My Review of "The Other Side of Wall Street"

This is an interesting memoir of a Wall Street insider's (Todd Harrison's) look at his life, so far, and his experiences in Wall Street. Things of note...

1. His grandfather, Ruby, told him all you have is your name and your word, and that honesty, trust, and respect were the foundation of any successful endeavor. Over the years, Todd confused net worth with self-worth. Dad left when he was 2, Mom and Todd moved from house in NJ to apartment in Great Neck, LI. He was diagnosed with ADHD, didn't fit in socially, placed in private school, 7th grade in Great Neck South Middle School, Bagel shop boy at 13 - learned if you want money get a job. Still had ADHD, but did well in sports and had a pretty traditional childhood. Jr and Sr year HS spent in CA to be with dad. Applied to UC Santa Barbara, San Diego State, Boston U., and Syracuse. Went to Syracuse, good education, sports program, fraternity, did well. Met friend Kevin Wassong at Syracuse, talked about working together sometime, Kevin got job at reative Arts Agency, Todd got a business degree, in finance so to be near the "cash register." Todd got an internship at Morgan Stanley, then hired by them after school - Chuck Feldman made the offer.

2. At MS, clueless at first, worked at the equity derivative desk. Slow, but learned - "Buy-write" - long calls, short stock, "synthetic put" - long stock, short calls - "married put" ,long put, long stock.

3. Jim Cramer called, "Do you like ....what do you think? Todd said "yeah," Cramer hung up. Learned to give quick answer, not waste time.

4. 1st yr - $28K, no bonus. One incident told sell something, couldn't, told to lie.

5. 2nd yr - same, no bonus, warning, 3rd yr,/1993 - $75K, 4th yr, $150K

6. Had a big loss with First Interstate Bank, learned money makes you do things you don't like, became arrogant, cocky, innocence gone replaced with power.

7. Saw that WS had an uncanny ability to recreate, repackage and sell risk. And, saw steady stalwarts passed over for promotions - bad things happening to good people - all politics. Then, he was "ambushed" - told he couldn't be trusted, joined the Galleon Group hedge fund, they needed a derivative specialist. Struggled at first with Galleon - no bonus, told lucky to have a job. Then, Asian contagion, Greenspan stimuli, seeds of dot.com bubble which evolved into booms and busts in next decades.. By 1999, things were good, he began to covet things, wanted to be a partner.

8. Moved to Cramer-Berkowitz hedge fund as partner, smaller $400M fund, base salary $300K + % of profits, ran trading operation. Cramer was master of momentum and Berkowitz had a brilliant analytical mind. After Cramer threw a tantrum over a bad trade, Todd saw the true colors - you are only as good as your last trade - never the same for him. 4/2000 NASDAQ dropped 20%, in Summer, Cramer had Todd write column for Street.com - "The switch was flipped." Dad in jail in Hawaii, Bipolar like Cramer, Todd decided to leave, $5M final paycheck, $700K annual salary at the time. Cramer went on to CNBC, Berkowitz headed fund, Todd went to Street.com to write.

9. 9-11 hit, falling out with Street.com, decided to leave.

10. Met Casey Cannon, entertainment field, found bridge between finance and entertainment, Minyanville was born with "Hoofy and Boo" characters, launched 10/2002 along with the Ruby Peck Foundation. 12/2002, quit Berkowitz-Cramer, Street.com and started own small hedge fund. But made wrong call after financial collapse, didn't anticipate strong recovery, was wiped out. Became depressed. It took losing nearly everything to understand what real wealth was - happiness is not in a bank account.. Fork in the road, almost insolvent, decided to focus on Minyanville and foundation, Kevin Wassong joined him - remembered, "do whaat you love and the money will come." Minyanville won an Emmy. Finally, real success. In business, be an animal, in life, be yourself.

So, a pretty good memoir. My thinking from the book, is that he was successful at Galleon, because he had good tips, but recent uncovering of insider trading at Galleon, Todd was only successful because he was given illegal info, though he probably didn't know it was illegal. And, his success trading at Cramer-Berkowitz, was because Cramer, a genius of momentum, caught the dot.com bubble run-up just right. His real talent was in learning the inside of Wall Street and writing about it in an entertaining way. So, a worthwhile book, in learning a little bit about one of the Wall Street players and his connections.

4 out of 5 stars.

My Review of "The Communist Manifesto: A Modern Edition"

The reason I wanted to read The Communist Manifesto now is that I don't remember reading it in school and this current financial mess, called the Great Recession, seems at its core the result of greed gone wild, underpinned with our system of capitalism which seems to have in it the very incentives to bring on this excessive greed. So, I was hoping this book would give me some meaningful thoughts with which to further have clues to the way things might play out during this financial mess including the political ramifications. And, from what I do know about Marx, I suspect what happened here is something he had thought out, in a general way, many years before. The Manifesto and the book's foreword cover things like......

 

1. 1847, Marx and Engels joined the League of the Just (renamed the Communist Party) with its object to overthrow the bourgeoisie with rule by the proletariat and a new society without classes or private property.

 

2. 1871, Civil war in France - Marx defended it and it then gave him notoriety as a dangerous leader of international subversion and feared by governments.

 

3. Over the next 40 years the Manifesto conquered the world and carried forward a rise of new (socialist) labor parties. None were called Communist until the Russian Bolsheviks. Mostly in central Europe to Russia. Small in SW Europe.

 

4. When a major state (Russia) represented Marxist ideology, the Manifesto became a  text in political science and still remains so.

 

5. It was written for a particular time in history

 

6. Marx and Engel's Communist Party was not an organization - more of a historical document.

 

7. Two things which gave the Manifesto its force - a) the vision that capitalism was not permanent/stable, b) The revolutionary potential of a capitalist economy.

 

8. We live in a world where this transformation has largely taken place.

 

9. Capitalism can't provide a livelihood for most of the working class.

 

10. There will always be the oppressors (capitalists - bourgeoisie) versus the workers

 

11 The Bourgeoisie has stripped all occupations down to paid workers.

 

12. The need for constantly expanding market for its products means ultimately global.- effecting even a world literature, cheap prices - will make all nations bourgeoisie.Eventually overproduction leading to barbarism because of too much civilization. The proletariat/workers  become mere appendages and lose all character. Brings more collisions between societies and trade unions will flourish. The worker groups get bigger and more powerful through education provided by the bourgeoisie. Other classes except the proletariat will decay.

 

13. Wage labor rests on the competition between laborers. Communists flourish independently of national borders.

 

14.Communism abolishes bourgeoisie property, no big deal since 90% of private property belongs to the bourgeoisie. Small peasant property is destroyed daily by industry. Average wage of laborers is the minimum wage, just for subsistence. Education is rescued from the influence of the ruling class. Since family is a bourgeoisie thing affirmed by property, family is destroyed - children are transformed into simple articles of commerce and instruments of labor. Working men will have no country. Communism's desire is to abolish countries and nationality. National differences and antagonisms will vanish. External truths like freedom and justice will be common to all states. But, communism will abolish eternal truths like religion and morality - a new basis. Communism will raise the working class to the ruling class.

 

15. Specifically, communism will:

    a) Abolish property in land and application of all rents to public purposes.

    b) Abolish inheritance.

    c) Confiscate property of emigrants and rebels.

    d) Have a national bank.

    e) Centralization of communication and transportation by the state.

    f) Factories and instruments of production to be owned by the state.

    g) Combine agriculture and manufacturing so there will be no distinction between town and country.

    h) Free education.

 

So, I would say the Communist Manifesto, though really just applied to a time in history and times have surely changed quite a bit since then, but I would also say what it was concerned about also shouldn't be ignored when trying to understand the current economic stress we are in. Our capitalism, though obviously very successful especially in many respects, does show strain in the following areas, as Marx could have likely anticipated like a) the gap between the well-off and the poor and even middle-class has dangerously widened such that our political divisions reflect that and has turned more heated and split, making compromise among our politicians very difficult - hard to govern the country efficiently. b) He warned that the bourgeoisie (today's well-off) has been unable to effect the tools to elevate everyone enough, judging by our failing infrastructure, healthcare costs the highest in the world, etc. c) He anticipated the global impact, ever searching for the least cost workers, such that our manufacturing workers are left without jobs. We can even see this global force in our illegal immigration problems - workers from Mexico, etc coming here, somehow even breaking down our borders - something Marx  apparently could see. I did leave off some other things in how the Manifesto was relevant now, in this short paragraph, but from the points, above, it can be seen there are others.

 

In conclusion, I give the book 5 out of 5 stars. It is a short enough book and just its impact has been monumental in history, it is worthwhile to keep in mind as one tries to figure out what might come next from this Great Recession.

My Review of "The Big Short."

The book, by Michael Lewis, is very good at detailing the situations and characters involved in the financial mess caused by the recent housing bubble and how a few people anticipated it and bet big on it happening.

The book starts with a quote by Tolstoy about the importance of being open-minded in order to understand complex things and being close-minded keeps someone from understanding even simple things. The author was amazed how in the mid 1980's, Salomon Bros. would pay him good money, a 24 y.o. with no clue. Yet, he figured out then that the big money was made in the bond market not stocks, leading up to the junk bond collapse in the 80s. He then wrote about it, and here it was essentially happening all over again with the bond people. CEO's knew nothing of the risks their bond traders were taking. He hoped bright college students would avoid Wall Street, rebel against it and just pursue what they loved. But, no, the financial system would again be discredited. He then goes into these key things in this mess like:

1. Meredith Whitney, then an obscure analyst at Oppenheimer & Co, with just a BA from Brown who studied English, said Citicorp was so mismanaged it would cut its dividend or go bust. The so-called experts were still not acknowledging the risk in the sub-prime mortgage market - not that they were corrupt, just stupid. She was trained by Steve Eisman who also gave her a world view - how to see the big picture when analyzing stuff. She read about John Paulson, a hedge fund manager, who made big bets against the bonds and there were a few others. Eisman, U. Penn and Harvard, but also yeshiva trained and loved the Talmud because of its contradictions - he had the mind set to look for investment contradictions. He saw Wall Street going where it never went before - into the debts of ordinary Americans - cash flow from pools of mortgages - the only risk back then was of borrowers paying off soon, but never not at all. So, this new market, never really tapped into to such an extent, homes, and let less credit-worthy people to buy homes, but the real risk was in letting them cash out and refinance to get more money, basically a fast buck business with the issuers of the mortgages just selling them off and not caring what happened long term. Society had changed, with incomes more skewed, more wealthy and more struggling - so this was a way to let those left behind in the economy to prosper, even feel wealthy - letting them borrow easily. Oppenheimer was getting into this new market. Eisman needed Vincent Daniel, from Queens and SUNY Binghamton whose father was murdered - so different roots, to parse data. Found that delinquency rates were hidden, only profits from prepayments were visible.

2. 1997 Russia defaulted, 2002 Eisman saw HFC was a fraud - tricking customers on interest rates, Eisman was aware of ACORN -was a Republican until he saw an entire industry, consumer finance, existed just to rip people off.

3. By 2005, 75% subprime loans were floating rate, fixed for just 2 years. Long Beach Savings was the first to get into this, soon followed by big WS banks - run by the bond departments.

4. In 2004, Michael Burry got into them, seeing decline in lending standards, but hard to short, then he discovered Credit Default Swaps (CDSs). Charlie Munger gave lecture about the "psychology of human misjudgment."

5. 2ndQ 2005, credit card delinquencies at all-time high, but home prices continued going up. Hallmark of a bubble/mania/fraud.

6. AIG on the other side of the bet, issuing the CDSs. Goldman created the CDO and synthetic CDOs which had in them CDSs. Home prices didn't need to fall, just not go up as fast. Tom Fewings, the first in AIG to spot trouble - when seeing WSJ article on New Century. Joe Cassano, head of AIG FP didn't think home prices would fall, at least not nationally, all at once - eventually did change his mind, but still exposed. Mid 2006 home prices began to fall.

7. FICO scores had blind spots - didn't acct. for people's income, could be rigged by getting a new credit card and paying off right away, no differerence between "thin file" and "thick file" borrowers, teaser rates hid risks, averages were used for pools of mortgages which hid the amount of low FICO scores of those who should never have been given mortgages, "silent seconds" allowing borrowers to have no equity in their home.

8. Few used CDSs as outright bets against housing, most were used as hedges while still hoping for the bonds to work out. Exceptions were those who listened to Greg Lippman's pitch, like John Paulson. Paulson/Eisman/Burry understood the risk. Ledley/Hockett/Mai just bet on the least likely possibility - their strategy. Rule of thumb - buy homes when price equal or less than 10X rent and sell when 20X.

9. Names and acronyms hid risks - CDOs not called subprime backed CDOs, but structured finance CDOs, RMBS, HEL, HELOC, ALT-As were just no-doc crappy loans, Rockridge community not called Oakland so homes would sell for more. Actually, 80% of a CDO was overrated, so even better to bet against the higher tranches, since the CDS would be cheaper but the same likelihood of default.

10. Wing Chao, called a CDO manager, which were essentially front men for WS firms, could collect bigger salaries and imply they actually studied the CDOs.

11. Rating agency people were underpaid- should have been paid more to attract talented people - they just made their money by collecting fees for each rating, so just pushed them through quickly. Like a Ponzi scheme - more morons than crooks, but the crooks were higher up. WS just propped up CDO prices while it could - fraud was rampant - neither the WSJ nor SEC was interested.

12. Now Bear Stearns at risk. Merrill had advised Orange county before their bankruptcy, was in the middle of the Internet bust, 80's bond market bust, so naturally they would be in the middle of this.

13. Jim Grant couldn't figure out CDOs then realized that was the story to be told.

14. When Goldman got into the bet against CDOs, then CDOs began to tank. 4/2007 New Century went bankrupt. BS leverage 40:1,Lehman & ML 32:1, Morgan Stanley & Citicorp 33:1, GS 25:1. Only a slight decline could bankrupt them all. 9/2008 Lehman went bankrupt, ML $55B loss - sold to BA. WS firms were the dumb money, CEOs stupid. Bear Stearns Chioffi and Tannin arrested.

!5. It was greed, sure, but more the incentives which channeled the greed. Then, the people who didn't see it happening were the ones to clean it up - H. Paulson, Geithner, Bernanke,etc. Then H. Paulson engineered the $700B bailout of the worst culprits.

An important book, the only criticism I have is that it could have been shorter, but I guess the author did want it to read like a story and illuminate some specific personalities, which will probably make the book easier to make into a movie.

4 out of 5 stars.

My review of "Nudge"

"Nudge", a behavioral economics book, is very good at giving a reader perhaps a peak into President Obama's mind as he attempts to tackle some pretty big issues like healthcare, the environment, education and the financial urgencies of Medicare and Social Security. In his first few months in office, he does seem to be trying to win the support of political moderates just as this book presents such a case with its concept of "libertarian paternalism". The concept presents a case for giving people many choices while at the same time trying to have them lean toward directions which would likely be in their best interests. Some points from the book which caught my attention are:

1. Small details can have major impacts on people's behavior.

2. A "nudge" is an aspect of choice architecture which alters human behavior in a predictable way without forbidding any options or changing their economic incentives.

3. Never underestimate the power of inertia. The power can be harnessed by default options, for example. 'Econs' are people who respond to economic incentives. 'Humans' are people who respond to incentives AND nudges. Therefore, incentives and nudges help everyone.

4. It is false to assume almost everyone all the time makes choices in their best interest.

5. There are two kinds of thinking: intuitive/automatic (the oldest, like with voters and teenage drivers) and reflective/rational.

6. The book goes into rules of thumb like 'anchoring', 'availabilty' and 'representativeness' which affect how people make decisions.

7. Optimism/overconfidence and loss aversion affect decisions.

8. Temptation/dynamic-inconsistency can be handled.

9. 'Following the herd' must be managed.

10. 'The spotlight effect' - people unnecessarily tend to think others are watching them. So, investment clubs with conformists tend to do poorly, for instance.

11. The golden rule of 'nudges' is when they are most likely to help and least likely to cause harm.

12. Expect errors - humans are prone to making errors.

13. If Social Security is changed to allow investment choices, well thought-out defaults would be good. Medicare Part D is too cumbersome the way it is now, with about 2/3 making the wrong choices.

14. Asymmetric paternalism - help the least sophisicated while imposing the least on the most sophisticated.

The book also goes into over thirty nudges on various issues. Overall, the book is timely in giving a reader a clue into how some major issues facing the government might be handled, in order to have the best chance of progressing and working. 4 out of 5 stars.

My review of "The Great Depression Ahead"

Harry Dent's "The Great Depression Ahead" offers a lot of well-thought-out scenarios, using studies of cycles. Using them, he was pretty good in his 1993 book in calling for the 1990's economic boom and seeing the beginning of this decline. He might have missed the amplitude of the boom, but his approach does seem to have some value as a guide.

Things in the book, I think worth remembering are:

1. Leaps in science finally apply to economics, with micro-cycles being more probabilistic than macro-cycles which are more deterministic - cause and effect.

2. His S-Curve principle for new products overtaking old ones is helpful. Demographic and technology trends are perhaps the most helpful.

3. Oil/commodity booms tend to follow 30 year cycles. Though, he might not have caught the recent oil/commodity drop, it doesn't invalidate all his thinking.

4. Georege Soros is mentioned as calling 'an end of an era' in foreseeing the bursting of the credit bubble.

5. Demographics and low interest rates led to the housing bubble.

6. Geo-political cycles restrict a stock boom by about 50%.

7. He thinks 2011 will be the worst, with unemployment 12-15%, with the 'depression' lasting until about 2013.

8. Kind of funny, but he tracks potato chip spending, and he documents it peaking when a family head reached about age 42.

9. He sees 2008-2012 as survival-of-the-fittest among businesses, with the strong ones getting stronger.

10. He tracks 5000, 2500, 500, 250, 20, 10, 4, and one year cycles also. Perhaps, this is the book's weak point, since so many intersecting cycles may add too much confusion. But, he does focus on a few main ones, so I guess it could help a reader as things play out.

11. Stocks do better from May 1 - Oct 31. Although others have noticed this, he provides a helpful chart.

12. Estate taxes from dying baby boomers could be an unexpected windfall for stressed state budgets, since never before have we had such a large prosperous generation.

13. Globally, the innovation cycle will continue, if managed well.

14. Errors of LTCM are the same which are affecting the 'quants' in today's hedge fund meltdown. They are a) assuming the future will be like the past, b) assuming large gains/losses are too rare, and c) assuming investment returns are independent variables.

15. Dent mentions the book, 'Black Swan', when thinking just because you don't observe something doesn't mean it can't happen.

16. Stock/financial markets are not casinos. Casinos are closed systems with predictable odds. Markets are worse, because they contain induction errors, where price movements, themselves, affect future ones. Data points are not independent, so can't use standard bell curve distributions. Again, he mentions Soros, his 'reflexivity' concept - prices affecting prices. Volatility increases during phase transitions. Volatility is not a constant. However, the S-Curve can help somewhat.

17. Besides knowns and known unknowns, there are unknown unknowns, like the Russian bond default which caused the LTCM meltdown.

18. Republicans do better during growth and innovation phases, benefiting mostly the wealthy. Democrats handle shakeout and maturity phases better. helping everyday people. Need both.

19. Infrastructure investment is best when labor is freed up, like during economic downturns. The US spends about 2.4% of GDP on infrastructure, Europe - 5%, China - 9%, so we can handle added infrastructure spending during our downturn.

20. World trade during the 30's collapsed 67%. Something to keep in mind. Unlikely it will get that bad this time.

21. Iraq - the good thing is that maybe we learned not to try to be the world's policeman, an expensive thing.

22. The US regenerates its population at a better rate than other mature societies like Japan, Europe and Russia. Not great, but relatively better than a lot.

23. The green revolution could help the economy.

So, this is a good book, which should help a person evaluate what happens from here, in this economic meltdown.

My review of "The Shock Doctrine"

A must-read!, review originally written on April 12, 2008

"The Shock Doctrine", by Naomi Klein, is a must-read for anyone who wants to get a clearer picture about what the US has done in Iraq relating to the 2003 invasion, from an economic perspective. The book begins decades before, from the lens of Milton Friedman and his advocates' approach to laissez faire, free-trade corporatist economics and government's role in making it happen.

She does seem to come from a viewpoint as seeing free trade, etc mostly just punishing the less fortunate. It should be noted that Milton Friedman did advocate a negative income tax to replace welfare. So, it is not that he and some of his advocates are either totally misguided or heartless. However, there are indeed excesses by many in powerful positions who really are either misguided or heartless or both.

From tsunamis to Hurricane Katrina to changes in government in Chile, the Soviet Union, Argentina, etc and the 'shock and awe' in Iraq, there are people with power who either wait for or effect some cataclysm to panic everyday people to accept what is really not in their best interest and looks to reward the well-connected.

I'll just mention a few things from the book which come to mind and I feel noteworthy:

1. The author uses the term, 'useful crisis', like with the Canadian debt crisis in the 90's, to create a sense of panic to justify potential cuts to social programs. This term is appropriate in generalizing what has happened around the world in different situations.

2. Donald Rumsfeld was a board member of ASEA Brown Boveri, the Swiss firm that sold nuclear technology to North Korea. Interesting!

3. Rumsfeld was Chairman of the Board of Gilead Sciences, maker of Tamiflu, the preferred treatment for bird flu, setting up Gilead to make tons of money as the government which he became a part of, then stockpiled the drug while Americans were warned of a possible mass outbreak of the disease. When Rumsfeld left the government, the value of the Gilead stock he still owned had gone up 807%. Interesting!

4. The 2006 Defense Authorization Act grants the president the power to employ the armed forces, overriding the wishes of state governments during a 'public emergency' which could include hurricane, mass protest or public health situation. Previously, the president could only invoke martial law in case of insurrection.

5. US orchestrated foreign coups seeking to protect corporate favorites, can sometimes try to sell the coup because the country is being alien to Americans simply because it is alien to an American company and thereby trying to undermine the US.

6. Paul Bremer, given the responsibility to remake Iraq, enacted a 15% flat tax and allowed foreign companies to own 100% of the profits in Iraq, not re-invest in Iraq and not be taxed. Plus, 40 year leases for foreign investors so any future Iraqi governments would be stuck with the deals.

7. The author reminds the reader of what the political scientist, Michael Wolf, had to say that conservatives never govern well because they believe that government, itself, is bad. Surely not always true, but it is certainly a thought to keep in mind when evaluating a conservative candidate for office.

8. The White House ignored most of the Iraq Study Group's recommendations except to now allow companies like Shell and BP to get long oil leases and keep most of the profits, effectively keeping millions of Iraqis in perpetual poverty.

This book is well documented with references and definitely a must-read.

My review of "Gangster Capitalism"

A very timely book! Review originally written on November 16, 2008

What makes "Gangster Capitalism" so worthwhile is that it helps in understanding what has led us to the 2007-8 financial meltdown. As the book shows, like during the 1920's, deregulation led the way for powerful companies to allow the very wealthy to get wealthier at the expense of average people by using poor working conditions, low wages, etc, plus at the same time supporting supposedly moral movements (against gambling, alcohol, drugs, etc) which mainly served the purpose of making these trades more profitable to crooks and therefore created rampant gangsterism there. The result was such a society wracked with gangsterism at all levels, but because most people felt they were prospering, few complained. But, then it all collapsed with the 1929 crash and resulting Depression, which led the way for FDR and the New Deal programs which increased regulation of corporations, repeal of Prohibition, etc. Though the Depression lingered until WWII, the New Deal was successful in restructuring our laws and public infrastructure to create a better footing for the prosperity which would follow. The book effectively traces how much of this regulation was reduced piece by piece, beginning in earnest with Nixon, using Cold War fears to tilt the nation toward more corporate power and away from reform, support of right-wing dictators around the world, re-energizing a 'moral crusade' especially by beginning the War on Drugs, thereby making the illegal drug trade super profitable, etc. The nation had shifted Right and even Democratic presidents like Carter who was instrumental in deregulating industry and Clinton who signed into law the repeal of Glass--Steagle weren't able to stop the shift. Then, the 'Gangster Capitalism" went on steroids with G. W. Bush. By 2003, corporate taxes only amounted to 7% of revenues, while payroll taxes amounted to 40%.

Of note, the book makes clear it is opportunity which leads to much crime, so the approach of massive deregulation of corporations, plus focusing on arrests and imprisonment for victimless crimes ends up with the wrong results, more entrenched crime, even allowing corporations to capitalize on a prison industry. The book is also good at highlighting how corporations and outright gangsters were able to corrupt legal drugs (price-fixing), tobacco, asbestos, body parts, autos (Pintos), etc. Some other things in the book, of note: Hamid Karzai included drug traffickers in his Afghan administration. And, our support of Suharto (Indonesia), Mobuto (the Congo), and Marcos (the Philippines) allowed 'looting' of these countries. A corrupt financial infrastructure included the BCCI bank and offshore banking to evade taxes also developed. Plus, laundering money from illegal arms sales, drugs, and so many other illegal activities passed through our financial system.

The book is definitely tilted toward a liberal way of looking at things, therefore it doesn't go into the good things about capitalism, but there are disturbing patterns which are important to understand, and this book does that very well.

My review of "Extraordinary Popular Delusions and the Madness of Crowds"

A classic, well worth reading! Review originally written on November 22, 2008.....

For a long time, I have wanted to read this 1852 classic, "Extraordinary Popular Delusions and the Madness of Crowds", by Charles MacKay, but why I decided to do so recently, was because I was hoping to get some insights into understanding our recent Housing bubble and 2007-8 financial meltdown. I am glad I read it, because I did indeed come away with some 'extraordinary' insights.

Sure, this book goes into some historic financial bubbles, like Tulipmania, the South Sea Bubble, and the Mississippi land scheme. But, when it got into other manias involving witches, the Crusades, alchemy, popularity of certain phrases/expressions, fortune tellers, slow poisoners, duels, admiration of thieves, haunted houses, etc., it awakened me that our financial meltdown wasn't simply a repeat of other financial bubbles. We had the Internet bubble only a few years prior to what was happening with Housing, so most of us should have not been so blinded as Housing got out of hand. But, it is clear that we were also suffering from an overload of all kinds of manias, which I think, because of the depth of this book, appeared to condition so many in our society to find an even greater safety in 'crowds'. In particular, words like liberal and socialist were not just argued against, but actually successfully demonized, along with targeted uses of words like 'traitor' for anyone not supporting a US war, even trying to affix the term, 'terrorist' to Barrack Obama. Witness the success of Ann Coulter books, Fox News, etc. It is like if you just wanted to be a renter, there must have been something wrong with you, even anti-American, not wanting to participate in 'the ownership society', another term feeding into a financial mania. Plus, was anyone warning that this 'ownership society' was based almost entirely on debt, hardly real ownership? Heck, we were told after 9-11, the patriotic thing to do was shop, never mind sacrificing for the war. Also, our almost maniacal adoration of celebrities, outrageous salaries for athletes and CEOs, long lines for new introductions of new Apple products, Harry Potter books, etc, etc.

We were a society primed with all kinds of 'extraordinary popular delusions', especially susceptible to a meltdown of generational proportions. Will we change? It does look like many are looking for some deeper societal transformation. But, as this book seems to show, transformation will be difficult, and we probably need to worry about transforming to just another mania, just as bad. We have a big task ahead.

Too bad Mr. Mackay isn't around to write about our current manias. Though the book is about 700 pages long, unless you are particularly interested in every detail of each mania, you can skim over lots of the details and complete the book in just a few days and still come away with a thorough understanding.