Monday 5 December 2016

Thirty years of financial alchemy led to bust

Extreme Money

James Pressley

Published 29/09/2011 | 05:00

By Satyajit Das

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IF you're feeling suicidal, steer clear of Satyajit Das. His new book 'Extreme Money' will leave you googling national debt clocks, clicking on home-foreclosure maps and wondering if your retirement plan is a 'fata morgana'.

Das is a derivatives specialist who wrote the acerbic expose 'Traders, Guns & Money'. An insider with an outsider's eye, he has spent more than three decades in the markets, including stints at Merrill Lynch and Citigroup.

Now he has concocted an idiosyncratic yet withering analysis of how 30 years of financial alchemy and excessive credit have plunged us into what feels like a slow-motion depression. (Surely something more than a "recession" is afoot when 46.2 million Americans sink below the poverty line.)

When Das calls money "extreme", he means it has become a room lined with mirrors reflecting "the image of the world that money can make possible".

"Extreme money was money made endless, capable of infinite multiplication, completely unreal," Das writes.

Das addresses, one by one, the overarching themes of the great credit boom and bust of the late 20th century -- from the collapse of the Bretton Woods currency system to the rise of financial fundamentalism, with its dogmatic belief in the efficient-market hypothesis. It all adds up to what he calls a "doomsday debt machine".

His quirky style is an acquired taste, and the material he presents, though voluminous, is -- dare I say it? -- derivative.

A refracted almanac of facts and statistics, the text dispenses with traditional chronology, sometimes presents opinions as fact, and is marbled with quotations from the likes of Will Rogers and John Maynard Keynes. On one page, German sociologist Max Weber rubs shoulders with Sigmund Freud and Lewis Carroll.

Powerful

Yet the cumulative effect is powerful, making this omnium-gatherum a book to be studied, ideally in short bursts rather than in one go.

His grasp of minutiae is strong, his summations concise -- Belgium is described in passing as a land "where the two main ethnic groups shared little more than a king and a large amount of public debt".

Black humour is Das's natural medium, and he gave me a rueful chuckle every few pages. One table lists his unofficial definitions of debt ratings: triple C, he says, connotes "Russian roulette with five bullets in the chamber".

Few heroes appear in these pages, only rogues, charlatans and suckers of all shapes and sizes. John Paulson's legendary bet against the US housing bubble is dismissed as a "parasitical" feeding on human misery.

Alan Greenspan is fingered for championing adjustable-rate mortgages and worse. Even Warren Buffett comes under scrutiny. Das praises Buffett's thriftiness and foresight about the intoxicating effects of "effortless money". He also faults the Sage of Omaha for activities at odds with his image, including his use of private jets.

No one in this book is without sin, including the author, it seems. In the epilogue, Das describes how he helped one bank tweak its valuation models during the crisis, allowing it to "increase the margin calls and the cash the other side must pay up. In finance, flexibility and split personalities are important".

Though I put down this book with a jumble of admiration, exhaustion and depression, I could only endorse the conclusion.

"There is no simple, painless solution" to the fix we're in, Das writes. "The world has to reduce debt, shrink the financial part of the economy, and change the destructive incentive structures in finance. Individuals in developed countries have to save more and spend less."

It all comes down to common sense, which is uncommonly rare these days.

The book is available from www.independentbooks.ie with free P&P or by calling 01 405 9100

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