More books read

House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time
This is very much like Monkey Business, but it's about consulting rather than banking. The author dwells more on how ridiculous his job is as opposed to how much it sucks (as Rolfe and Troob were inclined)

The Money Culture
A collection of short stories by Michael Lewis about banking in the 80s. Good stuff, but I felt a bit Michael Lewised out by the end of reading it.

The Great Crash 1929
Wow. I had heard good things, but this book certainly exceeded my expectations. I had a late 80s version that I picked up in a used bookstaore in Central (the one on Mass Ave that sells bookshelves...the place is really good). Anyhow, the introduction included an interesting examination of the differences between 1929 and 1987. Towards the end of the book, Galbraith outlines 5 main reasons why the Crash and ensuing depression occured:

1. A lopsided distribution of income. Basically, the rich earned so much of the income in the 20s that large fluctuations in the stock market (which is mostly comprised of investments by the rich) would have great effect on the economy as a whole. The rich were fueling investment and spending heavily on luxury goods. As Galbraith eloquently puts it: The rich cannot buy great quantities of bread. Good thing we're not seeing a return of lopsided incomes in today's economy. Ruh-roh, Shaggy.
2. Bad corporate structure. Essentially, the crash of 1929 exposed EXTREME buying on margin. Margin is when you buy stocks with borrowed money and then put the stock itself up as collateral. When the stock price dips beneath the minimum requisite for collateral, the investor meets a margin call. This is what did in Randolph and Mortimer Duke in Trading Places. The effect of buying on margin gets even worse when companies already having a lot of debt on their balance sheets start doing this. The investment trusts of the 20s involved something akin to companies that used borrowed cash to buy stock in other companies that were both formed with borrowed cash and investing in companies that were much the same, and so on, and so on. Galbraith compares the effect of chains of leveraged companies to that of a whip: the more leveraged the company, the greater or worse small effects in the market have on the bottom line. Since 1934, the government has had the power to mandate margin requirements, although with heavily leveraged firms, naked short selling, and options, there still exist elements of the problem in today's market.
3. Bad banking structure. In times of stress on banks, times have changed. Today the FDIC insures $100k to an investor on their funds at any given bank. In the 1920s you got excited to hear that Potter was offering 50 cents on the dollar.
4. The trade surplus. The US was a net creditor in 1929. Through erroneously keeping the dollar strong and tariffs high, countries that couldn't pay their debts to us or decrease their trade deficits were forced to default. We don't have this problem today...at all.
5. Economists weren't as sophisticated as they now are. While Galbraith takes caution in making such a statement, saying something to the effect of "modern-day economists making such proclamations might find it come back to haunt them." I largely agree with him. Economics always toes the line between science and philosophy, and frankly, before Keynes it was moreso philosophy. Whenever people treat Adam Smith as the be-all, end-all of economics I always get annoyed.
   

np: Frank Zappa - One Size Fits All