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Book Bits | 6 April 2019

Summary:
● An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk By Allison SchragerReview via Bloomberg To learn how to manage risks in your life, don’t consult office-bound economists or actuaries. Ask the real experts: prostitutes, gamblers, magicians, paparazzi, big-wave surfers, movie producers, horse breeders, and soldiers. Their careers require them to take risks. They succeed by doing so smartly—deriving as much benefit as possible per unit of risk taken. Allison Schrager, herself an economist, though not of the office-bound variety, interviewed all of these exotic professionals for an intriguing new book, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.● Darkness by Design: The Hidden Power in Global Capital Markets By

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An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk
By Allison Schrager
Review via Bloomberg
To learn how to manage risks in your life, don’t consult office-bound economists or actuaries. Ask the real experts: prostitutes, gamblers, magicians, paparazzi, big-wave surfers, movie producers, horse breeders, and soldiers. Their careers require them to take risks. They succeed by doing so smartly—deriving as much benefit as possible per unit of risk taken. Allison Schrager, herself an economist, though not of the office-bound variety, interviewed all of these exotic professionals for an intriguing new book, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.

Darkness by Design: The Hidden Power in Global Capital Markets
By Walter Mattli
Summary via publisher (Princeton University Press)
Capital markets have undergone a dramatic transformation in the past two decades. Algorithmic high-speed supercomputing has replaced traditional floor trading and human market makers, while centralized exchanges that once ensured fairness and transparency have fragmented into a dizzying array of competing exchanges and trading platforms. Darkness by Design exposes the unseen perils of market fragmentation and “dark” markets, some of which are deliberately designed to enable the transfer of wealth from the weak to the powerful. Walter Mattli traces the fall of the traditional exchange model of the NYSE, the world’s leading stock market in the twentieth century, showing how it has come to be supplanted by fragmented markets whose governance is frequently set up to allow unscrupulous operators to exploit conflicts of interest at the expense of an unsuspecting public.

Fiscal Therapy: Curing America’s Debt Addiction and Investing in the Future
By William G. Gale
Essay by author via The Brookings Institute
The American economy is in great shape in many ways. Riding the cusp of an expansion that started in 2009, the stock market is up, consumer confidence is booming, and unemployment has fallen to historically low levels. But dig beneath the surface and trouble looms. America faces two distinct but related challenges that policymakers must address in the coming years if they hope to provide a brighter future for the nation and its people. The first challenge is rising government debt. Federal debt is already higher as a share of the economy than at any time in our history, except for a few years around World War II, when a massive military buildup required immense borrowing. Under current policies, debt will rise steadily to unprecedented levels over the next decade and to unsustainable levels over the next 30 years and beyond. Debt isn’t always bad—we’ve had good reasons to borrow in the past to fight recessions and finance investments. Nevertheless, if we don’t rein in the growing debt, it will slowly but surely make it harder to grow our economy, boost our living standards, respond to wars or recessions, address social needs, and maintain our role as a global leader.

Of Privacy and Power: The Transatlantic Struggle over Freedom and Security
By Henry Farrell and Abraham L. Newman
Summary via publisher (Princeton University Press)
We live in an interconnected world, where security problems like terrorism are spilling across borders, and globalized data networks and e-commerce platforms are reshaping the world economy. This means that states’ jurisdictions and rule systems clash. How have they negotiated their differences over freedom and security? Of Privacy and Power investigates how the European Union and United States, the two major regulatory systems in world politics, have regulated privacy and security, and how their agreements and disputes have reshaped the transatlantic relationship. The transatlantic struggle over freedom and security has usually been depicted as a clash between a peace-loving European Union and a belligerent United States. Henry Farrell and Abraham Newman demonstrate how this misses the point. The real dispute was between two transnational coalitions—one favoring security, the other liberty—whose struggles have reshaped the politics of surveillance, e-commerce, and privacy rights.

Holding bankers to account: A decade of market manipulation, regulatory failures and regulatory reforms
By Oonagh McDonald
Summary via publisher (Manchester University Press)
A compelling account of the rigging of benchmarks during and after the financial crisis of 2007-08. Written in clear language accessible to the non-specialist, it provides the historical context necessary for understanding the benchmarks – LIBOR, FOREX and the Gold and Silver Fixes – and shows how and why they have to be reformed in the face of rapid technological changes in markets. Though banks have been fined and a few traders have been jailed, justice will not be done until senior bankers are made responsible for their actions. Provocative and rigorously argued, this book makes concrete recommendations for improving the security of the financial services industry and holding bankers to account.

Currencies, Capital, and Central Bank Balances
Edited by John H. Cochrane, et al.
Summary via publisher (Hoover Institution Press)
Drawing from a 2018 conference, the Hoover Institution brings together leading academics and monetary policy makers to share ideas about pressing questions facing central banks today. The expert contributors address big-picture debates affecting US and global monetary policy and apply cutting-edge economic research to the international monetary and financial system—areas very much related because of the effect of balance sheet operations on exchange rates and capital flows.

The Failure of Financial Regulation: Why a Major Crisis Could Happen Again
Edited by Anil Hira, et al.
Summary via publisher (Palgrave)
This book examines the long-term, previously underappreciated breakdowns in financial regulation that fed into the 2008 global financial crash. While most related literature focuses on short-term factors such as the housing bubble, low interest rates, the breakdown of credit rating services and the emergence of new financial instruments, the authors of this volume contend that the larger trends in finance which continue today are most relevant to understanding the crash. Their analysis focuses on regulatory capture, moral hazard and the reflexive challenges of regulatory intervention in order to demonstrate that financial regulation suffers from long-standing, unaddressed and fundamental weaknesses.

The Panic of 1819: The First Great Depression
By Andrew H. Browning
Summary via publisher (University of Missouri Press)
The Panic of 1819 tells the story of the first nationwide economic collapse to strike the United States. Much more than a banking crisis or real estate bubble, the Panic was the culmination of an economic wave that rolled through the United States, forming before the War of 1812, cresting with the land and cotton boom of 1818, and crashing just as the nation confronted the crisis over slavery in Missouri. The Panic introduced Americans to the new phenomenon of boom and bust, changed the country’s attitudes towards wealth and poverty, spurred the political movement that became Jacksonian Democracy, and helped create the sectional divide that would lead to the Civil War. Although it stands as one of the turning points of American history, few Americans today have heard of the Panic of 1819, yet we continue to ignore its lessons—and repeat its mistakes.

James Picerno
James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers. Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg Markets, Mutual Funds, Modern Maturity, Investment Advisor, Reuters, and his popular finance blog, The CapitalSpectator.

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