Sunday, December 12, 2010

The Best New Finance Commentator You've Never Heard Of

  ... is a certain EWC who has taken to reviewing (mostly) finance books at Amazon.   I have no idea who s/he is and his Amazon profile is entirely unforthcoming.  He's not an easy man to impress: of his 15 reviews, I find only one five-star, and that for his very first review, his only novel, which he denies (wrongly) is chick-lit.

Even within his rather austere limits, I can't say my enthusiasm is driven by the mere confirmation of ready-made prejudices.  He's down on All the Devils are Here which I liked a lot, lukewarm on Fault Lines, Crisis Economics, Good Capitalism, Bad Capitalism and Fool's Gold, all of which I liked though in varying degrees.  The nearest he gets to warm praise is for  Slapped by the Invisible Hand ("A five star insight wrapped in a 3 star book"), which I also liked. We are happily in tune at least on Thomas Sowell's typically overpraised Economic Facts and Fallacies, which he eviscerates with far more courtesy and respect than I would have mustered.  And it's not just those whose conclusions he opposes: on Sowell, for example, he says he likes Sowell's conclusions but faults him for (as he says) knowingly torturing his data.

I don't think I can fairly summarize EWC's whole point of view: extracted form miscellaneous reviews, his thoughts are necessarily presented as fragmentary.   His principal concern seems to be rooted in the problem of short-term hot money and the prevalence thereof in a long-term system.  At its first mention, I wondered if he was one of those fractional banking nutcakes, but no: he seems to be an industry insider with a good handle, inter alia, on a fair number of insights about the operation of the banking system to which neither I nor any of commentators appear competent to respond.  One giveaway, though: of Nocera/McLean's Devils, supra, which I liked and he did not like, he says:
[I]t never dawns on the authors to wonder why these lenders predominately put themselves at risk by holding the risky tranches of these loans rather than selling them (acknowledged in Chapter 14), by agreeing to buybacks loans that defaulted (acknowledged in Chapter 15), and overall by holding 40% of all these loans on their balance sheet rather than securitizing them. If they were intentionally making loans to homeowners that they knew could not be repaid and defrauding investors with fraudulent credit ratings and loan documentation, it would have made no sense for them to do this.
No: the insight that bankers made seemingly suicidal choices is important and worth noting, and there is a perfectly good reason why they did so. That is: the individual players were engaged in a heads-I-win, tails-you-lose game where they simply figured they could get their own off the table before the police (or reality) kicked in the door. Which, to all appearances, they have pretty well succeeded in doing.  ECM continues:
[McLean and Nocera] repeatedly swipe all this away with the dubious but often-repeated claim that everyone thought home prices would rise forever. Honestly, did you believe the price of your home would rise forever?
 I'm not persuaded that M&N "claim that everyone thought home prices would rise forever."  If they did, they were foolishly wrong.  But the real point is that the bankers  surely did not think that home prices  would rise forever.  Yet they acted as if they did, to all of our cost.

So there is a lot about ECM's presentation that makes me uncomfortable, even though I can't always respond as well as I'd like.  But he's too interesting to dismiss out of hand; I'd love to see him do a book--and to see it reviewed by a true industry insider--Yves Smith, say, or her great buddy The Epicurean Dealmaker, both of whom have the kind of chops necessary to cope with his banker expertise.

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