Posts filed under “Books”

Review: Bull by the Horns by Sheila Bair

Book Review:  Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.
By Sheila Bair
Free Press (2012), 415pgs


“Bull by the Horns” is a really excellent book. Former FDIC Chairman Sheila Bair accurately describes the conflicted world of bank regulation in our democracy. Her well-written narrative of the Basel II mess, for example, and how these supposed “capital adequacy” rules, in fact, enabled vast securities fraud and criminality by the largest American and EU banks is very well done. Indeed, this book provides another authoritative view of the degree to which fraud was the root problem on Wall Street.


I have been a friend and at times defender or Chairman Bair during her years at the FDIC and highly recommend this book. Bair’s description of the role of Treasury Secretary Tim Geithner as the passive stooge protecting the Wall Street banks is especially delicious. It is no secret that Bair and Geithner do not agree on many issues, athough she does support the call by Geithner to move forward with regulation of money market funds. Chairman Bair also told be recently that she agrees with Secretary Geithner that the FDIC’s emergency insurance on transaction accounts, known as TAG, should expire at the end of this year. But, in general, Chairman Bair certainly paints Geithner as a complete tool and political naïf when it comes to protecting Citigroup and other large banks.
For example, while Geithner was still at the Fed of New York, he apparently leaked a story to Bloomberg News saying that the new Obama White House would seek to replace Chairman Bair at the FDIC. The story quoted Geithner as saying that Bair was not a “team player.” I heard a lot of the same limp wristed crap from a number of Democratic and bankers economists in that same timeframe. But in an illustration of just how poor is Geithner’s political sense, the move backfired. Both Senate Banking Committee Chairman Christopher Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA) immediate wrote letters to President-elect Obama supporting Chairman Bair. The truth was that Bair had then and has today far more credibility in Washington than Geithner will ever possess.

Another interesting aspect of “Bull by the Horns” is Bair’s narrative of the shifting financial fortunes of the FDIC, both with respect to Congress and the media. The evolution of Bair’s stature with the Congress, particularly Richard Shelby (R-AL) and Dodd, is instructive for those who believe in “efficiency” and regulatory consolidation. That FDIC did push back against the efforts by the Fed and other regulator to expand risk-taking by the largest zombie banks is one of Bair’s great accomplishments.

Bair’s tenure proves very nicely that competition among different regulators is an essential part of checks and balances with regards to the corruption of money in our political life. And as she told me many times during her tenure, Bair’s primary job was communicating with the public, Congress and the banks, a role she performed with great effectiveness. As she writes:

“Responsible members of the financial services industry also need to speak up in support of financial regulatory reform. All too often, the bad actors drive the regulatory process while the good actors sit in the sidelines. That was certainly true as we struggled to tighten lending standards and raise capital requirements prior to the crisis. There were many financial institutions that did not engage in the excessive risk taking that took our financial system to the brink. Yet all members of the financial services industry were tainted by the crisis and the bailouts that followed.”

Were it not for the courage of Sheila Bair and her colleagues at the FDIC, and their willingness of openly break with the servile creatures that populate the bank regulatory organs of the Fed and Office of the Comptroller of the Currency, large zombie banks would have complete hegemony in Washington public policy. Bair’s refusal to accept the flawed Basel II framework and insistence on retaining the leverage ratio for US banks is an enormous accomplishment for her and her agency. This book should reinforce the traditional practice of Congress to have multiple independent agencies involved equally in financial regulation. And it is no accident that Bair gives credit to Vice Chairman Martin Gruenberg, a veteran technocrat like Bair who tolerates no nonsense from the banks, large or small.

Americans who want an honest, inside view of our collective failure to avoid the subprime financial bubble need to buy and read this book. As you read this interesting and engaging book, remember that fraud is only possible in a free society. “Bull by the Horns” very succinctly explains why it is so difficult to limit financial fraud and malfeasance by bankers and public officials alike. Her description of the bad acts by apologists for the largest zombie banks, such as NY Senator Charles “Cheese” Schumer (D-NY), is wonderful. I wish more of our public officials used such candor in their statements about the glaring conflicts of Wall Street touts such as Schumer, the chief money man of the Democratic Party.

Sheila Bair is a great American and we all owe her a debt of gratitude for her many years of diligent public service. While appointed figures like Geithner, Hank Paulson and others prostituted themselves to the big banks, Sheila Bair did her job and followed the law. This book sets a good example for future leaders in public life to follow.

Christopher Whalen

A shorten version of this review appeared earlier on

Category: Bailouts, Books, Regulation

Scott Patterson’s Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System is as insider view of the world of Algos, HFT, and software driven markets. Patterson does a great job of taking a dark, highly complex subject as the basis for a compelling, character driven narrative. The book reveals the historical evolution of High-Speed Traders, making it easy to understand how the modern stock market is what it is today. Patterson also explains the dangerous microstructure of modern markets, how they are increasingly subject to “flash crashes” disruptions, and volatility.

Dark Pools is an up close account of the global stock market’s subterranean battles and the rise of the “bots” — artificially intelligent systems that execute trades in milliseconds and use the cover of darkness to out-maneuver the humans who’ve created them. It is a fascinating story of how global markets have been hijacked by trading robots – many so self-directed that humans can’t predict what they’ll do next. And it shows how the new players moving into artificial intelligence are on the verge of tipping the entire system toward a global meltdown that could happen in minutes – maybe even seconds.

I loved Scott Patterson’s first book, The Quants. Patterson will be speaking at TBP conference next month.


“Scott Patterson’s Dark Pools is about the most important financial issue no one talks about—how high-frequency traders have rigged the market.” –Mark Cuban

“Remarkable…even long-time participants in electronic markets will learn a lot from this book.” –Forbes

“Richly reported…an invaluable piece of timely journalism that should be read by regulators and anyone with a cent in the stock market…You will never look at the opening bell in the same way.” –FT

“An engaging narrative…DARK POOLS is easily the most entertaining and accessible book to cover the new world of stock trading.” –Fortune

“An entertaining account of the key battles in the “algo wars” and the colorful math geeks who fight them—some of whom are now fighting to rein in the monsters they created. Dark Pools is an alarming account.” –Canadian Business

Scott Patterson is a staff reporter at the Wall Street Journal, covering government regulation from the nation’s capital.

Full chapter after the jump.


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Category: Books, Trading

Oliver Sacks on Hallucinations, Drugs

Via The New Yorker, Oliver Sacks new book is called Hallucinations:     Out Loud: Drugs and Oliver Sacks

Category: Books, Psychology

Books Bought By Big Picture Readers (August 2012)

Click to enlarge: Once again, its time to peruse the data to see which books TBP readers bought last month. Amazon’s embed code lets me track every click from these links — how many people look at the page, how many books get seen, and/or collectively purchased. Its anonymous — I don’t know who bought…Read More

Category: Books, Consumer Spending

The Romney Files: From Bain to Boston to White House Bid

Wall Street Journal writer Brett Arends takes a closer look at the Massachusetts Governor and Bain Capital CEO in his new ebook: The Romney Files: From Bain to Boston to the White House Bid.

Note: This was just published on August 5, 2012.

In addition to his work at WSJ and Smart Money, Arends is also the author of Storm Proof Your Money: Weather Any Economy, Rebuild Your Portfolio, Protect Your Future.

Excerpt follows:


* * *


“If there is one thing everyone seems to agree on, it’s that Bain Capital under Mitt Romney was one of the most amazingly profitable and successful investment companies in history. Romney was “a brilliant businessman,” according to the New York Times’ David Brooks. He was “coolly brilliant,” agreed his biographers, Kranish and Helman.

How brilliant?  Published reports cite fantastic performance figures. Some media reports say the firm earned “50% to 80% a year” for investors over fifteen years. The Real Romney cites reports that put the figure even higher, at an incredible 88% a year. The American Enterprise Institute think-tank in Washington, D.C., went even further than that. In a glowing profile of Mitt Romney published in its magazine, The American, in 2006, it claimed: “During the 14 years Romney headed Bain Capital, the firm’s average annual internal rate of return on realized investments was a staggering 113 percent.” The magazine added: “At that growth rate, a hypothetical $1,000 investment would grow to $39.6 million before fees. Few, if any, VC firms have ever matched Bain Capital’s performance under Mitt Romney.”

These are amazing numbers.

Alas, they are too amazing.

My job involves writing a lot about superstar investment managers. I’ve met many over the years. I view them like chess grandmasters – rare, fascinating geniuses. But I had never heard of a manager, or a firm, producing returns of 88% a year – let alone 113% – over fourteen or fifteen years. Not even in a boom. I decided to do a little digging.

The first thing to know about private equity is that the industry operates behind closed doors. Private equity firms don’t comment on their investment returns in public. Academic researchers have to sign the most stringent anti-disclosure forms in order to get access to data. “Private equity funds,” warns the Harvard Business School overview of its own course on the subject, “jealously guard their privacy.” Brian Cheffins and John Armour, two experts at Cambridge University, say that “privacy has been a hallmark of private equity,” and add that big firms like Bain Capital operate “as secretive partnerships.”

The best overall account of Bain Capital’s performance under Mitt Romney is a prospectus produced in 2000 by Deutsche Bank as it sought to raise money for a new fund. This is  the main source relied on by the Wall Street Journal, the Los Angeles Times, the Boston Globe, and other publications. It’s the one cited by the Romney campaign itself when discussing his record.

It tells a story. And one of the first things I noticed was that a few things didn’t add up. For example, the prospectus showed that Bain Capital’s clients invested about $900 million during Romney’s fifteen year tenure. The firm made investment gains of about $2.4 billion.

Yet if you invested $900 million in steady amounts over fifteen years and earned “80%” a year, by the end you would have about $900 billion. If you earned “113%” a year, you would end up with about $9 trillion – or nearly three quarters of the size of the U.S. economy’s annual output. Such are the miracles of compound interest. Bain Capital is a wealthy company. But if it now owned three quarters of the nation’s annual economic output, I think we might have heard.

Professor Ludovic Phalippou at Oxford University’s business school, a leading expert on private equity, has a simple verdict for some of the sky-high figures being bandied about. They are, he says, “absurd.”

“These returns…are vastly overstated,” he told me. “The ‘star’ returns are overstated, sometimes to absurd magnitudes like in the case of the 80% of Bain.” Such numbers, he said, bear little relation to what investors actually earned.

Why? Put simply, there are lots of ways of calculating annual rates of return for an investment fund. Should you use a geometric average or an arithmetic one? Time-weighted rates of return, or dollar-weighted? Should you calculate your returns based on all the money committed to the funds, or just the money actually invested? Should you use simple returns, or annualized ones? Gross or net? Private equity managers and Wall Street bankers, for obvious reasons, tend to prefer numbers that make them look best.

To take one example: In 1996 Bain Capital bought Experian for about $80 million and then sold it for about $250 million. To you or me this would count as a 200% gain: Bain Capital trebled its money. But according to the 2000 prospectus issued by Deutsche Bank, this deal is described as having an “implied annualized internal rate of return” of “6,636%.” The reason? The deal went through in seven weeks. On an annualized basis, it’s amazing. But that’s only relevant to investors if Bain Capital were able to come up with a string of identical deals for a full year.

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Category: Books

Books Bought By Big Picture Readers (July 2012)

Click to enlarge: Once again, its time to peruse the data to see which books TBP readers bought last month. Amazon’s embed code lets me track every click from these links — how many people look at the page, how many books get seen, and/or collectively purchased. Its anonymous — I don’t know who bought…Read More

Category: Books, Consumer Spending

10 Behavioral Economics/Psychology Books for Investors

As a species, we are notoriously bad at understanding our own thinking and emotions. We are even worse at predicting our own behavior. Understanding your own mind and those of your fellow investors is crucial to successful investing. These books will go a long way to helping you understand your hardwired weaknesses and blind spots….Read More

Category: Books

Wait: The Art and Science of Delay

Frank Partnoy’s Wait: The Art and Science of Delay has been described as “counterintuitive and insightful.”

The book weaves together a fascinating series of research findings and scientific studies in the fields of cognitive science, bio-mechanics, and psychology to create this fascinating book.

In a world that is too impatient for even instant gratification, Partnoy paints a very different picture of optimizing  decision-making that runs counter to the usual go-go-go approach. Think of Wait as an effective bit of counter-programming to Malcolm Gladwell’s overrated Blink.

Using varied time frames — milliseconds to years — Partnoy describes how to take advantage of controlling your response times to obtain better results.

Its fascinating stuff — I am only a third of the way through, but felt compelled to post this because how much I am enjoying it.

Selected reviews are below, and a section of the book is after the jump.



Roger Lowenstein, author of When Genius Failed and The End of Wall Street
“Having mined the best of American research in fields as wide-ranging as finance, behavioral economics, and law, Frank Partnoy has written a beguilingly readable treatise that boils down to a single, easily digestible conclusion: in our busy modern lives, most of us react too quickly. Wait will naturally and rightly be compared to Daniel Kahneman’s Thinking, Fast and Slow as a trail-blazing book exploring the hidden crannies and the treacherous pitfalls of human decision-making. I whole-heartedly recommend it.”

Bethany McLean, co-author of The Smartest Guys in the Room and All the Devils Are Here
Wait is one of those rare books that will change not just the way you think, but the way you act. The book is full of ideas that are fascinating, useful—and at times mind-blowing. I was captivated.”

Daniel H. Pink, author of Drive and A Whole New Mind
“Frank Partnoy turns conventional wisdom on its head with this counterintuitive approach to decision-making. Rather than telling us how to make decisions faster and faster, he mines and refines a rich lode of information from experts in a surprising variety of fields to demonstrate the power of delay, whether measured in milliseconds, days, or decades. Wait is a great read, chock full of fascinating insights.”

Margaret Heffernan, CBS Money Watch
“Marvelous … Wait is an impassioned and thought-provoking book.”

Christopher Chabris, Wall Street Journal
“Mr. Partnoy’s intention in Wait is to take on those who evangelize the power of thinking quickly, ‘getting things done’ and leading an organized life. We can praise efficiency but fail to take note of what is sacrificed in its name. Wait offers a valuable counterweight to this attitude, reminding us that quality should matter as much as speed.”

“Mr Partnoy argues that too many people fail to recognize what good public speakers and comedians all understand: that success depends on knowing when to delay, and for how long.”

Financial Times
“A superior example of the genre. It is a departure from his earlier books about financial crises, but written with the same easy elegance. … Partnoy makes mincemeat of the idea of ‘thin slicing’ – the art of making snap decisions based on very little information – that was made so popular by Malcolm Gladwell in Blink. … As a collection of fascinating case studies, Wait is a gem.”
Winnipeg Free Press
“While the breadth and the depth of his research gives the book’s rather straightforward message its complexity and rhetorical power, the book’s charm comes from Partnoy’s ability to juggle such seemingly disparate topics as, on the one hand, an engaging discussion of recent science on animals and their conceptualization of future time and, on the other hand, an unabashedly doting analysis of the comic timing of Jon Stewart.”


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Category: Books, Psychology

You Are Not as Dumb as You Think

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo.  He is the author of The Little Book of Sideways Markets (Wiley, December 2010).  To receive Vitaliy’s future articles by email, click here or read his articles here. Investment Management Associates Inc. is a value investing firm based in Denver, Colorado.  Its main focus…Read More

Category: Books

Books Bought By Big Picture Readers (June 2012)

Click to enlarge: Once again, its time to peruse the data to see which books TBP readers bought last month. Amazon’s embed code lets me track every click from these links — how many people look at the page, how many books get seen, and/or collectively purchased. Its anonymous — I don’t know who bought…Read More

Category: Books, Consumer Spending