lightreads | Entries tagged with money

Animal Spirits

DNF. A discussion of how behavioral economics works and what to do to get out of the 2008 recession. I keep having to learn that I think I like behavioral economists, but that I am wrong. The core of the theory is obviously correct – that various social and society-wide psychological effects have a huge influence over the markets and economy. Yes, obviously. However, behavioral economists are still economists, and thus they casually proclaim that a little experiment on the exchange of help between various kinds of people explains why persons of lower status like black people and women "are subservient" based on an idea of fairness in social interchange – i.e. the lower status person has to "give more" than the higher status person. This is both partially correct as an observational matter, and so wildly, bloodlessly blinkered about how oppression actually works that my jaw dropped.

Economists, you guys.

The Myth of the Rational Market

3/5. I picked at this in fits and starts over the past couple weeks. Competent nonfiction, but not of the sort I like – this is all about what happened when, and almost nothing about the policy and practical implications of the intellectual debates in question.

The Big Short

3/5. Nonfiction account of the very small handful of (mostly outsider) financial types who bet against CDO's in 2005-2008. So a slice of the recession story, for those who don't already know what collateralized debt obligations are. Long on personality and short on big firm perspective (see what I did there? okay okay I'm sorry I'm sorry). So it's kind of an unbalanced story – we get a whole lot of perspective from the people who were like 'obviously this sky is going to fall' and almost none from inside Citigroup, Morgan Stanley, UBS, et al. to explain what the fuck they were thinking. Or not thinking. (TBF this is because of confidentiality agreements and lock-up clauses). So it's easy to think that the 2008 collapse was obvious and inevitable, which is true, but also illusory.

Mostly, this book made me think about the profession of risk management. Which is one I am in, when I wear certain hats. And how that function doesn't fucking work when, oh just for an example, your client lies to you. Ahem. Don't ask. Which is fundamentally what happened inside these firms, I think. In the sense that the traders didn't actually understand the assets they were buying, but no one wanted to admit that, so they booked the assets in a completely inappropriate way and risk management couldn't do its job. Makes me wonder how often someone calls me and tells me a story and gets my advice, and I might as well be advising on cinderella.

Devil Take the Hindmost

3/5. You guys are about to get an intimate tour of my brain by way of the stuff I read when things start to go very, very wrong. This is the book I reached for when we got the first rumblings that something we were excited and happy about was going to fall apart. This book is an excessively dry, somewhat exhausting history of speculative manias. It is far more interested in recounting events than it is in thinking about the psychology of speculation, though it does in passing touch on the long-running debates over the place of speculation in society, and whether it is a social good or not. So I read this in many many waiting rooms and on many many long drives to doctors' offices, and retained very little of it, and don't actually think it is particularly accessible or interesting. But by God did it serve its purpose for me.

Meet the Frugal Woods

3/5. Brief memoir from the blogger who realized she was unhappy in her career and life, cut her spending to the bone, achieved financial independence, and moved to the middle of nowhere for . . . some . . . reason? As you can tell, I'm with her until that last bit. Random thoughts:

-The best part of this book is the beginning, which is a lively and oh-so-accurate description of the hard comedown some of us overachievers experience in our 20's when no one is giving us A's anymore and we start looking around going, "….this is it? This can't be it." My solution was to go to law school and trip sideways into a truly incredible career. Hers was to short-circuit the entire question by opting out.

-She's super into frugality as a philosophy, in addition to a tool. I mostly agree with her overarching points, but it's the sort of agreement where I go "yeah, but," a lot while reading. E.g. her contention that used and secondhand stuff can make you happier because it frees you of the paradox of choice where having a zillion product options makes us less happy about the one we ultimately pick. I mean, yeah, but. But I replaced all our shitty old secondhand kitchen stuff over the course of a couple years with carefully-researched, thoughtfully-chosen new products, and my god am I happy about it. You just have to be thoughtful about what money is good for in improving your life and what it's not. I mean, I believe in secondhand, too – it's ecologically and economically sound, and you wouldn't believe the amazing stuff you can get off craigslist for pennies around here. But she says in one breath that it's so much easier to get secondhand because you don't have to do all the work of figuring out the exact thing to buy, and then explains in the next breath how much research she did to verify the safety of the secondhand crib they got, complete with sourcing replacement parts. Hm. I think what is really going on here is that she doesn't see that part as work, for some reason, even though it obviously is.

-What I'm getting at here is that this is not a person who understands moderation. Her frugality is as compulsive as the spending of a lot of people I know. It makes me uncomfortable in the way watching people be compulsive is uncomfortable, which was hard to tease out because I kept being like, "why is this weird? I believe in frugality too." Case in point: she believes in a zero dollar budget. As in, once you account for core living expenses, she treats her budget as zero and every dollar spent as a failure. Which strikes me as a terrible way to frame it. But it seems to make her happy? So okay then. And yeah, if you put them on a spectrum, I'm definitely less horrified by her than I am by most of my colleagues, many of whom are vocal about the fact that they spend every dollar of the $400k-$800k their households bring in every year (why?! On what?!?!). But that just means I'm closer to her end of things, not that I'm totally with her.

-Okay, real talk. I read this book because I found her blog, and I found her blog because we, too, are socking away gobs of money in order to, in a few years, quit the rat race and do whatever the fuck we want. (Shh, don't tell my boss). And we, too, believe in frugality as an ethic: it's good for the environment, it's psychologically useful because it makes it harder to fall into the hedonic adaptation must-buy-more-bigger-better-stuff trap, etc. etc. (Though our version of frugality involves a lot more money than hers does). But I still found this book kind of irritating. And I think the fundamental problem is that she, like everyone else in the world, is not very good at explaining happiness. It's not her fault. No one can do this. I genuinely believe in the value of designing your life for happiness, and this is a solid, short book explaining how someone went about it. But it can't explain the alchemy of it. It can just say that they did x and y and z and then . . . happiness, or something a lot more like it. So it's not particularly useful in the project of designing my own life, which is still in progress.

When Genius Failed

3/5. Financial history. Story of the bond arbitrage hedge fund that rose – and rose and rose and rose – in the mid-90's, only to collapse spectacularly, over-leveraged, nearly taking the rest of the financial system with it.

Totally infuriating. And here I was hoping for some dry, soothing nonfiction. This is dry, and it isn't very good at explaining the financial instruments underlying the activity here, but boy. *Grinds teeth*. I know a lot of hedge fund guys – they're all guys, BTW, I mean that literally – and this book captures their arrogance, their secretiveness, their obsession with financial dick-measuring, their maniacal focus on making more more more money for no other reason than to have it.

Mostly, though, it's really hard to swallow that people continue to believe in rational markets, continue to teach that economic model, continue to trade on that basis. I mean, these traders watched their model go down in flames, then immediately turned around and said, "well, it was a hundred year flood, that's different, we were just unlucky, let's start again." Yeah bros. I'm sure it had nothing to do with the University of Chicago being full of crap.

The Intelligent Asset Allocator

4/5. Investment books generally have a short shelf life, and this one does show its age (he recommends at one point buying a calculator. You know . . . a calculator. An actual calculator. Like a freestanding device for the crunching of numbers. I reacted like he had suggested an abacus, for the record). But this book is at its heart addressing a subject so fundamental that it also endures and is still entirely applicable.

The subject being asset allocation which, for those who don't know, means quantifying risk and reward in concrete ways so one can build a portfolio of assets that is efficient and that also meets one's psychological needs (the sleep-well-at-night test).

Anyway, it's a very good book. Extremely erudite and interesting. Unfortunately, I can't imagine who it really benefits. The subject is so basic, it ought to be addressed before a person becomes an investor at all. But I have a really hard time imagining anyone tackling this book as a newbie, before investing and getting interested. Though I guess plenty of people just throw money at the wall first, plan later, so maybe this book helps them.

This book did reaffirm that I have my asset allocation pretty much right – it's set on 'crazy motherfucker, if you're wondering' – and I sleep fine. Good to know.

3/5. A history of money by way of a history of debt. Which actually means it's about everything.

Oh man this is so great! And so infuriating!

The great part: The central project of this book is to demonstrate that debt is a political tool whose moral valence points the direction that sustains hierarchies. I.e. there are occasions when we feel as a moral issue that one ought to "pay one's debts," and we feel equally strongly in other situations that the moral burden is on the lender to forgive. Interrogating the difference is incredibly interesting, and gets us into the history of monetary systems, some semi-radical politics, and a lot of deconstructive social thinking. I dig it. I've recently really gotten into finance and investing; reading this book predates that, but it speaks to the same interest. When you start talking about money – I mean talking about money as a tool rather than as a personal finance topic – you by definition start talking about a lot of deeply personal questions of valuation, measurement, and self.

The infuriating: This book is mostly anthropology, and, well. Anthropology. Christ. There's a field that puts the anecdote in anecdata. I swear sometimes what they teach in anthropology grad schools goes like this: "Okay, first you come up with your conclusion. Make it something really big and sweeping about the nature of society. Got it? Okay, then go find an obscure tribe from the Australian bush that no one has ever heard of. One of those villages of two hundred isolated people. Then explain how one aspect of that tribe's society demonstrates your conclusion. Voila! It's proved!"

The number of times I snapped, "Citation, please," while reading this book . .

It's worth reading, because it's interesting and wide-reaching, and like I said, you can't talk about this stuff without getting pretty fundamental. And he throws out great thoughts on every page, with hardly the time to complete them. There was this particularly excellent drop-in he made towards the end about how we're told that money/development will always corrupt. You know, like how discovering a diamond mine is the worst thing that can happen to a poor village. And he's like, "Well, yes, but then again, who does that story serve? Because if you think about it, saying that humans will always behave badly when given enough money is a great story if you want to excuse the bad behavior you have just committed."

And I was like, "Huh!" And then he was off on some other dubiously sourced and occasionally flat-out wrong tangent that was nonetheless great.

The Bogleheads' Guide to Retirement Planning

4/5. Excellent and comprehensive. This book won't tell you everything you need to know about taxes or health insurance or estate planning, but by God it will make sure you can have an intelligent enough conversation to be asking the right questions. The chapters on investment focus – unsurprisingly, if you know who Bogle is – on passive index investing. I wouldn't necessarily recommend this as the first investing book to read in your entire life, but if you have been plugging dutifully away at your 401K and want to think about the bigger picture of long-term planning, you really can't do better than this. Docking a star just because it lacked that "putting it all together" chapter that could have elevated this from very helpful to truly remarkable. But this book holds up well for being more than five years old (most finance books have a very short shelf life) with the glaring exception that it doesn't get into the Affordable Care Act, for obvious reasons.

Why am I reading this now? Well, because when you aren't already a millionaire, time is your greatest asset, and I've got that. Plus, I'm in the extremely weird position of being thirty and making more money in the next couple years than I likely will for the rest of my life (weird career trajectories can do that) so this is the time I need to get my shit together. More finance books to follow.