few catchphrases: tail risk, moral hazard, principal-agent. Say it ain't so...
Finally, T. Bojko is right about the mundane asset allocation plan: "the author just lays out a pretty mundane asset allocation plan (which is available for free on any number of websites) and then fills a couple dozen pages with worthless blather. Seriously, that's it." That's exactly right.
The book boils down to: big "structural" change is coming, try to sort signal from noise, here's pointers to a bunch of good reading material, I worked at the IMF, start with this generic plan.
I saved you a few bucks. More to the point, I wasted my time reading this book so you don't have to. Since that time is lost to me forever, the least you can do is vote my review "helpful."When Markets Collide: Investment Strategies for the Age of Global Economic Change Overview

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