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Extreme Money: Masters of the Universe and the Cult of Risk Hardcover – January 1, 2011
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The human race created money and finance: then, our inventions recreated us. In Extreme Money, best-selling author and global finance expert Satyajit Das tells how this happened and what it means. Das reveals the spectacular, dangerous money games that are generating increasingly massive bubbles of fake growth, prosperity, and wealth--while endangering the jobs, possessions, and futures of virtually everyone outside finance.
"...virtually in a category of its own — part history, part book of financial quotations, part cautionary tale, part textbook. It contains some of the clearest charts about risk transfer you will find anywhere. ...Others have laid out the dire consequences of financialisation ("the conversion of everything into monetary form", in Das’s phrase), but few have done it with a wider or more entertaining range of references...[Extreme Money] does... reach an important, if worrying, conclusion: financialisation may be too deep-rooted to be torn out. As Das puts it — characteristically borrowing a line from a movie, Inception — "the hardest virus to kill is an idea".
-Andrew Hill "Eclectic Guide to the Excesses of the Crisis" Financial Times (August 17, 2011)
Extreme Money named to the longlist for the 2011 FT and Goldman Sachs Business Book of the Year award.
- Print length459 pages
- LanguageEnglish
- PublisherFt Pr
- Publication dateJanuary 1, 2011
- Dimensions6.5 x 1.25 x 9.5 inches
- ISBN-100132790076
- ISBN-13978-0132790079
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In the first two parts, Das reveals an impressive range of reference - someone who is certainly well read and educated. It is an interesting discussion of money, economics, finance, and risk. Throughout these sections and the entire book, in fact, Das interleaves illuminating quotations from various sources past and present that complement the material nicely.
I really enjoyed part three entitled: Alchemy. This one word aptly describes the machinations of the financial system, and those machinations are fully explored in this section. For instance, in chapter eleven, "Dice with Debt," Das, through well illustrated charts, clearly shows how the securitization process works. After explaining such concepts as credit default swaps, special purpose vehicles, equity, mezzanine notes, senior notes, and such, one can really appreciate the process of converting lower quality debt into AAA quality debt. Not only do you have CDOs (collateralized debt obligations), but you can have CDO squared and CDO cubed - yikes!! All this stuff was sold to the so-called "sophisticated investor." But as Das points out, this is at best an oxymoron - who really can understand these complex convoluted, structures? It was certainly not the people buying them. Das used another good illustration to describe a money making structure called the Abacus transaction. His words sum up the nature of this and, I would say, all such instruments: "'pure intellectual masturbation,' 'a thing,' which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price."
In chapter thirteen, "Risk Supermarkets," Das exposes the nature of derivatives and the effect these products have had on naïve investors. Some victims include Jefferson County in Alabama, Harvard University, the City of Milan, Sons of Gwalia ( formerly, third largest gold mining company in Australia). The scope of this contagion really sinks in when we see statistics that show about "50,000 companies in at least 12 countries, including Korea, Taiwan, China, Philippines, India, Eastern Europe, and Latin America lost as much as $530 billion" - truly a pandemic. He concludes this section, with an enlightening discussion of hedge funds.
In section IV it was interesting to see how "complex chains of transactions allowed risk and debt to move form a place where it was observable to places where it was hidden." There were information asymmetries in the securitizations process. The Fed's insistence on light regulation of the derivative market allowed excesses to flourish. You've heard of mark to market; well, how about mark to make believe. The "cult of risk" took on unmanageable proportions. In this new age, the "Masters of the Universe" were in charge. An interesting statistics emerges: "By 2007, nearly half of the 40 richest people in the United States had made their fortunes in private equity or hedge funds."
In the final section, Das sums it up nicely saying, "All competing economic philosophies were underpinned by the same reliance on growth and built-to-fail economic models," referring to the masters as "an elite class of mandarins, economists, and bankers uninterested in and unresponsive to the concerns of the wider public..." So it is that, "Extreme money was money made endless, capable of infinite multiplication, completely unreal."
I'll just say: highly recommended - read the book!
The author traverses an amazingly complex subject without getting lost in economic or political dogma. It's an amazing feat, since I've come across so few in my reading that can achieve that. I was amazed at how interested I became as I read. It's one of the few books recently that made me stop and read just because I enjoyed the romp of exploring what happened in the financial meltdown. The writing style is both easy and entertaining. I'd probably have gone with a few less quotes, though some of them were gems.
The Kindle version had a few typos and mistakes. I was amazed in one place to find the world GDP was only 56 billon. In another location, it was stated a more plausible 56 trillion. There were a few others. None seriously detracted from points being illustrated nor undermined the credibility of the arguments being made.
I wish the author had spent a bit more time on possible solutions to the situation. I'm left with the uneasy feeling that we think our well being depends on getting back on the drugs as soon as possible rather than getting sober. That's a pretty dismal picture of the future. We're preparing for the next crash. And as author points out, simple regulations mostly fail to correct complex problems.
Two themes of the book are critical ones I had already found to be compelling elsewhere. One theme is that complexity greatly increases risk, not only because it means things are less understandable, but because it makes things inherently unpredictable. The second theme is that risk is greatly increased by the hubris of believing we "know" things we don't. So, rather than being cautious, we become arrogant -- and then we crash and burn.
Despite some quibbles, I couldn't rate this book less than 5 stars, because it is one of the most thought provoking books I've read during the last few month.


