It's time for my first annual DeBord Report Awards for business books. The winners for 2011 are:
I wrote a Rather Short Review of this book, by a former Goldman Sachs "quant," earlier this year. Here's what I had to say:
"It's an incredibly erudite and humane book. Maybe not the most informative, blow-by-blow account of how Wall Street nearly ruined the world. But an impressive effort in soul-searching combined with real thinking. Derman is what I now think of as an "old-school human": widely versed in the various troves of human expression and inquiry, from philosophy to literature to science, and not afraid to show us what he's got."
Since then, I haven't been able to get the book out of my head. It isn't just one of the best business books I've read in a long while — it's one of the best self-help books! By which I mean it's a business book that I can imagine reading and re-reading many times.
"Lost Decades: The Making of America's Debt Crisis and the Long Recovery" by Menzie D. Chinn and Jeffry A. Frieden
Emanuel Derman may not have produced the most informative blow-by-blow of the financial crisis, but Chinn and Frieden certainly have. Highly readable but not at all a pop history of the Wall Street meltdown, "Lost Decades" explains in alarmingly clear language what went wrong, why, and what we can do to prevent it from happening again.
The best book I've ever read about options pricing, which is the unified field theory of finance. The Black-Scholes equation solved a problem that everyone thought was fundamentally unsolvable. The story of how the equation came about is lively intellectual history, involving centuries of slow and steady lock-picking until the code was finally cracked. In a sense, Szpiro's storytelling is a kind of narrative Black-Scholes equation: it makes something very hard both easy to follow and exciting if not downright fun to read about.
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Is the dollar bill done for?
So it seems to me and my colleagues...that an alternative currency with roots in peer to peer networks and based on an algorithm that is transparent to everyone is an idea whose time has come. The question remains if the Bitcoin algorithm or some other algorithm (possibly a derivative of the Bitcoin algorithm that deals with some of Bitcoin's weaknesses?) will ultimately win out. That's an important issue that has a lot to do with when this space becomes investable.
But Bitcoin or something else, I'm confident we'll see the emergence of currencies that are not controlled by nation states in my lifetime. Whether that is a good thing or not remains to be seen. I think it is, but there are significant ramifications that will result from the decoupling of currencies from governments. And one of them is an interesting investment opportunity that we hope to participate in.
Emanuel Derman is a professor of finance at Columbia University and also a physicist. But what' he's probably best known for is his years at Goldman Sachs in the lead-up to the financial crisis and his role as one of the pre-eminent Wall Street "quants" — investment professionals who attempted to use complex quantitative models to drive risk out of making money. These days, some critics blame the quants for nearly destroying the global financial system.
Derman chronicled his Wall Street days in a 2004 book, "My Life as A Quant: Reflections on Physics and Finance" — a full four years before the financial crisis truly took hold in late-2008. He's now followed that title up with "Models. Behaving. Badly," in which he looks back on both his life and his life's work and...finds fault with the world that he in part helped to engineer.