General Musing

I had heard of The Quants and wanted to buy it, after my father and I discussed how it was that all this money disappeared during the credit crisis I thought it might be wise to get an in depth view of the “China syndrome hedge fund catastrophe.” This is more than just a review of the book.

The first thing that I noticed were the multiple references to Ed Thorpe’s “Beat the Dealer”, a book on card counting Black Jack using a Hi-Lo method, and “Liar’s Poker“. Both books are on my bookshelf. Liar’s Poker highlights the years 1985-1987 as a trader at Salomon Brothers. There is some overlap between the characters of the book, such as John Meriwether who famously was challenged to a game of liar’s poker for 1 million dollars and replied: “If we’re going to play for those kind of numbers, I’d rather play for real money. Ten million dollars. No tears.”

The book reminded me of playing the computer game “Capitalism” when I was 16 in which I would game the system by creating a company which produced a little profit and initially plowing that profit into buying companies by hostile takeovers on the mini stock market and then avoid the system creating more AI companies – it had a fixed number of AI companies and mergers would cause new AI companies to be created – by buying a controlling interest in the AI companies and forcing them to turn out high dividends until all the AI companies in the stock market were under my control. And leave the computer AIs to tend to the companies and all their business while the dividends pushed my company’s profit into 12 digits.

The Quants is less of a narrative than Liar’s Poker, much of it is carefully crafted from multiple interviews with most of the players, books, magazines and newspaper articles. The tale of hedge fund managers and traders taking ever increasing risk just to earn the same amount that they did the previous year is and as it notes “Hedge fund managers who’ve seen big losses can be especially dangerous. Investors [...] may become demanding and impatient. … [T]here can be a significant incentive to push the limits of the fund’s capacity to generate large gains [...] If a big loss is no worse than a small loss or meager gains [...] the temptation to jack up the leverage and roll the dice can be powerful.”

Even the glaring warning of Meriwether’s LTCM failure in 1998, like Daedalus’ warning to Icarus, it was ignored by most of the hedge funds. “By 1998, nearly every bond arbitrage desk and fixed-income hedge fund on Wall Street had copied LTCM’s trades.” They were leveraged up to their eyeballs, and while making huge debts of their own they traded with the debts of others, bonds, collateralized debt obligations and credit default swaps. Some hedge fund had leverages of 30 to 1, which means they borrowed $30 for each dollar they had as an asset. “Coming into 2008, hedge funds were in control of $2 trillion.” And the banks they were borrowing from had leverages of at least 9 to 1, because of fractional-reserve banking, these same banks “… Morgan Stanley, Goldman Sachs, Citigroup, Lehman Brothers, Bear Stearns, and Deutsche Bank, [...] were rapidly transforming from staid white-shoe bank companies into hot-rod hedge fund vehicles fixated on the fast buck…” These banks had “… trillions more in leverage that juiced their returns like anabolic steroids.”

And it wasn’t just the banks, insurance companies go into the action too. These insurance companies insured the credit default swaps, “[i]f the value of the underlying asset insured by the swaps declined for whatever reason, the protection provider [...] would have to put up more collateral, since the risk of default was higher.”

The light at the end of the tunnel is an oncoming train.
–Wall Street proverb

“… [T]here were legitimate concerns that as computer-driven trading reached unfathomable speeds, danger lurked. Many of these computer-driven funds were gravitating to a new breed of stock exchange called ‘dark pools’—secretive, computerized trading networks that match buy and sell orders for blocks of stocks in the frictionless ether of cyberspace. … In these invisible electronic pools, vast sums change hands beyond the eyes of regulators. While efforts were afoot to push the murky world of derivatives trading into the light of day, stock trading was sliding rapidly into the shadows.”

Conclusion

“The findings of behavioral finance .. had shown time and again that people don’t always make optimal choices when it comes to money [...] [N]euroeconomics, was delving into the hardwiring of the brain to investigate why people often make decisions that aren’t rational [...] Evidence was emerging that certain parts of the brain are subject to a ‘money illusion’ that blinds people to the impact of future events, such as the effect of inflation on the present value of cash—or the possibility of a speculative bubble bursting.”

To me it also looks like they were and still are blinded to money. Two great reads for the weekend.

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Bloody River Blues is a book by Jeffery Deaver which came from a second hand book store with another stack of Deaver books, when I arrived home I realized that I shouldn’t've bothered buying it – I already had a copy. When the mood strikes me I will often walk into a second hand book store and buy a stack of books by one known author or a stack of books from many different unknown authors.

John Pellam is an independent location scout who continually finds himself in trouble of some sorts, which is often connected to a woman. This time Pellam is not scouting for locations for an unmade movie, he is wrapping up the scouting for a movie which is being made. After witnessing a shooting he becomes the victim of over zealous police, and FBI. In the Lincoln Rhyme series you read an idealized view of the police, in the location scout series the police are often an incompetent mess or worse.

A good way to pass the time.

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Magic Street is another book which came from the rescued book stack. I’ve know Orson Scott Card for some time, although I have never read Enders Game, and had always wanted to read something of his. So when this literally landed in my lap I was happy to say the least.

Having not read anything by Card before I can’t tell you whether Magic Street is indicative of Card’s style. I was pleasantly surprised by the book. As you may know I don’t usually go for fantasy, I mostly enjoy hardcore science fiction. The story centers round the boy Mack Street, who is different from other boys, sweet and a little strange. The story is inspired by Shakespeare’s Midsummer Night’s Dream.

A nice weird story.

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Another book rescued from a second hand store. The Dispossessed is an absolutely brilliant book, I hadn’t previously read anything by Ursula le Guin and would certainly read another book by this author.

An Utopian society develops after a self imposed exile on a moon. As with the socialist experience on our Earth the Utopian society keeps itself in line by social pressure and an interventionist attitude of the local organization. With in the confines of this society a physicist reads papers being send from the home planet and dreams of been able to go to the mother planet and communicate with it’s scientists fractured by borders, capitalism and wars.

The lunar society as initially described sounds great, the book can be said to have some elements in common with the submission to Utopia that characterizes Logan’s Run.

I believe he is wrong, and I will tell you why.

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I recently walked into a second hand book store and reconnected with one of my favourite crime novelists, Jeffery Deaver. Deaver is a writer who has had many careers and the experience which comes with the different perspectives in live. This is probably what makes it possible for him to write thrillers with plot twists which are unexpected slight of hand, rather than deus ex machina. My favourite character is Lincoln Rhyme, and the best book of the series is certainly The Vanished Man.

The unsub – unknown subject – is a world class illusionist who initially runs circles round the police and Rhyme. And although Deaver uses similar plot mechanisms in each of his books, they are subtly different each time to account for the differences in the Conjurer and the other unsubs.

I am quite probably influenced by my love of magic, misdirection, smoke and mirrors. And I read this book with rapture. A great book.

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Would you expect me to read My Horizontal Life by Chelsea Handler? I didn’t. Sometimes books are thrust upon me and I browse a number of pages, put it down browse another couple of pages and get sucked into the narrative. And the narrative is not what you would expect.

The story is actually quite uneventful compared to what I usually read. It’s certainly not just a collection of one night stands as suggested. It’s also a collection of almost one night stands where the protagonist’s journey leads to escapes from potential mates apartments for completely superficial reasons. and the only true love that is found in the book is the love of alcoholic beverages.

Even the family is not spared with a misogynistic father who allows his incestuous feeling to shine through, a Jewish mother who can only be an exaggerated version and a sister who feels rejected and rejects the families religion. And the protagonist who seems to do everything to annoy her father, including dating black men and bringing a gay pill-popping lush to her sister’s wedding.

It will probably not make you smarter, and it’s still hilarious!

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I advised The Internet is a Playground to a close friend, and he thought it was brilliant. I also think David Thorne is hilarious and have read most of the posts, if not all, on 27b/6. Which is why I thought I would love this book, I was sadly mistaken. Thorne is brilliant, and although his anecdotes and mail exchanges are hysterical the first time and amusing the next many loose a lot in the retelling. There are some obvious exceptions to this, but I was saddened by the lack of much new material.

Thorne manages to turn most of his personal attacks on people in to humorous anecdotes, turning round the impositions people put on him against the person. Whether it is making graphics, a poster for a missing cat or selling him a pair of bad gloves. Even attacks on him for being petty, bigoted or lazy are turned round against the attackers showing that their attacks stem from their own interpretation. I’d even go so far as to say that their dislike of Thorne stems from a dislike of aspects of themselves.

I would certainly recommend this book to somebody who has not read the posts on his website. I must say that while reading the book my girlfriend asked me to stop laughing multiple times, and left the house. I think she’s jealous of my relationship with David Thorne.

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I saw the TV series Flash Forward before I got to read the book Flashforward by Robert Sawyer, I was lucky to receive the book in a box of books which were being thrown out during a move. I thought the TV series was very good, albeit US centric, the book is more Eurocentric and focuses on the Large Hadron Collider. A bizarre twist on the fears that gripped the world during the run up to the LHC being turned on.

Every man, woman and child on the world is suddenly knocked unconscious by an “accident” in the LHC, which causes everybody to have a vivid dream of the future. Many die due to accidents. The scientists at the LHC try to discover what happened, and whether it can happen again.

Naturally the premise and the science in the book are charmingly flawed in some ways, the TV series has the advantage that it aims at the lowest common denominator in terms of the science, a mistake or leap of faith that the book needs to make. Not that it detracts from the book, which is intelligently written and contains a level of humour and speculation which can be expected from a book.

I have read nothing else from Sawyer, based on this book I compare him quite favourably to Michael Crichton.

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