@Finn dAbuzz,
I'm reading More Money Than God By Sebastian Mallaby. I saw his presentation on C-SPAN author's program two weeks ago. When I've finished reading it, I plan to give it to my Wells Fargo Investment Manager.
BBB
The following is a review by Chrystia Freeland
Published: June 25, 2010
This is not an obvious time to be glorifying financial tycoons. Making enough money to buy your own private island might have earned you an airbrushed magazine cover a decade ago. Nowadays, though, the erstwhile Masters of the Universe are viewed with such opprobrium that one of their favorite lawyers told me recently he was advising his clients to soft-pedal their objections to financial reform legislation because the more Wall Street hates it, the better it plays on Main Street.
MORE MONEY THAN GOD
Hedge Funds and the Making of a New Elite
By Sebastian Mallaby
Sunday Book Review: ‘The Devil’s Casino’ by Vicky Ward (June 27, 2010)
Today’s populist mood has not deterred Sebastian Mallaby. In “More Money Than God,” his smart history of the hedge fund business, Mallaby does more than explain how finance’s richest moguls made their loot. He argues that the obsessive, charismatic oddballs of the hedge fund world are Wall Street’s future — and possibly its salvation.
Mallaby’s contrarian argument is sure to delight his subjects, and not only because he is so openly on their side. As he shows in more than a dozen interlocking stories, the history of hedge funds is a history of the men who were able to spot market opportunities others missed, and who were prepared to gamble a fortune on their convictions.
Like many of the clever, trend-bucking bets he describes, Mallaby’s thesis is largely on the money. He is right to point out that stand-alone hedge funds didn’t cause the most recent financial meltdown. More important, even though the most successful hedge fund managers make Wall Street C.E.O.’s look like impoverished salarymen, their funds are generally “small enough to fail.” The year 2008 was a time of carnage in the hedge fund world, but taxpayers didn’t have to foot the bill.
Mallaby’s belief that the hedge fund model will survive the crisis and thrive in its aftermath is looking pretty good, too. In fact, he understates his case: in 2009, the top 25 hedge fund managers earned a collective $25.3 billion, more than they did in the fat years before the crash. Their comeback is a vindication for Mallaby, who did the bulk of his research for this book at a time when many pundits were proclaiming that his subject was dead and gone.
Mallaby skillfully weaves two broader economic themes into his business tales. The first is an indictment of the efficient-market hypothesis, the view that the rational behavior of the investing crowd will keep prices and markets in equilibrium.
This belief has already taken a thorough beating, even including a public recantation from its former high priest, Alan Greenspan. But Mallaby adds meat and nuance to what must now be the painfully obvious truth that markets sometimes don’t work. He reminds us that in academia the efficient-market view began to fall out of favor more than two decades ago, after the October 1987 crash. And he may surprise some readers by pointing out that one of the intellectual iconoclasts leading the charge back then was Lawrence Summers, now President Obama’s chief economic adviser.
More slyly, with the careful accumulation of one story after another, Mallaby makes the wider point that if the efficient-market thesis were right, the entire hedge fund business would be either a fraud or a fluke. That’s true for some funds, but not, Mallaby convincingly argues, for the best of them; those, he shows, made and make their money by discovering ever-changing inefficiencies in the market, including the market for information.
The second larger economic story Mallaby tells is of the recurring battle between central bankers, determined to maintain an unrealistic exchange rate for their currency, and the speculators who profit from their folly. He illustrates this best with his account of George Soros and Stan Druckenmiller’s famous bet against the British pound — a familiar tale but one the author recounts with vigor. Mallaby’s repeated demonstrations that when the market is right it has more firepower than any national government should be required reading this summer in Athens, and probably Brussels and Berlin, too.
Mostly, though, this is a business book. If you are looking for the nose-pressed-into-his-sweaty-armpit carnal intimacy of today’s best narrative journalism, I’m afraid you won’t find much of it here. Mallaby tells some great stories, but he is more interested in his principals’ spreadsheets than their psyches. His forte is a clear and sophisticated explanation of the economic model that earned billions for each of the financiers he profiles.
That is not to say “More Money Than God” is bloodless. You won’t be surprised to learn that many individualist billionaires have outsize characters to match, and they provide Mallaby with some memorable vignettes. When a dejected underling tells Michael Steinhardt, “All I want to do is kill myself,” the boss asks if he can watch. When a Tiger cub, as the protégés of the legendary Julian Robertson of Tiger Management are known, slips off a rope bridge during a team-building mountain retreat, he proves his mettle by cheerfully bouncing on his harness — and almost kills himself. Mallaby even squeezes some juice from Renaissance Technologies, the hugely successful number-crunching fund run by secretive and geeky mathematicians on Long Island: when they use their computers to devise a dinner-party seating plan, their algorithmic effort to divine human chemistry places one investor next to a woman who had sued him for sexual harassment.
Students of the financial press will also be entertained by Mallaby’s comparison of Goldman Sachs’s treatment of the failing hedge fund Long-Term Capital Management to “a hyena feeding on a trapped but living antelope.” Note to Lloyd Blankfein: when as doughty a defender of capitalism as Mallaby enters the “vampire squid” competition for most unappealing animal metaphor for your firm, you may need to change your public relations strategy.
Mallaby himself is a bit of an antelope, gracefully covering a lot of ground. But he makes one serious omission. His account of what happened in 2008 is weak — which, given the terrific work done by Michael Lewis and Gregory Zuckerman on hedge funds and the financial crash, is no great loss to humanity. But it does mean that Mallaby overlooks a phenomenon the S.E.C. has subsequently zeroed in on: synthetic collateralized debt obligations.
Hedge funds’ gargantuan appetite for instruments with which to bet against subprime mortgages helped to create this vast market of wagers that is as faintly connected to real assets as a card game in Vegas is. Mallaby doesn’t examine this casino capitalism, and that makes his robust advocacy of hedge funds incomplete.
There are other issues I wish this fine book had touched on. One is gender. Women are as invisible here as they are in the world of hedge funds. I’d like to know why, and what the impact of their absence is. And for the work of an Englishman who reported on Japan and southern Africa for The Economist, this book is curiously parochial. Mallaby doesn’t write about the hedge funds in the fashionable Mayfair district of London, or about the big Asian investors whom fund managers have begun to court.
Hedge fund executives — and anyone who aspires to that exalted station in life — will be this book’s biggest fans. But readers of the Michael Moore persuasion should not be put off. Mallaby concentrates on the machinery of capitalism and the role hedge funds play in that global engine. He is perfectly aware that their connection with the rest of society is a separate story. As he explains: “If hedge funds . . . serve rich clients well, thereby contributing to the troubling gap in modern society between the superwealthy and the rest, the answer is not to smother their trading. It is progressive taxation.”
Chrystia Freeland is the global editor at large for Reuters.
