Friday, July 18, 2014

Extreme Money: The Masters of the Universe and the Cult of Risk, by Satyajit Das

Staff Review by Chris Saliba

In Satyajit Das’s Extreme Money, we learn why modern economies have become so volatile over the past 30 years. Das’s urbane style mixes broad literary and cultural references with extensive experience in the finance industry to produce a book that is part history, part philosophy and part cautionary tale.

Satyajit Das has an extensive history in the more complicated and arcane side of international finance, namely derivatives trading. He has authored industry reference books on derivatives and risk management. His first book, Traders, Guns and Money (2006) was an insider's account of the high stakes world of derivatives trading.

Extreme Money, by contrast, concentrates on what Das terms the ‘financialisation’ of modern economies over the past 30 years. Money has gone from the concrete – metal coins, gold-backed currency, barter and the exchange of goods – to the increasingly unreal and abstract world of paper and electronic money. Where currencies once were worthless unless they had a solid material backing, money is now backed by nothing more than confidence. Confidence sounds rather calming, but markets (and the people that drive them) are also subject to over-confidence, or irrational exuberance, as it’s been called. A lack of confidence can turn into panic. Hence modern economies see-saw between boom and bust.

Das gives a sprawling and comprehensive view of the financial world of the last thirty years. He has a fascination for colourful personalities (he draws an extensive rogues gallery) and irrational behaviour, giving his analysis a cool and dry humour. If anything, Das seems highly bemused by the magic thinking that has accompanied so much of the cutting edge high finance of the last 30 years.

The book highlights the intersection at which government policy, business, academia and influential writers came together, gave birth to, and sustained the whole ideology of extreme money. Perhaps the most emblematic character of the folly of extreme money is Alan Greenspan, whose confidence in unregulated market economies Das blames as most culpable for the 2007 US financial meltdown.

Extreme money is a superb book. While some of it is difficult to follow, especially the sections dealing with derivatives trading, hedge funds and other such dizzyingly complex financial products, Das spices his prose with a broad range of quotes to illustrate his point, everyone from model Tyra Banks to poet and playwright William Shakespeare. It is Das’s urbane and sophisticated style, his broad range of intellectual and literary interests, mixed with his deep understanding of the finance industry, which makes Extreme Money an utterly fascinating dissection of an often bewildering subject.

Extreme Money also tells us that the masters of the financial universe are no more than shonky Wizards of Oz, their greatness supported only by elaborate smoke and mirrors. We shouldn’t trust in the supposed infallibility of their expert opinion, as they have been shown to create enormous disaster and destruction by making us believe that the future could be brought forward and lived on today. And as Das tells us, debt is no more than enjoying the fruits of tomorrow today, the very opposite of delayed gratification.

What’s the take-away from Extreme Money? Risk can’t be eliminated from life, and hence from financial markets. It was sheer magic thinking to expect that markets could keep returning money at high returns. Despite what many may hope, money can’t be grown by creating complex, unfathomable financial products.

Extreme Money: The Masters of the Universe and the Cult of Risk, by Satyajit Das. Published by Penguin Books. ISBN: 9780143571452 RRP: $24.99

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