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More Money Than God: Hedge Funds And The Making Of A New Elite (2010)

by Sebastian Mallaby(Favorite Author)

3.96 of 5 Votes: 1

ISBN

1594202559 (ISBN13: 9781594202551)

languge

English

genre

History & Biography

publisher

Penguin Press HC, The

review 1: This was one of the best descriptions of how the financial system makes money that I have read. This could stem from the fact that it built on top of the earlier information I had, but, in any event, I came away from this book with a much clearer understanding of the workings of the stock market than I had before, and I actually went back and re-read some things I had read earlier and they made more sense.The author is quite in favor of hedge funds. I'll stop short of saying he is in thrall, but it at least crossed my mind.His point is a fair one- hedge funds are real, unfettered capitalism, that you get the benefits of a large instituional investment bank with much less of the moral hazard. Hedge funds create wealth (like investment banks), their traders get paid a signif... moreicant cut of their earnings (less like an investment bank) and no independent hedge fund has ever been bailed out using taxpayer money (entirely unlike investment banks). The last ponit is a bit of a stickler- hedge funds that were started within investment banks have collapsed, bringing down banks themselves (Bear Stearns for example), but the author's contention is that these don't count as true hedge funds, as they always had the de facto backing of their parent banks, and they were really just a way for these banks to sell their services to large investors at ever-increasing buy-in amounts. It's a fair point given that, apart from the cost to buy-in it's difficult to discern a difference between the parent investment bank and the child hedge fund. So the 'moral hazard' of taxpayer reimbursement of bad decisions is not in play for hedge funds. I'll leave the discussion of the other moral hazards of the financial industry to the reader. (As does the author).The book starts with the origin of hedge funds. Originally, they were called 'hedged' funds, as they hedged their positions and borrowed to increase profit, back in the 1950s. Eventually, they dropped both the 'd' (and the actual hedging), and became 'hedge funds.'During the 70s and into the 80s, a sizable chunk of profits seemed to come from knowing about trades before they officially happened. This overt practice gradually went away (though was the progenitor of the high speed trading issue that broke with Michael Lewis' latest book, and was practiced by any trading entity that could do so- technically illegal, of course, so no one admits to it), but without the hedging, much of the profits came from the concept of asymmetric risk, a simple idea that is difficult to identify in reality. Those that did, prospered. Many did not and failed. Some identified it in a vacuum, then found themselves to large to get in and out of trades fast enough. This speaks to the never ending problem besetting all trading entities: you make a lot of money, then, because you now have so much money you make too much of an impact on the prices of what you buy and sell, leaving you unable to buy and sell as fast as you want. Then you have a 'liquidity' problem, and your competitors take you apart. The takeaway I got from this book was the primacy of information. It surprises precisely no one that hubris swaggers through the hedge fund industry. Many of the titans have been brought low by people simply figuring out which trades they were making and making them as well. Some enver spoke about their secret sauces; others published a monthly newsletter (this is basically what killed Tiger; it's much easier to spot your competitors patterns when he publishes a list of trades every month). Everyone is operating under incomplete information conditions; if your informations is slightly less incomplete, you can turn that into an advantage.This is a fun book, an easy read and definitely worth reading if you want to know more about the financial industry. You'll learn a bunch and not even realize it. One final note- I was staggered by the change in scale in a decade and a half- in 1992 Soros broke the pound sterling by going in with $10B (others followed). He couldn't buy more when he tried (tragically, he only made $1B in that deal). Just before the mortgage crisis, Michael Lewis details an investor dropping $25B against CDOs and the market not flinching. I understand that currency speculation and aggregated mortgages are not identical, but the spike in scale is shocking to me.Owen Gardner Finnegan
review 2: Un livre intéressant si on aime les portraits d'hommes de la finance et un historique des hedges funds un peu trop généreux et admiratif pour être absolument plaisant. Le texte évoque rapidement quelques éléments critiques comme l’obsession du secret chez les managers de fonds, mais jamais il ne va assez loin. L'auteur semble toujours pris par la passion des jeux de la finance et par le charisme des riches de ce monde. less

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