Book Review: Panic!

I really enjoyed Michael Lewis' The Big Short, and so when I saw this previous work at the local library I picked it up.

Panic: The Story of Modern Financial Insanity, is *edited* by Lewis, but is really an anthology of articles from WSJ and other financial news outlets. The book takes a look the last few big financial market panics (the 'black monday' of '87, the Russian crisis, the southeast Asian currency crisis, the dot-com bubble, and the recent real estate crash) and takes select pieces of reporting from before, during, and after each of those panics.

When viewed as whole one is led inevitably conclude three things:

1. That no matter how many instances of "irrational exuberance" we go through, we never learn. We have innate ability to believe that this time it's different. The ability for amateur investors, professional investors, economists and reporters to collectively lose touch with reality and start drinking each other's kool-aid is *amazing*.
2. That after panic hits, after the bomb goes off, and when people finally pop their heads out again, everyone has an equally amazing ability to claim that they knew this was going to occur, and that they called it ahead of time. This level of revisionist history is somewhat akin to how every friend you have that went to Vegas has convinced themselves that they returned "up a couple bucks" (they didn't. Somone is paying for those hotels).
3. That in both the run up to the peak and in the panic afterward, the press is not only not objective, but possibly an even greater contributor to the mob mentality than the investors they later blame for it. Examples from the dot-com era here were an awesome example, buying hook-line-and-sinker the pitch that fundamentals no longer applied and that it was about a land grab now in favor of user revenues later - the press *loved* this story and sang it to whomever would listen.

Some critics of the book claim that the analysis here isn't deep enough, and that solutions to the crisis (or future ones) weren't offered or expanded on. However, I don't think this is the point. I think the book is a valuable one if only to view how important it is to lift your head up from whatever current trending thought there is and ask yourself if there isn't myopic group think happening once again.

In this sense, the book serves it's purpose, and so provides insight as well as a fun little history lesson.

Panic: The Story of Modern Financial Insanity

Book Review: The Ascent of Money

Naill Ferguson's The Ascent of Money is probably best summed as one part history, one part crash course in finance and economics, and one part treatise on the fallibility and hubris of mankind. Another way to describe it might be as a cross of The Big Short with To Engineer Is Human, stretched out over a window of two thousand years.

The book gives a crash course on the history of finance, looking in turn at the advent - and roles of - currency, credit, banking, the bond market, the stock market, insurance, housing, and of course the intersection between all of these in things like derivatives, mortgage backed securities and the like. Each is examined from birth through to current day, as well as looked at in a global context.

Through it all, Ferguson gives a history of bubbles, from the "first bubble" in which an enterprising Scot bankrupted all of France in the early 1700's, through to the mortgage-backed mess the USA finds itself in today. Here is where I found a similarity with To Engineer is Human, in that it is a story of how we inevitably fail to learn from History. Perhaps it's more accurate to say that when we do, time and greed inevitably erode the safeguards we put in place.

This is what the book's closing chapter discusses, is whether such cycles are inevitable, and whether we do as much damage as we protect against, when we mess with the cycle of creative destruction.

While finance in general can be a bit dry, Ferguson does a good job of making this entertaining. The history of finance has no shortage of colorful characters and he introduces the reader to many of them. Even if you are not that enthused about the topic, it nevertheless will give a good overview of it that will entertain. Also, it serves to remind that the "current state of things" (i.e. the last 20 years or so, further back from which people have a tendency to subscribe to different rules) is by no means the way things must remain.

Finally, I'll add that the final chapter's coverage of reasons why people tend to predict the future of financial markets properly applies equally well to the tech industry as well. There are lessons to take away here that have less to do with dollars and more to do with our tendency to believe that "this time is different". If history shows us anything, it's that we repeat it.

The Ascent of Money: A Financial History of the World

Financial Crisis Explained

This is not just a great explanation of the current financial crisis. It's also a great example of how expertise in a subject and a well suited metaphor can make for a powerful presentation.