Wall Street’s Changing Culture
When Genius Failed is likely to be a classical primary authority.
Lowenstein is a deeply professional writer, who reduces the arcane complexities of derivative dealings to lucid prose, and focuses on the crucial components in a confusing complex story. He brings the icy precision of the battlefield surgeon to the deafening chaos of Wall Street conflict. His chilling assessments of such phenomena as the appalling Larry Hilibrand, perhaps the key force at LTCM, a strangely-diminished Alan Greenspan, and the sinister force of Goldman Sachs, are likely to prove definitive.
As a member of the Frank Veneroso/Le Métropole Café circle, and consequently feeling in possession of some first-hand knowledge of the LTCM smash, I found this book stimulating and informative. So also would others with professional involvement. This is not a book to be ignored.
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These classic books tell how modern capitalism in Europe and the US changed from a system that manufactured actual products into a financialized trading desk for credit derivatives and leverage.
They also describe how modern inequality developed.
And they are all absolutely riveting.
Fifty years ago, capitalism in the West was based on manufacturing which provided well-paid, lifelong jobs and close to full employment. By the 1970s and 1980s that system was carrying a layer of credit and debt that made it more lucrative for banks to extract profits from deals and transactions than to provide finance for the creation of actual products.
Windmill Books
Writer Liaquat Ahamed tells the story of the crash of 1929 told from the point of view of the central bank chiefs of the US, Britain, France, and Germany.
It s a fantastically detailed personal account based on letters and diaries of the men who controlled the world s currencies during the historic financial crisis that continues to dominate how we think about economics today.
The power of the drama lies in the book s gradually unfolding revelation that those in charge of the great banks of the day did not themselves truly understand how capitalism worked (even though many of their colleagues had personal fortunes at stake) as they made error after error after error .
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This is the bread-and-butter for quant funds. AQR has pioneered this space the most.
Multifactor models are models designed to extract cross-sectional risk premia in markets. Put simply you look at all the stocks in a market. Rank them based on some metric(s). Long the top decile. Short the bottom decile. If that market-neutral portfolio outperforms on a consistent basis then well done! You have found a risk premium.
Classical and well known risk premia include:
Momentum – stocks that moon continue to moon.
Size – small caps tend to outperform large caps.
Value – high-value stocks tend to outperform low-value stocks.