The Must-Read Wall Street Books of the Summer of 2012
There's the Wall Street you see on TV - powerful, arrogant, well-dressed - and there's the Wall Street that exists in the minds of its practitioners - fraught, anxious, self-conscious and often self-loathing. The best way to bridge the divide between these two versions of Wall Street is not by pondering the financial news, but by reading the newest crop of summer books about finance. Here are the ones that are most worth your time.
BEST BEACH READS
- A Fatal Debt by John Gapper
Gapper, a writer for the Financial Times, has written an easy-to-read, accessible thriller that touches upon Wall Street but doesn't belabor the point with too much detail. The hero is a psychiatrist and the financial skulduggery is mostly implied.
He was in banker's garb, which I hadn't seen him wearing before - black suit, white shirt with a button-down collar, and a red tie with a pattern it was hard to make out on my computer screen....the man to Harry's right on the screen was at ease. He was tall - or looked as if he would be standing up - and trim. His brown hair was so neat that it looked molded, like that on a Ken doll.
What else?: One of the bonus joys in this book is using one's deductive powers to figure out the true identities of thinly veiled characters. Seligman Brothers, the firm in question, looks and sounds a lot like Lehman Brothers. And which Congressman does this sound like, bringing a hearing to order?
"The chairman looked unhealthy - plump and rumpled, with thick white hair, jowls and a pug nose - but he exuded satisfaction at being the center of attention, as if this moment were enough to repay his slog to seniority."
- Ride a Cockhorse by Raymond Kennedy
Raymond Kennedy passed away in 2008, but before he died he saw which way the financial winds were blowing. In this literary comic novel - think "A Confederacy of Dunces" for money workers - a New England loan officer with delusions of grandeur plots to take over the Northeast banking industry.
When Mrs. Fitzgibbons started up the back staircase to see the chairman, she was in a very determined frame of mind. She intended to wrest from him nothing less than full authority over every soul on the payroll. While Mr. Zabac was owner and titular head of the bank, to Mrs. Fitzgibbons's mind his function was now to hand over the reins of power.
What else? The prose in this book is an excellent read - the foreword calls it a "comic masterpiece," and that's not far from the truth. The descriptions of self-important little gestures are beautifully true to form, as are many of the self-righteous speeches: "These fair-weather dandies! With their little spectacles and clipboards and fake Gucci loafers. Why it's enough to constipate a cat. They'd have to take me out of here on a slab before I back down!" A bonus is that anyone relatively new to understanding Wall Street will learn about the personalities at play in modern banks.
- Overseas by Beatriz Williams
Overseas is not great literature. It is the beachiest of these beach reads. It is essentially a Twilight-like a romance novel. Its great advantage is a quirky, odd, kitchen-sink plot staged against a backdrop of the financial crisis. The story involves a soldier who fell in love with a woman during World War I. His love caused him to time-travel to the present age to earn his fortune as a rapacious-in-business-but-kind-in-love hedge-fund manager who woos her away from her dismal job as an investment-banking associate at a Lehman Brothers/Merrill Lynch-like bank that gets in trouble for its packaging of mortgage securities. Oh, and did we mention that this time traveling soldier-investor got his start in Goldman Sachs's back office, and that the book posits that other time travelers did too? The hero, Julian Ashford, is also a wartime poet. It's like Kate & Leopold married Downton Abbey on the set of Wall Street.
Sample paragraph, which is an email from Julian, the hedge-fund manager, to the heroine, Kate after they've just met:
Dear Kate, I hope your Christmas was happy, without too much frightful knitwear lurking under the tree. I've been thinking, over the past few days, that it might be more prudent to hold off on any personal contact until after the ChemoDerma IPO. It's nothing at all to do with you, on my honor; I only want to forestall the prospect of the ruddy SEC piling on my doorstep at the moment.
What else? The transcripts of text-flirting between the heroine and the hedge-fund hero is amusing, mainly because many hedge-fund managers are too ADD and to-the-point to keep up hours-long texting exchanges of sweet nothings. Gawker and the Smoking Gun make an appearance. This book is essentially a campy version of a romantic finance thriller.
- Backstage Wall Street by Joshua M. Brown
Brown is not just a former broker; he blogs and tweets as The Reformed Broker, which indicates his goal: to throw a giant Molotov cocktail into the often-corrupt world of investing for individuals. He explains the more esoteric concepts of money management simply enough for your mom. Full of cheerfully wielded f-bombs and stories told through a mist of old-time Wall Street testosterone, the book really does take you backstage - where all the smoke and mirrors of finance are kept.
Sample paragraph, describing a room full of brokers told to produce commissions or die trying:
Today is going to suck. People are going to do things that their consciences tell them not to do as a sacrifice to the God of the April Pay Period. Lines will be crossed, bull---- will be spewed, and trades will be done that have absolutely no justification other than some broker's overdue car payment.
What else? Brown's chapter on the oceanography of brokerages is a fun read, which splits the various players in a brokerage firm into whales, sharks and dolphins - so that you get an Orca-eye view of how the personalities managing your money work:
Branch managers and dolphins share several key traits, but the two most important are affability and a degree of intelligence....He is usually an ex-broker or a seasoned broker with a business that is manageable enough to allow him the extra time to supervise others...He was the president of his fraternity and probably played on a ton of different teams growing up. He was only a middle-of-the-pack athlete but was able to earn the appreciation of the coach by helping stow the equipment away after practice.
- Abnormal Returns by Tadas Viskantas
Viskantas spends his days as editor of the Abnormal Returns blog, which is a campfire for guys (and women) who like to throw around complicated investing terms. But his heart is here with the individual investor (yes, that's you). He takes care to break down difficult concepts in a way that you can use either to invest or just to make sure you can have a smart conversation with your broker about everything from stocks to options. And he's no cheerleader: "There is no such thing as a risk-free investment," Viskantas warns right off the bat.
Nearly every study of forecasting in economics and finance shows that we human beings are poor predictors of the future. Much of what passes for analysis on Wall Street is really just half-veiled, half-formed forecasts about the future. As Barry Ritholtz writes, 'I wish an SEC-mandated disclosure accompanied all pundit forecasts: The undersigned states that he has no idea what's going to happen in the future, and hereby declares that this prediction is merely a wildly unsupported speculation.' Given our collective inability to forecast the future, why do we all persist in doing so?
What else? Some of Viskantas's best observations, peppered throughout each chapter, are the philosophical ones: "A humble approach to the markets is an essential step in bringing our investing lives into balance, because for most of us, investing isn't really what matters. Our investments are there to serve our goals, not the other way around."
- The Indomitable Investor by Steven M. Sears
Sears is a columnist for Barron's, where the markets are like religion. His book sets out to explain Wall Street - at least the markets division - to Main Street, and he ponders how we became, in the words of one chapter, "A nation of stock market junkies."
Some investors and traders will not read newspapers or watch TV. They think they are a distraction...the mistake many investors make is overly relying on most of the business press to safely point the way. There is no magic formula, no alchemist's amulet, that anyone can offer to give you free and unfettered passage through the markets. As one hedge-fund trader said: if you put a big pot of money across the room, traders will find the fastest way to get there. Usually, this means they run right over you.
What else? The sprinkles of psychology in the book are fascinating. For instance, he quotes researchers on why people can't avoid ruts, and why your losses in the stock market interfere with your ability to think. Sears also has nice insights on the structure of the markets - cycles, the way information travels, and the other arcana that professionals know but individual investors usually don't.
BEST DINNER-PARTY DEBATE FODDER
- Broken Markets: How High-Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio by Sal Arnuk and Joseph Saluzzi
Arnuk and Saluzzi, who run Themis Trading, work for large institutional investors - a population that, ironically, has been rendered The Little Guy by the advent of ever-faster, if not ever-smarter, computer algorithms. Arnuk and Saluzzi argue that high-speed trading is out of control and threatens the stability of the markets. They include searing criticism about the failure of regulation and some useful explanation of how the guts of the stock market really work.
The stock market used to be a system - and a place - where investors traded capital. Now it is a loosely connected mess of more than 50 different exchanges, dark pools, and alternative trading venues focused on short-term trading. What was an imperfect, yet elegant, oligopoly of a few stock exchanges has become horribly fragmented, oeprating at insane speeds, in a crazy dance of arbitrage.
What else? The explanation of how stock-market orders work is a useful educational tool.
- Money at Work by Kevin J. Delaney
Delaney, a Temple University professor, takes a look at how money changes people who work with it every day. It doesn't matter whether they're hedge-fund traders, priests, salesmen or poker players. (I interviewed him for WNYC this month and came away a fan.) The book is a fascinating exploration of how, like mud on your shoe, you track money wherever you go. He finds, for instance, that bond traders don't just talk about bonds all day and then go home; with family they think of relationships in terms of profit and loss.
De Goede suggests that modern financial traders emerged from the realm of gambling and speculation through a long historical struggle that demarcated the area of finance as separate from 'gambling,' developed a regulatory structure that distinguished respectable trading from wild-eyed speculation and created a more positive image of 'the financial man.'
What else? Delaney's anthropological regard for his subjects lead to some really interesting character studies in which he describes what people are really trying to get when they earn money. More often than not, it's validation, particularly from their peers.
- Bailout by Neil Barofsky
Barofsky went from prosecuting Colombian drug lords to keeping the U.S. Treasury accountable for the TARP bailouts - and by the end of this book, it's hard to make the case that drug lords possess anything close to the wily, manipulative cunning found in the halls of Washington.
Nowhere was the favoritism toward Wall Street more evident than with the government’s approach to AIG, where inviolable contract terms were cited to justify the absurd executive bonus payments as well as far richer payouts provided to the megabank counterparties to AIG’s CDS deals, honoring even their most reckless bets. For homeowners and small business owners, though, contracts went from being sacrosanct to inconvenient irrelevancies. So when mortgage servicers blatantly disregarded HAMP contracts by trampling over homeowners’ rights, Treasury turned to an endless series of excuses to justify its refusal to hold them accountable.
What else? Barofsky's anecdotes about the Obama bailout team read much like a lost, adult script for Mean Girls. A nice sidebar to his media blitz has been the sputtering rage he has elicited from supporters of TARP and the bailouts.
- The Unfair Trade by Michael Casey
Casey is a columnist for Dow Jones and the Wall Street Journal. He has written one of the few books this year integrating our financial concerns here in the U.S. with the turmoil of global finance. Wall Street, after all, doesn't work alone. Casey's main message - that a powerful global financial system will destroy us all, at least insofar as "us" is the middle class - won't find fans in some quarters. But he has the goods to back up his argument. His reporting and thoughtful descriptions of international finance and history are sure to be great talking points for the time when dinner-party conversation inevitably turns to who is to blame for the last - and the next - financial crisis.
From a social perspective [banks and investment managers] are of secondary importance to the actual goods and services in the real economy. Thanks to a series of gravely misguided ideas, we have elevated these middlemen to powerful positions as kingmakers and locked ourselves into an economic and political model that weakens people's control over how their tax money is used.
What else? Casey's history of foreign politics and finance - in China and Argentina - is a great way to get the highlights of global finance without delving into a dense tome.
That's all. Happy reading.
**Update: This post was updated to include Broken Markets.