Jan 09 2012

All you need to know about finance – in five sentences

Posted by: Nick Shaxson in: Thoughts

I have (finally) got hold of Michael Lewis’ The Big Short: Inside the Doomsday Machine, about some of the seeds of the latest global financial crisis. It’s justifiably got stunning reviews, and I should have read it ages ago. Remarkably, it manages to tell you everything you ever needed to know about the financial sector – in its first few lines:

The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day. I was twenty-four years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. Wall Street’s essential function was to allocate capital: to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.
. . .
Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud.

This may seem like just a few flippant comments – but I prefer to see it as an anecdote that reveals a profound truth about finance. OK, it’s not all that you need to know about finance – of course there’s lots of other stuff to consider. Of course there is. But if you don’t understand this, you can’t possibly understand what has gone wrong with the global economy.

It’s a brilliant book.

Oh, and this one’s rather excellent, too, of course.

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[…] look back to my recent blog looking at Michael Lewis’ book The Big Short, the confessions of a financial insider who […]

[…] approach to finance that has been missing from so many accounts of the crisis (with some notable exceptions.) My only real gripe is that it’s written in overly academic language for my personal […]

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