Crisis Economics: A Crash Course in the Future of Finance

Quick Thoughts:
  1. This was a tough book for me to get through.  I'm not sure if the subject is getting stale, the book was stale, or if I was just too sleepy for reading this book on the train in the morning (Tough week).  I think the latter may have had much to do with my sentiments, because my reading in the afternoon was much more fun.
  2. The authors do a great job of going step-by-step through the recent crisis.  They show how large the unregulated shadow banking system had become.  They combine this with their deep knowledge of economic history and the steps which occur during any financial meltdown.  It is notable that Nouriel Roubini, one of the authors, is widely known for sounding warnings of the potential crisis well before the meltdown.
  3. I really enjoyed the section in the book when they go through what different major economists believe needs to happen during a crisis.  They do a good job of showing the problems that both liberal and conservative economists run into if their theories are carried through to their conclusions.  In the crisis that just occurred, our government played rescue and threw lifelines to all banks in order to save the financial system and the economy.  This has created huge problems in terms of moral hazard.  Banks now know they can take on extremely large and irresponsible risks and get a bailout from the government.  On the other hand, the middle of an economic meltdown isn't exactly a great time to allow entities to fail due to all the linkages in the financial system.  Letting AIG fail would have damaged far more than just AIG.
  4. After reading this book, I'm very interested in how the authors feel about the financial reform bill that just passed.  They had a number of suggestions for how to reform our system, and from my reading some of these ideas were taken on by congress.  My instinct is that the authors will feel that the reforms did not go far enough and will result in another crisis.  These guys are regarded as pessimists, so I can't imagine that they will be very encouraged by a political settlement.
  5. I enjoyed the outlook section of the book at the end where they go region-by-region and issue-by-issue and discuss potential threat and opportunities.  They are extremely concerned with the US current account deficit.  They are certain that it is unsustainable and will end badly even if we take their suggested mitigating steps. 
  6. I will say that the book is very clear.  The authors make economic concepts intuitive for the reader.  Given my level of exhaustion last week, I should picked a different book for the morning.  However, I will say that the authors have me thinking about reading some of the more conservative economists (Like Hayek), so I can better understand the moral hazard issue.

The Red Queen: Sex and the Evolution of Human Nature

Quick Thoughts:
  1. I really enjoyed this book.  Matt Ridley is an entertaining author.
  2. The book starts by getting into evolution from a pretty hard-core biological perspective.  I have to admit, many of the concepts and terminology were outside of my everyday understand (It's been a long time since I took a Biology class - close to 25 years).  But, he makes it pretty easy to keep pace and at least walk-away with the main points of what he is talking about.
  3. One of his fundamental questions is why people (animals) use sex to reproduce.  This sounds like a simple question.  He shows that it's not.  He starts back in history and gets into the thinking of people trying to answer the question.  He shows plenty of evidence which backs up their answer to the question (often to the point where you think he's presenting THE answer).  Then he blasts their thinking with evidence that runs directly counter to their theories.  He slowly moves forward in time and does it again to other scientific thinkers.  By the time he reaches today, you have a real understanding as to why the answer to this basic question is so difficult to answer.  And in working his way through this scientific history, you get a sense for how people have gone about using experimentation and evidence to answer a very basic scientific question.
  4. Eventually he gets to his theories on human nature, which are basically those of an Evolutionary Psychologist.  Put basically, he sees men and women as having fundamentally different reproductive strategies.  Males have the capacity to spread their genetic code widely with many sexual partners.  Often in history, we have seen that remarkable wealthy, powerful men will take on many, many wives and have many, many children.  Females, on the other hand, are more limited in their total potential number of off-spring, and generally require male help in order to successfully raise her children.  A female can attract a husband, but reproduce with a different, higher status male without her husband noticing.  There are times that pursuing such a strategy gives her offspring the best chances for success.  Despite these differing strategies and conflicting interests, most of the time human society is monogamous.
  5. The previous paragraph isn't doing full justice to his ideas.  The author uses plenty of examples which show how unusual our particular mating habits are.  Then he goes to great lengths to show how we might have evolved the way we did.  It's pretty cool when he shows how aspects of our mating patterns are pretty similar to a specific bird or primate.  Finally, he takes these ideas and explains how you can see them playing out in current day society.  It's a fun ride. 
  6. What's great is that the author is convincing and does a great job of using specific evidence to back-up and challenge his points.  If you like non-fiction, sex, and evolution, then this is hard book to put down.


    Simply Complexity: A Clear Guide to Complexity Theory

    Quick Thoughts
    1. I didn't really care for this book.  The good moments were outweighed by several, "So what?" moments.
    2. That said, the author did a good job of getting me to understand that there is a mathematical framework for understand complexity.  When you think complexity, he wants you to think stock markets, traffic jams, biological processes, and other areas of life where many 'particles' act in a self interested manner and are greatly influenced by the structure of their surroundings and their interaction with other 'particles'.  A complex system can have outcomes that appear random but can be modeled.
    3. I felt like the mathematical tools and models he was describing were probably outstanding for video game simulations.  Like controlling the way that traffic appears in games like SimCity.  But, I wasn't sure that they ever could be more than just one of many tools in predicting real life outcomes.  My impression was that the author believed studying complexity was the most important way to predict real life outcomes.
    4. I was reminded of the idea that you shouldn't trust your models too much (See The Black Swan).  Just because you can develop a framework that can imitate certain incidences, doesn't mean that the framework is entirely accurate.  If you are driving and the map says to take a left to get on the highway, but the road is closed, you don't take a left.  Real life intrudes on models all the time and makes their predictive value less than expected.  I think that the author was in love with his mathematical models.  I got the impression that if real life started acting in way that was inconsistent with the model, then this author might instinctual say that real life was wrong and we should keep using the model because life will get back to normal.  I think that he'd get over these instincts, as he is a man of science.  But, once again, you shouldn't trust your models too much.
    5. I was particularly annoyed by a chapter on the stock market where he claimed that by using complexity theory, a person could develop a system that would make a lot of money on the market.  I call this kind of thinking using a system.  Often using a system works for long time, until it doesn't anymore.  And then the people who used the system end up way, way, way behind (See LTCM).
    6. I was also fairly annoyed at his decision to spend the final pages of the book going through quantum mechanics.  I could very well be missing the point of this section of the book, but I had no idea how this fit into his ideas on complexity.  It seemed like an attempt to link his ideas on complexity to still another area of research.  I didn't buy it.
    7. I will say that I found his discussion on treating cancer interesting.  I'm not sure if the medical profession is using his ideas, which basically consist of diverting resources away from cancerous cells, but if they are and it works then it's good to see that these models can and do have real world applications.


    The Age of the Infovore: Succeeding in the Information Economy

    Quick Thoughts:
    1. Tyler Cowen has a fantastic blog called Marginal Revolution where he pushed his book.  I don't think I would have picked it up if it wasn't for that.  I'm glad I did, because it changed my thinking on how I want to use the internet.
    2. The fundamental concept I took away from the book is that different forms communication suit different parts of our personality.  I wouldn't have bothered to go active on twitter account without that (fairly obvious) insight.  Here's more thinking on that on the Where's Wiebe blog (link).
    3. The author seems pretty obsessed with autism and its benefits.  If that sounds counter-intuitive, he knows it.  He actually spends the entire first chapter attacking the idea of autism as a disability and defending his own viewpoint.  The basic idea is that autism is really a different way of dealing with information, which (depending on the level of autism) is particularly well suited to the internet.  He builds on this idea through-out the book.
    4. Overall, the book feels pretty dis-jointed and works anyway.  The author jumps from subject to subject.  He spends half a chapter dissecting why people liked the Sherlock Holmes.  Everything sorta holds together.  I have to say that it kept the reading fun.  You never really had idea what examples he was going to use to advance his arguments.  He covers music, instant messaging, philosophy, and even alien life.  Reading this book is like having a really great conversation with someone who is brilliant.  The ideas just flow and things you wouldn't expect to hang together (Sherlock Holmes?) fit in with his points.


    Everything Bad is Good for You

    Quick Thoughts:
    1. This book is an argument that we're getting smarter and it's caused by popular culture.  And it's fun.  I'm not sure it holds together as he isn't able to provide much more than a correlation between the increasing complexity of popular culture and a rise in IQ scores.  That said, the author trashes the argument that video games and TV are making us stupid.
    2. I really loved the section on games and how they have changed over the years.  Granted, I've been living this trendline since I was... very young.  But the argument carried weight with me.  Expecially the parts about telescoping and problem solving.
    3. The TV argument is pretty fun too.  TV is more complex that it used to be.  Comparing the number of threadlines today versus the early 80s and earlier really holds up.
    4. If you like bucking against the conventional wisdom that pop culture makes us worse off, you'll enjoy the writer's argument.  Personally, I can't stand hearing people moan about how reality TV means we're in a cultural decline.  So this book suited me just fine.

    Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

    Quick Thoughts:
    1. This book is another blend of the ideas of behavioral economics with traditional economic analysis.  It's a pretty quick read and I found it interesting.
    2. The major idea behind the book is that traditional economic analysis misses a lot and actually gets things pretty wrong.  The authors present the idea that key concepts are not well understood by economists which really explain why the economy can get so overheated and so depressed.  The concepts are confidence, fairness, corruption, money illusion, and stories.  The authors devote a chapter defining each concept and how each affects the economy.
    3. OK, so the book feel a little mushy.  The concepts are fairly clear and the authors answer several questions using them.  But, it's hard to feel like this is an all-inclusive theory for economic behavior.  One of the fun thing about economics is that it pretends to be so predictive with all of its fun charts and curves.  These guys, fully aware of all the niceties, decide to take it down.  I actually think they are right, humanity can't be fully explained with math, but I really do like pretty and predictive charts.
    4. I'm probably overstating things a bit.  These guys are fully capable of using traditional economic analysis.  They just want to overlay it with softer, less mathematical concepts.  They mess with the models and show 'general' flaws.  Rather than getting it exactly wrong, they strive to get the arrows pointed in the right direction.
    5. And they are very convincing.  It's very helpful that they are writing in early 2009 when the entire world economy looked ready to fail.  Their ideas make a great deal of sense in this context.

    Influence: The Psychology of Persuasion

    Quick Thoughts:
    1. This is an older book, originally published in the 1980's.  You can tell because many of the author's examples come that period and earlier.  However, this really doesn't take away from the basic power of his arguments, just the points of reference he uses to support his positions.
    2. This book is touted as being for marketing professionals.  I can see why, it deals with how sales professionals get to yes, but it goes further than that by including examples of influence in politics and religious cults.
    3. What is brilliant about this book is the author's approach to the subject.  He is a Ph.D in marketing and psychology.  So he has much original research to bring to the table on persuasive influence, plus he is well read on other studies in the subject.  But, he takes things to the next level when he spends much of his time posing as a new sales hire and working for car dealers, door-to-door sales, and other high pressure sales jobs.  He goes through sales training and learns the techniques that they teach.  And he watches the best sales people he can find in the field.  When he sees a technique 'work', he designs a research experiment to see why it worked and if he can identify the principal that made it work.  This makes him especially well-suited to write this book.  And his technique works because the book is a really great read.
    4. An aspect of the book I particularly liked is that the author recommends specific methods that the reader can use to render the sales techniques useless.  They were a few that I think most of us already know, but a good defense to an shifty salesperson is a worthwhile thing to have.
    5. The writing is convincing, entertaining, and I dare-say useful.  Example examples/anecdotes are sprinkled throughout the book combined with really interesting experimental evidence.  And the author's insights just keep on coming.
    6. If you have an interest in marketing/sales, this book is block and tackle stuff and should be read.  However, this isn't why I picked up the book.  I'm really interested in market failures especially given the cliff diving we went through in 2008.  It seems to me that market failures are really about human failings.  The fact that we are subject to persuasion attempts and will act in ways that are against our interests is another aspect of our failings.  Are these irrationalities enough to discredit the market economy?  I don't think so, but I'd like to believe that we can figure out ways to protect people from the greater excesses of the market while enabling us to enjoy its benefits.  I can't say this book brought me any closer to 'fixing' our free market society.  But it does have some real insights into why we behave the way we do.  For that, it was worth the read.

    Irrational Exuberance

    Quick Thoughts:
    1. This is an older book, originally issued in 2000, updated and re-issued in 2005, and then re-issued with no substantial update in 2009.  The timing for the 2000 and 2005 releases is pretty incredible given that the book is basically about stock market/housing bubbles.  He warns that the markets are significantly over-valued.  And he was right.
    2. What's really interesting about this book is how the author blends work on behavioral economics with finance.  Students of finance are always introduced to the Efficient Market theory which is basically the idea that investors are rational and will make rational plays in the market.  Frankly, its a core assumption for much of the hard mathematical work of finance.  So this book takes finance and blends it with the core assumption of behavioral economics that people will behave irrationally.
    3. So you can guess where this going.  Financial markets can and will behave irrationally.  The author is pretty clear that we can't know the exact reasons for the creation of "bubbles", certainly not with mathematical precision.  But, he does make it clear that certain behaviors repeated over and over again, make it a certainty that markets will become over-valued.  He adds that once its realized by enough people, watch out below.
    4. The book does a good job of chronicling historical market run-ups and how they are treated by the greater investing public and the press.  He also takes studies in behavioral economics and uses them to illustrate specific irrational aspects of market history.  Then he has his own studies which he cites that very convincingly demolish the idea that financial market participants are fully rational in their trades.
    5. The book is definitely on the dry side.  I'm lucky to be reading it on a commute with no significant distractions.  I wouldn't make this beach reading.  That said, I think the book's points are well taken and I'd definitely recommend it to anybody who is playing the investment game.  His thoughts are excellent and should make you ask key questions about your investment strategy.  It will also help to make you more aware of the forces in the overall market that can really damage your portfolio.

    The Paradox of Choice: Why More Is Less

    Quick Thoughts:
    1. Excellently written, well argued, entertaining, and likely correct.
    2. I really enjoyed the way that the author blended in study after study to prove his case.
    3. Bottom-line.  This book is well worth reading by anyone and everyone.  He proves that the number of choices we have increases our discontent.  The strategies that the author recommends for dealing with choices are well-thought out given the scope of the problem.

    Bursts: The Hidden Pattern Behind Everything We Do

    Quick Thoughts:
    1. This is a quick and entertaining read.
    2. The author seems to believe that people are on the cusp of being extremely predictable.  In some ways, he continues the the same assault on bell curves that was in 'The Black Swan'.  He believes that we function by way of 'power rules' which basically mean that we do things in bursts (Hence the title of the book).
    3. I felt that the author was getting ahead of himself.  The best evidence in the book came from his research into cell phone records.  His team used them to see where people are when they make calls and found that they could predict (with an accuracy between 80% and 95%) where the person would be next.
    4. That sounds pretty impressive, and the author goes on to suggest all the positive/negative things people/companies/governments could do with this information.  
    5. This seems about as accurate as predicting the weather.  It really breaks down if you try to carry the prediction out over time.  If patterns were static this kind of information would be very powerful.  But patterns change all the time.  People move, have kids, change jobs, meet new people, etc...  Any of these life events can significantly change our movement patterns and completely screw up somebody's algorithm for predicting where people will be.  Also, is 80% predictable a good algorithm?  I think we're farther away from making good predictions than the author believes.
    6. I feel like the author confirmed, with data, what police detectives have known for awhile.  If you follow a person, chances are they will go to the same places, on the same days, at the same times.  If want to know where they will be, look at their history.
    7. The author blends the history of a failed crusade that resulted in lots of bloodshed.  I'm not convinced that it helped his overall points about our predictability.  I found the history lesson entertaining and a nice break from his research presentation.  I kept hoping he would find some brilliant way to connect the two themes of his book (The history lesson with the research presentation).  If he did, then I missed it.

    The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (Paperback)

    Quick Thoughts:
    1. This book felt LONG.
    2. The main idea in the book, that the bell curve is misleading and its reliance by all types of social scientists (economists, psychologists, financial experts) whom we rely upon, has left us more prone to improbable events that will definitely occur, is well stated.  The first half of the book is a good read just to get the author's insights.
    3. At first, I found the author's completed disdain of journalists, historians, philosophy departments, pundits, and noble prize winners somewhat enjoyable.  He writes from a position of superiority and lets the reader in on his viewpoint.  But it got old.  By the end of the book, the author felt like a know-it-all with a large chip on his shoulder.
    4. I'm not sure I can really recommend the extended version of the book that I read.  The financial crisis of 2008 got the author a lot of attention.  There is a section the original book (published in 2006) where he stated his opinion the banking system is weak and had the potential to blow-up.  And he was right.  But seriously, the additional section added in 2009,  reads like an "I told you so".  He comes across as arrogant and I found it annoying at best, condescending at worst.  Sure, he's a smart guy.  Sure, he's made a ton a money with his ideas.  Does he have to gloat so much?  Does he have to insult everybody all the time?
    5. In the end, I found that his complete confidence in his own viewpoint was an overcompensation for something.  I just had no insight into what.   I believe there is a baseline insecurity here that he is covering up.
    6. I'd only read this book if you wanted to experience what everybody else was talking about.  Otherwise, I'd pass.

      Naked Economics: Undressing the Dismal Science

      Quick Thoughts:
      1. I have to admit, I was prepared to be disappointed in this book.  The preface was written by one of author's colleagues and it seemed like the entire point was trying to make economics sound interesting.  I do find economics interesting.  So when you tell me that most people think its boring, but this book will make it interesting, I get concerned that the book is going to dumb it down, ironically making the entire subject uninteresting.  So, my expectations were lowered.
      2. The introduction lowered my expectations further when the author made a pejorative statement about democrats.  He quickly pivoted to another subject, but at this point, I didn't want to like the author.  In fact, I almost put the book down. I was afraid that I had made a mistake and bought a piece of political propaganda.  I didn't see myself sitting through 250 pages of being insulted.
      3. But, my fears were unfounded.  It was actually a very entertaining and informative book about economics.  The author covered lots of the fun issues like market success, market failure, the role of government, development economics, public goods, taxes, fiscal policy,  international trade, and money supply.  Really he hit the classical issues in a really common sense way.  When he reached an issue that was normative, he would label it as such and then move on.  Basically, he took many difficult and varied economic concepts and made them understandable without resorting to math equations and charts.   That's fairly impressive.
      4. I picked this book as a counter to the popular behavioral economic books I've been reading.  Instead, it was a good review of the concepts that I had during my college days.

      Outliers: The Story of Success

      Quick Thoughts:
      1. I've recently read Malcolm Gladwell other popular books:  The Tipping Point and Blink.  If I had to recommend one, it would be this one.  This book is well researched, pointed, and convincing.  Each anecdote is interesting, memorable, and useful in illustrating his overall points.  This isn't to say the other book are bad, I enjoyed them too!  I just think that author is even more convincing here.  Moreover, I think he provides a really useful to way to think about success and how it happens.
      2. A great device that Malcolm uses is telling a success story using a classical explanation; basically that talent, intelligence, and hard work pay off.  Then he tears each story apart.  We end up understanding that talent, intelligence, and hard work are important; but that practice and arbitrary advantage have a critical role in any success story.
      3. This is a fun, useful book.  And it's a quick read (For me, this is very strong point).  If I had a list of 'highest' recommendations, Outliers would be on it.

      Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions

      Quick Thoughts
      1. This book begins with the premise (that I agree with) that we are not entirely rational.  Pretty easy thing to say.  Then the writer show us how 'predictable' our irrationality can be.  He's very convincing and cites much of his own research to demonstrate our predictability.
      2. The writing style is not technical and reads well.  Often, the writer draws from personal experiences and analogies to connect the results of his experiments to his larger points.
      3. Some of conclusions are extremely interesting.  A couple of points on cheating stood out to me.  On average, people cheat when given the opportunity.  But, they tend to only cheat a little bit.  Unless you remind them of their honor (Like have them read the ten commandments) right before the opportunity to cheat presents itself.  Then, they tend not to cheat.  Strangely, people tend to cheat less if real (hold it in your hand - tangible) cash is involved but more if the cash is one step removed.
      4. The writer does get on a soapbox about the way thing should be and changes we (government/business) could make that would make society better.  I wasn't sure I agreed with him on these points, but I was happy to read how he wanted the conclusions of his experiments to be used for the greater good.
      5. I'm wondering how his theories apply to groups of people.  If a group has to make a decision, are they 'predictably irrational' as well?  Most of the studies cited related to individual decisions.  So I wonder if teams (corporations) wouldn't correct some of the faults of the individual.

      Nudge: Improving Decisions About Health, Wealth, and Happiness

      Quick Thoughts
      1. This is the 'how to make a better 401k plan for your employees' book.  It's smart.  They know that when people are faced with multifaceted decisions, they need help.  But they demand that its better to give people as much choice as possible while leading them in the direction that they probably should be taking anyway.
      2. Tons of great studies and ideas for improving public policy.  They are best when they are critical of existing programs (Like Medicare part D).
      3. At a certain point (late in the book), I think the authors got a little into their overall theory and started pressing it a bit too hard.  I didn't really accept their ideas for public education and by the end of the book I felt like their ideas could be very difficult to effectively implement.  That said, I'm pretty sure this book is why my firm offers a low-fee mutual fund that is time-stamped to automatically adjust the portfolio away from equities as I get closer to retirement.

      Why Beautiful People Have More Daughters: From Dating, Shopping, and Praying to Going to War and Becoming a Billionaire-- Two Evolutionary Psychologists Explain Why We Do What We Do

      Quick Thoughts
      1. The writers bit off more than they could chew.
      2. The studies in are very interesting, as are the explanations that the authors come up with.  It's not too long into the book that you 'get' their idea.  Men and woman are different because of the possible number of children they can potentially have. Men can have 'thousands' and woman can have a few dozen.  Every conclusion they come from stems from this simple fact.  Unfortunately, it just seems too simple to really explain behavior.
      3. That said, it's neat when you read that every problem comes back to sex.  And sometimes they are convincing.  Other times they are ridiculous.  Its most amusing when they say their theory has 'answered' a bunch of question they posed against it, concluding that alternative views are incorrect.
      4. The writing style leaves a little to be desired.  They claim that most social scientists believe that all human behavior is due to culture (meaning that changing culture can 'fix' problems).  Then they use that claim as a straw man to knock over in order to build up their perspective.  Weak.
      5. I will call it a fun read.  Great if you like to read critically.  Because you'll find lots to be critical about while picking up the studies they site.  Enjoyable.

      Sway: The Irresistible Pull of Irrational Behavior

      Quick Thoughts
      1. Really enjoyable book.
      2. When the book starts out, I found myself questioning how rigorous it would be.  I was wrong to think that.  The writing style appears unstructured, but is actually very tight and loaded with effective and interesting evidence.  The writers do a great job of building their cases and proving out the kind of ways we allow our thinking/actions to be swayed.

      Blink: The Power of Thinking Without Thinking

      Quick Thoughts
      1. Lots of great case studies illustrate his argument that much of our thought processes and ability to make complex decision/judgments is from our sub-conscious mind.
      2. Found it much more interesting and well-supported than The Tipping Point.
      3. Loved the part on the war games for GWB's gulf war.  The idea that one group could have so much information that they lost the ability to react effectively to the opposition carries a lot of weight.  In my day job, I often wonder when we can stop the analysis and just take a read of our gut and make a decision.
      4. This a very quick read.  The anecdotes are fun and memorable.

      The Return of Depression Economics and the Crisis of 2008

      Quick Thoughts
      1. Great history book on bank runs (and bank-like runs).
      2. Fun writing style.  Uses easy to understand analogies to communicate difficult concepts.
      3. Has a great understanding of alternative viewpoints, their strengths and their weaknesses.  Love the way he uses them to illustrate what he thinks are the true root causes of each crash.

      The Real Estate Game: The Intelligent Guide To Decision-making And Investment

      Quick Thoughts
      1. Read this book for a class on real estate development.
      2. Nice writing style, quick read.
      3. If you're thinking of doing a real estate deal, and have little to no experience, this book is great way to get some perspective.  The author has been teaching real estate business school cases for decades.  He's seen and heard a lot, plus has been in more than a few of his deals.  He gets the downside.  With any luck, he'll talk you out of it.  At the very least, you'll get a better understand of some of the roadblocks you'll likely run into.

      The Tipping Point: How Little Things Can Make a Big Difference

      Quick Thoughts
      1. Neat vision on how information/change can make it's way through society.
      2. Great anecdotal examples.