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Why Aren't They Shouting?: A Banker's Tale of Change, Computers and Perpetual Crisis
Why Aren't They Shouting?: A Banker's Tale of Change, Computers and Perpetual Crisis
by Kevin Rodgers
Edition: Paperback
Price: £6.99

1 of 1 people found the following review helpful
5.0 out of 5 stars Stellar, 24 Sept. 2017
Verified Purchase(What is this?)
Let’s skip the preliminaries: Kevin’s book is the best I’ve read on many levels.

1. If my mom and dad ever need to know what I spent my youth doing on trading floors across Frankfurt, London and New York, this is now the best book in print, finally eclipsing Michael Lewis’ original classic, Liar’s Poker. No buckets of guacamole here, just the facts, expertly and humorously, but never condescendingly, laid out.

2. If you want a sober primer on the history of all major financial screw-ups from 1990 onward (except maybe for the Internet bubble), again this is the best in print, because it’s perhaps the first time an active trader has discussed them all in one book. “Why Aren’t they Shouting” brings the perspective that can only come with having had to deal with all of them personally: the ERM crisis of 1992, the Emerging Markets / LTCM crisis of 1997-98, and the financial crisis of 2008-09.

3. If it’s the sundry scandals you want to understand more about, that’s covered too: Kevin explains extremely well what happened with LIBOR and what happened with the FX fixings scandal, and here we’re talking 100% “horse’s mouth” level of understanding, as he was running the FX business for the #1 player, Deutsche Bank, when that scandal broke.

Away from all that, the book is MASSIVELY accessible. You do not need to have studied finance to read it. Small caveat: I actually don’t have terribly much time for Kevin’s writing style. He makes up for that with anecdotes from the trading floor that had me literally laughing by myself as I was reading the book. Like, for example, when the cocky trader was asked to bid more aggressively. A total classic!

Finally, there’s an attempt here at a more general theme! The big idea is that computers have acted as a catalyst for many of these crises, because they have lubricated our slow march toward complexity, which in turn has been found impossible to manage. He even hazards a prediction: that computers will succeed where many regulators have failed: in enabling the disruption of the “too complex to fail” dinosaurs.

Much as I work in the algorithmic space, I don’t totally buy this “big theme,” but Kevin (NOT a drummer for a top-40 act, which he’d led us all to believe during his career, but, hey, I can now follow his suggestion from page 4 and google it!) has packed this epigram to his career with so much solid judgement and wisdom, there was actually no need for an over-arching theme. The attempt at providing one is a welcome bonus.


Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud
Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud
Price: £10.49

5.0 out of 5 stars The view from the trenches, 21 Sept. 2017
As advertised, this is the story of how a nurse, a car salesman and a sixties-activist-turned-lawyer took on the Great Foreclosure Machine and lost, but not before landing a good few punches.

I consider myself knowledgeable on both the causes of the recent financial crisis and on the particulars of the mortgage debacle. I’ve read both “House of Debt” by Mian and Sufi (which Larry Summers himself called “book of the year” when it came out, despite the fact that it condemns his policies) and “Bailout” by Neil Barofsky. The former is quite possibly the best explanation of how wrong we got policy around the time of the most recent crash and of how the public interest would have been protected by less concern for “sanctity of contract” and by more leniency for homeowners. The latter is an insider’s view on how the system was rigged against the homeowner and in favor of “foaming the runway” for the banks.

Regardless, this book taught me stuff I could not possibly have imagined.

In particular, “Chain of Title” takes you through the detail of the manner in which the mortgage industry trampled all over American law:

(i) first it faked most of the paperwork for the sake of expediting the creation of mortgage-backed bonds and keeping down the costs involved

(ii) second, as soon as the market went into reverse and it was time to foreclose, it fostered systematic forgery of the chain of title between the original mortgage originators and the trustees of the pools out of which the mortgage bonds were issued.

Also author David Dayen leaves you in no doubt of the fact that there are two standards in the American justice system, and in particular in the way it treats participants in the mortgage market: one for the powerful, who get a second chance and one for the poor, who lose everything.

Here’s the main discovery: the vast majority of foreclosures that occurred during the crash of 2008 and its aftermath were technically illegal. The way the author puts it, if we had applied to foreclosure the legal standard of burden of proof that we apply to crimes or misdemeanors, judges ought to have laughed out of court at least 90% of claims on people’s homes, regardless of whether their payments were current. The industry had taken zero care to transfer the titles of the mortgages and was not entitle to foreclose.

Where the book does not do as good a job is in disentangling the many different issues:

1. Predatory lending, whereby people who cannot afford a loan are given one anyway, either on fraudulent premises or on an unaffordable structure that is designed to eventually turn toxic and relies heavily on house price appreciation before the usurious bits of the loan are triggered.

2. Predatory servicing, whereby people who miss out on a few cents or miss a payment by mistake get slapped with fines and fees that are designed to lead them to the edge of foreclosure (and who cares if they end up beyond).

3. Fraudulent lending, whereby citizens who qualify for a low-interest loan are given an unaffordable sub-prime loan, all in the interest of generating higher fees for the mortgage broker.

4. The fact that the mortgage pools were put together so haphazardly that all due process was skipped in the interest of saving time and money for the issuers of the bonds, with the end result that the chain of title was habitually broken.

5. Industrial-scale after-the-fact forgery of the necessary paperwork to re-establish the broken chain of title.

6. A whole list of unethical practices, such as pretending to consider a modification all while never intending to go through with it, ransacking properties, delivering paperwork to strangers etc.

Instead, you discover all these layers of the systematic fraud and abuse alongside the book’s heroes, Lisa, Michael and Lynn. It is an amazing way to learn about it all, but it’s equally quite easy to get confused. One could argue that there is no better way to experience what homeowners went through than to get confused alongside the heroes in this book. Equally, there is a lingering suspicion on my part that the author made a conscious decision to let this read more like a novel or a biography than like the result of a deep journalistic investigation.

There is a cost. What the book gains in passion it does lose in clarity.

Similarly, and I hate to say this, I fear the author goes for the easy judgement that the banks have the politicians in their back pocket, and that with Eric Holder and Lanny Breuer (habitual defendants of big business at their day job with Covington & Burling) in charge of investigating the injustices of foreclosure, the result was bound to be a cover-up.

Even if that is true, and I have no reason to doubt that to some extent it is (I’ve only recently finished reading Jesse Eisinger’s “Chickensh_t Club,” after all) policy of such importance is not made by guys at their level. More to the point, as lawyers they would know better than anybody else that they were acting in a manner that was both at some level illegal and inconsistent with the values that underpin the American legal system. To say that they would stick their own neck out to screw homeowners is to accord them courage in their conviction that they’ve never displayed on any other issue.

Rather, I would not-so-humbly suggest, what was at work was the perceived political mandate to preserve the valuation of the savings of the American middle class. Obama’s economic policies of 2008 – 2016 were guided by 100% the same team who made policy for Bill Clinton in 1992-2000, the time when the “Greenspan put” underpinned the stockmarket and the Democrats discovered they could win by moving to the middle and supporting the net worth of an expanding “ownership class.”

What with trillions of dollars parked in pension funds, both for private corporations and for the government itself invested in mortgage-backed securities and in equities, the policies that won the day were TARP (which stood for “Troubled Asset Relief Program,” don’t forget), Quantitative Easing (which both removed safe Treasury Bonds from the market to encourage investing in riskier assets and brought down the 30yr interest rate which underpins mortgages) and the forced mergers of deadbeat banks with allegedly healthier money-center banks such as JP Morgan, there was simply no way a question mark would be allowed to hang over the banks or the mortgage bonds. Period.

This turned out to be a miscalculation, of course. The reason is that home ownership has fallen from 69% to 61%, stock ownership has fallen even further, the Gini coefficient has moved to places you normally associate with Latin America and the faith of Americans in the justice system has taken a hit that you simply cannot measure in dollars, with political outcomes not worth repeating here.

Furthermore, the author fails to take account of the feelings of those who never borrowed a penny but saw their neighborhoods blighted by the borrowing habits of their neighbors. While they probably all came to eventually realize that from the point of view of “the system” they are no different from their neighbors, back in 2008 – 2010 they would strongly have supported the rough justice meted out to “deadbeats,” much as a more sensible policy of principle reduction would have been to everybody’s benefit.

In conclusion, this book offers but one angle. It is the story of the foreclosure tsunami as experienced by millions of Americans at ground zero, warts and all: the real estate agent who supported the activists’ website was herself a real estate fraudster; the sixties activist eventually made her mark through a whistleblowing lawsuit that actually landed her millions; her efforts to give that money back were met with heckling and even a lawsuit.

It’s a tremendous story, basically, and it’s told well. Its intensity and pain and torrent of injustice felt like watching the first ten minutes of “Saving Private Ryan.” When you’re in there, fighting alongside Lisa, Michael and Lynn, uncovering the robo-signers, getting stared down by hostile judges, getting served foreclosure documents, doing all-nighters by the printer, organizing protests, putting together case files or answering email on the website well past midnight, it’s easy to forget that it’s just one angle. And it’s even easier to forgive.


The Innovator's Dilemma (Management of Innovation and Change)
The Innovator's Dilemma (Management of Innovation and Change)
by Clayton M Christensen
Edition: Paperback
Price: £16.99

5.0 out of 5 stars A classic, for good reason, 5 Sept. 2017
Verified Purchase(What is this?)
The subject of this classic is disruptive technology.

With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.

The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straightforward technology at a lower price point to a new customer base that is not economically viable for the established players.

For example, QuickBooks was marketed to mom-and-pop stores who could not afford to pay an accountant and it was the el-cheapo version of Quicken. It is of no use to a proper corporation. JC Bamford got started with hydraulic backhoes that were good enough for small contractors looking to dig a small ditch but wholly inadequate for the purposes of a miner. 5.25 inch disk drives were marketed to the nascent market for personal computers and were of no use to minicomputer manufacturers.

Disruptive technology is cheaper per unit, but its price / performance ratio is much worse than that of the established technology. It’s not good enough for the clients of the established players. Ergo it must be sold on its (lower) price alone, meaning that its purveyors must seek new markets. Flash memory, for example, was first used in cameras, pacemakers etc. Not in computers!

There is a large number of reasons that established players will frown upon the new technology:

1. Good companies listen to their clients. Their clients will tell them they don’t want it. They will demand performance and they will pay for performance.

2. Profitability will be lower in the lower-margin disruptive technology. Profit margins will typically mirror cost structures and will thus be higher for the higher-end product. Established players will in the short term make more money if they allocate their resources toward not falling behind their immediate competition for the higher-end product. (i.e. “sustaining” their competitive edge in the higher margin / higher tech market)

3. The processes used by the established players to sell and support the established technology may not be the right ones for the new tech.

The main thing to realize is that the technology does not live by itself. It is embedded in a “value network.” A car serves a commuter, a digger serves a mine, a disk drive is screwed down somewhere in a computer etc.

The seeds of disruption lie in the fact that the technology itself and its value network may not necessarily be progressing at the same speed.

If the technology is improving much faster than the trajectory of improvement of the “value network” (for example, if the desktop PC users demand extra disk storage slower than the industry is capable of delivering extra disk storage), then

1. The point comes when the value network of the established technology does not need the incremental improvements on which the established players are competing with one another to deliver.

2. More importantly, a point comes when the performance of the disruptive technology becomes good enough to be embedded in the value network of the established technology. So 3.5 inch disks developed for laptops can do good enough a job for a desktop, for example, without taking up the space required for a 5.25 inch disk.

It gets worse: sure, disruptive technology is deficient in terms of features / performance, but the price sensitive customers who do not care so much about performance often care a lot about reliability. (A small contractor who buys a single backhoe digger cannot afford a maintenance team.) Similarly, the unsophisticated customers of the disruptive technology may care a lot about ease of use. (Mom and pop using Quickbooks have no idea what double-entry book-keeping is!) What this means is that when the performance of the disruptive technology has become good enough for it to be embedded into the value network of the established technology, it often brings with it an advantage in reliability and ease of use.

So at that point the disruptive technology is cheaper, more reliable and easier to use than the established technology, all while delivering adequate performance.

And that’s how purveyors of the established technology (who have been at war with one another to deliver on the ever-increasing performance their customers have been demanding) find themselves at a disadvantage versus the disruptors when it comes to reliability and ease of use right about when their customers tell them they won’t pay for extra performance or features any more.

The disadvantage of the lower-tech disruptor has created an advantage and it’s game, set and match!

What’s an established player to do? If I’m running a super successful company and I spot a new technology what am I to do?

One thing I should not do is listen to my underlings. The dealers who sell my cars will not want a customer who just walked into the dealership to buy a V8 to drive out in a small electric car. The salespeople will keep asking me for the most expensive product because they will be paid a commission on their margin and will keep pushing me “north-east” on the price / performance chart. Resistance to disruptive technology often comes from the rank-and-file.

I also should not listen to my shareholders. Small markets (and all disruptive technology starts small) do not solve the growth problems of large companies.

First and foremost, I must understand that the challenge I face is a MARKETING challenge. The tech I’ve got covered. The resources too.

If my company’s processes and my company’s values (defined as “the standards by which employees make choices involving prioritization”) are aligned with the marketing challenge, I’m in luck: chances are that for my company this new technology will eventually become a “sustaining” technology.

I can get my wallet out and buy EARLY a couple of the new entrants. Early enough that my money is not buying process or values or culture, but merely assets/resources and ideally walking and talking resources (the founders) who will adopt the processes and values of my organization.

Alternatively, I can carve out some great people from my organization and:
1. Give them responsibility for the new technology and assign to them the task of identifying the customers for this new technology
2. Match the size of this new subdivision to the current size of the market.
3. Allow them to “discover” the size of the opportunity, rather than burden them with having to forecast it: “the ultimate uses or applications for disruptive technologies are unknowable in advance”
4. Let them fail small, as many times as necessary
That’s what IBM did when they ran their PC business out of Florida and what HP did when they realized ink jets would one day compete with laser printers!

If, on the other hand, my company’s processes or my company’s values are not aligned with the marketing challenge, then I need to buy a leader in the new technology, and have a finger in every pie. And I need to protect my acquired company from my organization. This is, obviously, a bigger challenge (and one my shareholders may not embrace, as their dollars are as good as mine, but the author stays away from this discussion!) As the succession in technologies plays out, I will then eliminate large parts of my current organization. The author cites an occasion on which this is exactly how things played out.

And there you have it! I think that’s the author’s answer to “The Innovator’s Dilemma”

Obviously, that’s a very quick sketch. You’ll have to buy the book to see the complete story (and to be convinced, I suppose). Be warned that in the interest of keeping the various chapters self-consistent you may find some repetition, but overall this is a very quick read.

I’m aware of people who really dislike Clayton Christensen. I’ve even come across a Twitter account that’s dedicated to trashing him. But I, for one, was convinced that he’s describing a valid concept with many applications.

Also, as a guy who established a disruptive business within an established player I totally experienced both the dismay of my superiors when they realized that “small markets don’t solve the problems of large organizations” and the discomfort of trying to shoehorn my project into the rather baroque established processes.

So I have lived through many of the steps the book describes and I reckon they are described very accurately. The research shows!


The Wisdom of Finance: Discovering Humanity in the World of Risk and Return
The Wisdom of Finance: Discovering Humanity in the World of Risk and Return
by Mihir Desai
Edition: Hardcover
Price: £12.38

4 of 5 people found the following review helpful
3.0 out of 5 stars Preaching to the converted, 31 Aug. 2017
Confession: I bought this book so I can trash it with the authority of somebody who has read it.

No doubt, a guy who gets a book published with the title “The Wisdom of Finance” just as Bitcoin is rocketing past 4,000 has a feel for the Zeitgeist on par with the sundry bank CEOs who proclaim we’re all doing “God’s work” or that the time for banks to apologize is over. There’s as little wisdom in finance at the moment as there’s ever been.

There’s a chapter here that is even more provocatively titled than the book: “Why Everyone Hates Finance.” Batteries are not included, I’m afraid. It’s left as an open question.

You’ve guessed it right, basically. This is the wrong place to go looking for Minsky’s three stages of finance. Rather, it’s a platform for a polymath professor to draw some (occasionally far-fetched) analogies between a bunch of financial concepts (real options, risk aversion, diversification, the principal-agent problem, M&A, leverage, bankruptcy) and real life, based on anecdotes from literature and history. Frustratingly, his standard answer to most difficult questions is that “it’s complicated,” followed by “do the right thing!”

That said, if I was sitting next to Mihir Desai at a boring dinner, I’d be rather grateful for my good fortune. There’s an abundance of amazing stories, business cases and vignettes here that were told well and were fun to read about. On the other hand, if you were to judge this defense of our business by the standards of Hardy and his “Mathematician’s Apology” you’d be extremely lenient to award Desai a gentleman’s C.

Setting all that aside, the fundamental problem with “The Wisdom of Finance” lies somewhere else: by dint of hundreds of references to specific business deals and finance terms that will be totally unknown to somebody who hasn’t read the FT or the Journal for at least a couple decades, this is a book that must be impossible to follow, let alone enjoy, for people who are not in finance. Bottom line, therefore, the wisdom of finance is being preached to the converted.

We’re long, professor. Limit long.

Funny thing is I really enjoyed it. Says a lot about me, I suppose…


A Mind at Play: How Claude Shannon Invented the Information Age
A Mind at Play: How Claude Shannon Invented the Information Age
by Jimmy Soni
Edition: Hardcover
Price: £19.98

4.0 out of 5 stars A mind at play, indeed, 28 Aug. 2017
Verified Purchase(What is this?)
Loved reading this biography of Claude Shannon.

On top of writing a proper biography that has clearly had the benefit of significant support from its subject’s immediate family, the authors have produced a tremendous profile of Shannon’s character and personality. Furthermore, this book succeeds 100% in making the connection between his scientific achievements and his personal traits, such as his curiosity and modesty, to say nothing of his mischievousness.

On a personal level, I found it interesting that he did not have much time for the “New Math” that his children were taught in school. As an amateur mathematician I find school math to be too much oriented toward “recipes,” but perhaps I must bow to America’s most intuitive tinkerer, father of the highly abstract communication theory and godfather of the connected era we live in. Also quite funny that he dealt in stocks.

This is not a “professional biography” in the style of “Birth of a Theorem,” but the authors make a decent fist of covering that angle well for the layman. The technical bits that are explained are explained very well. For example, the authors walk you both through an example of the application of Boolean arithmetic to electrical circuits and through the relative lack of randomness in everyday language.

My one gripe is that some of Shannon’s highest and most enduring achievements (for example his theorems on the limits of communication) are mentioned only in passing, perhaps because they are difficult to convey in everyday language. At a minimum, and for the sake of completeness, they ought to be in an appendix.


Everybody Lies: The New York Times Bestseller
Everybody Lies: The New York Times Bestseller
by Seth Stephens-Davidowitz
Edition: Hardcover
Price: £13.60

1 of 1 people found the following review helpful
4.0 out of 5 stars Why was Boehner wearing a green tie?, 17 Aug. 2017
By the author’s admission, this is the Google-generation version of his favorite book, Freakonomics.

As we’ve repeatedly found in elections all over the planet, the survey is an imperfect instrument, chiefly because people lie. Hence the name of the book.

But they don’t lie when they are doing a Google search. So that’s “digital truth serum.” You can use this cornucopia of data both
1. to establish facts but also
2. to discover correlations.

If you use it cleverly you can even detect causation. The author walks you through a large number of fun examples.

If you want to find out what part of their body men and women most frequently research on Google, you’ve come to the right place. If you want to find out how searches for the n word correlate with states Hillary lost despite being ahead in the polls, again you have come to the right place. If you want something better than a stab in the dark regarding the age we pick our football team… you get the idea.

You do get the impression, however, that the author is IMMENSELY happy with himself. This is a very smug book. All self-deprecatory commentary here (and there’s a lot of it and it’s often funny) feels fake.

True to his field, psychology, at least half the time author Seth Stephens-Davidowitz is talking about sex. So, for example, when he goes looking for the percent of men who are gay, it’s all based on research he’s done trolling on, erm, sorry, analyzing, porn websites. I’m really not kidding when I’m telling you the man’s got one thing on his mind. Bottom of page 124, in a footnote, you can see what he really wanted to call the book. It’s not “little house on a prairie.”

Also, and I hate to be a pedant, for all the “applied statistics” rigor you find in the book, he fails to mention that if your work is based on porn websites, then you are assuming that the property you are researching is exhibited in the same proportion amongst those who frequent porn websites as it is in the general population. Can that be true if the property you are researching is sexual in nature?

Regardless, I spent all my time laughing when I was reading this. I was done with it within 48 hours. I could read more. Although I’m annoyed that the author has pretty much pre-announced the sequel, I think I’ll buy it.


The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives
The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives
by Jesse Eisinger
Edition: Hardcover
Price: £20.00

1 of 1 people found the following review helpful
3.0 out of 5 stars A first draft, 13 Aug. 2017
It’s been said, and I for one tend to agree, that in November 2016 the American public punished the Democrats for not having successfully (or otherwise) prosecuted any senior Wall Street executives during the eight years following the crash 2008. I was hoping that this book was the one that would help me decide if that’s true.

Author Jesse Eisinger, kicks off bombastically, in early 2002, with the appointment of James Comey (yes, the one who went on to star in the Hillary vs. Trump operetta) as the 58th US Attorney for of the prestigious Southern District of New York. The first time Comey assembled his crew he asked everyone who’d never lost a case to raise their hand. The go-getters who did were in for a surprise: “me and my friends have a name for you guys,” he announced. “You are the members of what we like to call the Chickensh_t Club,” his shorthand for guys who failed to prosecute hard cases for fear of losing.

Sadly, that is as good as it gets. It’s where the book peaks. It has a style that works fine for a full-page spread in the newspaper, but totally breaks down when you convert to a longer format. You cannot paste together fifty such articles and hope the readers will string together a narrative.

A story does emerge, of course. It is the author’s account of how the entire justice system (and Comey with it!) has turned into one giant “Chickensh_t Club.” Sadly, it reads like a project that was abandoned at some stage, picked up later and rushed to print before somebody had bothered to actually turn it into a book.

Eisinger has evident passion for the subject and has done extensive research. He’s not quoting from others, he’s tracked down all the protagonists in the book who are still alive and has gotten their story straight from their mouth. In short, he is clearly is a first-class journalist.

He would make, at best, a second-class prosecutor:

If “The Chickensh_t Club” was meant to be written as a modern-day “J’Accuse” against the accommodation between big business and the modern legal complex, it falls well short. The author’s gone out there, he’s listed the individual crimes, he’s done the groundwork, he’s found all the evidence, but at grave risk of losing the interest of the jury (you, his reader) he feels compelled to call every possible witness to the stand; he does not walk you through the motive (you almost need to infer it); he certainly fails to follow judge Fleming’s advice (p. 80) to “try a thin case.” Worst of all, he does not bother with a closing statement. You will look in vain for the chapter that wraps up the main ideas of the book. (pp. 194 – 201, with 130 pages still to go, are the sole attempt)

Depressingly, he does not even dream, for one second, of pointing out what we can do to make things better. In rather un-American fashion, no attempt is made here to point at a better future if we try a bunch of solutions.

The story is not told linearly. It starts “in medias res” with the Enron trial in year 2000, it stops well short of the 2008 crisis, it goes back to the Great Depression and the Pecora trials all through to the glory years of the 1980’s, from where we are transported back to AIG, Lehman, Merrill, G0ldman etc.

For all of the author’s efforts to liven up the book by giving the main actors’ biographies, those main actors are, well, lawyers. I must have counted at least a hundred lawyers’ names. I’m not only talking legends like Ferdinand Pecora and Robert Morgenthau. Here’s a heavily abridged list of important people who play a significant part in this book, all lawyers, in real-world chronological appearance: Stanley Sporkin, Peter Fleming, Kathy Ruemmler, Leslie Caldwell, Sean Berkowitz, Bob Fiske, Sheirah Neiman, Bob Mueller, Paul Pelletier, Justin Weddle, (Judge) Lewis Kaplan, Tom Hanusik, Jemes Tendick, Colleen Conry, Adam Safwat, Lanny Breuer, David Ogden, Ben Lawsky and Jim Kidney. That’s on top of marquee names I’d heard before picking up the book, people still on TV today (or at least on TV in living memory) like Rudi Giuliani, Michael Chertoff, Larry Thompson, Eric Holder, Jed Rakoff, Andrew Cuomo, the ubiquitous Preet Bharara, Mary Jo White and James Comey. It’s fair to say that at least half of them get a biographical note in the book. Judge Rakoff gets 8 (count’em) pages! Tolstoy really has nothing on Jesse Eisinger.

For every single legal episode in the book, the book goes into minutiae that would arguably not even be appropriate for a full-page, in-depth spread in the newspaper. I doing so, the author drowns his story in the detail, which is a crying shame, because it’s an important story. So allow me to summarize “the Chickensh_t Club” for you the way the author never does:

1. After the Great Depression and the excess that led to it, the law for the first time became serious about “white collar crime,” a term that was defined by Edwin Sutherland (pp. 59-63)

2. Enforcement had a “silver era” that lasted into the late eighties, when the likes of Boesky and Milken were jailed. The talismanic enforcer of the times was the SEC’s Stanley Sporkin. (pp. 63-82)

3. When in December of 1975 the CEO of United Fruit (Leon Black’s dad Eli) jumped out of the window of his 44th floor NYC office to avoid the embarrassment of going to court to defend his company’s actions in the Honduras, an important precedent was set: since it was impossible to sue Black, the government sued his employer, United Fruit. The company pleaded guilty in July of 1978 and paid a $15,000 fine. The prosecutor at the Southern District who prosecuted the case was one Jed Rakoff (pp. 83-89) This was not a good development, and planted an important seed: “Investigations of top executives are more time consuming. They require better evidence, since the executives are much more likely to go all the way to trial rather than plead guilty. An executive can go to jail. A company can not.” (p. 198)

4. A further development that traces its roots to the 1970’s relates to the defense of white-collar crime. Until the 1970’s criminal defense had been 100% the work of specialized boutiques. By 1980, the top law firms had realized that criminal defense “started to look like business that was not only respectable, but also lucrative.” (p.91) The book lists some of the first prosecutors who left their jobs working for the government to join the newly-formed white collar practices of the top law firms.

5. The final piece of the puzzle was the Deferred Prosecution Agreement (DPA). After a suggestion by her deputy, Sheirah Neiman, Mary Jo White secured the first DPA against a large corporate in 1994. Until the Prudential agreed to a $330 million DPA in 1994 for misdirecting small investors to risky investments, Deferred Prosecution Agreements had only been used for petty or juvenile criminals. (pp. 93-98) Neiman, additionally, penned the “Holder memo” regarding the principles for charging corporations and the factors prosecutors should consider when deciding if they would indict a corporation. (pp. 98-101)

6. Within the space of ten short years, negotiating DPAs had become a science, with a dance all of its own, involving set pieces where first lawyers from the two sides would meet, the questions would be set for the defendants and then the prosecutors would finally meet with executives . Significantly (perhaps MOST significantly), the “internal investigation” defendants had to conduct as part of the settlement became a massive source of lucrative fees. Lucrative enough to hire and pay the very best: When Bank of America had to defend itself after the collapse of 2008, its defense was led by none other than the inventor of the DPA, Mary Jo White herself!

“In 2016 the government scale topped out at 160,300. A top partner at a good firm can easily make $3 to $4 million a year. In the meantime, the cost of living in the nation’s most coveted and powerful cities has skyrocketed. A prosecutor’s salary has become more difficult to live on, while in private practice a partner’s income has dramatically outpaced inflation.” (p. 201) Eric Holder’s career truly stands out here: “When he was attorney general, Eric Holder made $199,700 a year. As a newly returned Covington partner, Holder, who in 1999 reportedly pulled in $2.5 million, including deferred compensation, when he left the firm to head up Justice, would make many times that.” (p. 189)

“The rise of the internal investigation had an unappreciated consequence,” Eisinger further argues. “Setting up an enforcement regime based on cooperation and compliance hurt the government’s ability to conduct investigations on its own. Prosecutors look upon sprawling multinationals in despair. They believe they cannot take on giant corporations without their compliance and cooperation. The law firms do the investigating. Prosecutorial skills erode. The government has outsourced and privatized work –to the misbehaving corporations themselves”. (p. 196)

Internal investigations really come under the microscope and are revealed for what they are: on top of being the way to earn massive fees, they are long-drawn recruitment events for big law “During settlement negotiations, the prosecutors want to appear tough to the defense lawyers on the other side of the table. They want to dazzle them with their knowledge of legal precedent, mastery of details, and bargaining skills. But young prosecutors also want their adversaries to imagine them as future partners. They want to be seen as formidable, but not unreasonable. They want to demonstrate they are people of proportion.” (p. 199)

“Prosecutors who push too aggressively court social discomfort and few young assistant US attorneys are willing to do so. Young Justice Department hires are typically products of elite American educational institutions. They tend to be among the most ambitious students, their youths given over to endless hours slaving to achieve the highest grades, to please mentors and tutors, to get into the best middle schools, high schools, colleges and law schools” p. 200 “a legal career has become the reliable route to an upper-middle-class life, analogous to working for IBM in middle management in the 1950s.” (p. 200)

7. The watershed event which changed the course of justice was the collapse of Enron. The victory the government won when it jailed Enron’s principals turned decidedly pyrrhic when, in its zeal to go after Enron’s enablers, the SEC put Enron’s (robo-shredding) accountants, Arthur Andersen, under so much pressure that they went out of business, but not before having succeeded in “putting a human face” on the thousands of its accountants who lost their jobs. When the Supreme Court reversed the “guilty” verdict on Andersen Consulting in 2005, the scene was set for an enormous reversal (pp. 1-58) A number of “mea culpa” style speeches are included regarding the fall of Andersen Consulting (including by eventual SEC head Mary Jo White (p.107) and by prosecutor Lanny Breuer (p. 57)) which demonstrate how much the Andersen bankruptcy changed opinion

8. The seminal case that showed the course of justice itself had changed was the case brought against KPMG, who were found to have aggressively marketed sophisticated but illegal tax shelters to rich individuals. This is the case where in the related Senate hearings Carl Levin famously urged the KPMG partner who had offered “I don’t know how to change my answer” to “try an honest answer.” (p. 127)

Represented by Skadden Arps, KPMG completely refused to cooperate in the case. Prosecutors Justin Weddle and Sheirah Neiman would not back down either and the scene was set for a showdown in court. The same James Comey who had decried the “Chickensh_t Club” attitude a short 3.5 years earlier, now deputy attorney general, (and after consulting with Attorney General John Ashcroft) prevailed over his prosecutors to “come back to the table” and discuss a settlement with KPMG. On August 29, 2005 KPMG paid a $456mm fine and laid out in detail how their schemes worked.

Crucially, in line with the guidelines set by the Holder memo, but also perhaps as the result of Weddle having threatened “if you have discretion re fees –we’d look at that under a microscope,” KPMG had stopped paying Skadden Arps’ fees for the defense of some of its indicted executives, including its former chairman, Jeffrey Stein.

The indicted executives’ defense was based on the sixth amendment of the constitution. On June 27, 2006 Judge Kaplan acquitted Stein and accused the prosecution of “letting its zeal get in the way of its judgement” and of having been “economical with the truth.” He went on to say that prosecutors “deliberately or callously prevented many of these defendants from obtaining funds for their defense that they lawfully would have had.” That was the end of the Thompson memo.

In what must still function as a strong warning to prosecutors, Weddle ended up having to go to Romania to find work. Much better to follow the way of Mary Jo White and Eric Holder!

Beyond what all this meant for the motivations of all players, the guidelines themselves were officially changed and the Holder memo was banished to history.

Jesse Eisinger nicely summarizes this whole episode. In his words (and here his Pulitzer-winning credentials are evident) this was either:
• “a victory of a company against the unfair pressure and power brought to bear by the government. A justified reassertion of Sixth Amendment rights” or
• “an example of how the government is outdueled and outgunned at court” or
• “a fight, predominantly by major law firms, to preserve a funding stream for a lucrative and growing area of practice –in essence, protecting the ability of law firms to receive compensation through indemnification and advancement.”

9. Next comes a long list of cases where corporates basically wiped the floor with the government.

The options backdating scandal happened right after KPMG and most prosecutions fizzled.

In 2005, the Qwest communications CEO was indicted for selling shares when he knew targets would be missed. He was convicted in April 2007. The conviction overturned in March 2008

In 2005 AIG entered with Gen Re two 500mm sham transactions whose sole purpose was to help Gen Re massage earnings. In February 2008 five defendants were convicted, but Hank Greenberg was never prosecuted. In August 2011, the convictions were overturned.

10. Finally, we make it to the 2008 financial crisis and the way it was handled by the Obama administration. The author explains the motivations of the government well. Rather than punish companies and executive and hurt the economy, the choice was made to go down the South African-inspired path of “truth and reconciliation.”

Except there was no truth and no reconciliation (which is the title of the chapter in the book), because an essential element of the defense of a corporation was NOT to admit guilt. “The Justice Department argued that the large fines signaled just how tough it had been. But since these settlements lacked transparency, the public didn’t receive basic information about why the agreement had been reached, how the fine had been determined, what the scale of the wrongdoing was, and which cases prosecutors never took up.” (p. 197) The public did not want to tax corporations anywhere near as much as it wanted justice, basically, and it was denied that justice. “A trial is nearly the only place where the entire criminal justice system is put to the test of truth” and that “a system of justice that chiefly operates behind closed doors will sooner or later be a system that leads to abuse.” (p. 226) Those trials never happened.

The government, under Preet Bharara went for the easy headlines and chased after cases that were at best tangential to the crisis, such as Rajaratnam, Madoff and Stanford. The author is caustic when assessing Bharara’s motivations: “It’s a hell of a thing to tell someone they will spend the next three years of their life where we have virtually no evidence, whereas you can work on a case where you have evidence.” (p. 232) The Southern District passed on the Bear Sterns hedge fund case and “some Manhattan prosecutors felt private vindication” when the Brooklyn US Attorney who picked up the case and lost. (p. 232) By then, they were fully paid-up members of the “Chickensh_t Club.”

Between the fears of the government for the economy, the “Chickensh_t” attitude of the prosecution, the vast difference in resources between prosecutors and defendants and the changes in the law, which now favored the defendants, the scene was set for the great whitewash of 2008-2016.

The author gives the full (and I mean it!) detail of the main cases, and intertwines them with a mini-biography of judge Jed Rakoff, the very same man who had secured the conviction of United Fruit some three decades earlier and is the only senior guy who comes out of this story smelling of roses:

How Bank of America did not tell anybody about the bonuses it had promised to Merrill executives ahead of the takeover, with a full account of how Jed Rakoff sent the settlement between the SEC and Merrill back in September 2009, only of course to have to accept an only slightly higher settlement later.

The G0ldman Sachs / Paulson / Abacus /IKB case where only a 28-year-old Frenchman ended up being indicted. Even his direct superior, Jonathan Egol, was spared. G0ldman was only charged with omitting information that would have been useful to investors in Abacus. It was left to Senator Levin’s committee and the press to bring the line of command to light, as well as Tom Montag’s famous “sh_tty deal” email (regarding a different deal, it has to be noted!). G0ldman settled for $550 million. At his going away speech from the SEC, prosecutor Kidney, who had investigated the case, said that “For the powerful, we are at most a tollbooth on the bankster turnpike.”

The backdoor bailout of Wall Street via AIG and how Obama-appointed Lanny Breuer refused to prosecute AIG despite the fact that that prosecutors Paul Pelletier, Adam Safwat and James Tendick had the perfect case in AIG: “AIG FP executives knew they were facing huge losses, had motive to hide them, took steps to do so, made erroneous statements, and misled investors” (p. 278). In Joe Cassano, they also had one of the great villains of the crisis to present to a jury, up there with Dick Fuld and Angelo Mozilo. They also ought to prosecute Cassano’s underlings, Forster and Athan and flip them all the way up to Greenberg. But Obama’s appointee made sure this never occurred.

The October 2011 Citigroup $285mm settlement on a mortgage investment, which was originally also rejected by Jed Rakoff. “When a public agency asks a court to become its partner in enforcement, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.” (p. 300) In March 2012 a Second Circuit Court of Appeals panel stayed his decision and attacked his reasoning, saying “the scope of a court’s authority to second-guess an agency’s discretionary and policy-based decision to settle is at best minimal.”

And there you have it. If you think this was longwinded, confusing and a bit too precious, that’s because you have not read the book!


Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal
Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal
by Jack Ewing
Edition: Hardcover
Price: £20.00

2 of 2 people found the following review helpful
3.0 out of 5 stars Tells the wrong story, 12 Aug. 2017
I’ve done two reviews for this book.

First, my book review for car lovers:

This is a book about Ferdinand Piech where the numbers 9, 1 and 7 do not appear once on the same page, let alone next to each other.

The End.

Second, my review for everybody else:

In the 1990’s Volkswagen was caught in the middle of a mortal battle with the 100% government-supported and to a great extent government-owned French industrial complex. And it was losing.

A barrel of oil, after you refine it, does not only give you gasoline. The other major byproduct is Diesel. In the (wasteful) US, where nobody once thought anything of transmitting electricity at 110 Volts or fluorinating rather than chlorinating water, or leaving the air conditioning on while on vacation, for that matter, that problem was dealt with via an energy-intensive process called cracking, which pretty much converted the whole barrel of oil into gasoline.

The French and Italian oil industries also being to a great extent government-owned (and government supported via the largely government-controlled banks) used their influence to ensure that Diesel would be promoted as appropriate fuel for passenger cars, rather than just commercial vehicles. The tax on diesel was set much lower than the tax on gasoline. Renault, Peugeot-Citroen and Fiat got the jump on the Germans, with the exception of Daimler-Benz, who in addition to selling luxury cars are also one of the world’s largest makers of trucks.

Two enormous breakthroughs made normally slow and smelly Diesel cars competitive: Peugeot was first to launch a turbo-diesel car, in its Pininfarina-designed flagship, the 604. And Fiat invented common-rail, a cheap but effective way to deliver Diesel to each cylinder.

With the full support of the powers-that-be in the EU, Diesel took the European market by storm, getting up to 40% of passenger cars in no time.

The Germans were in a pickle. Not just VW, but also BMW and the German subsidiaries of Ford and GM (Opel / Vauxhall). They all took different approaches to solving their problem.

BMW took everything they knew about engines, distilled it into a new motor and rushed to market the 524td. Its guinea-pig drivers soon discovered that while it delivered both good fuel economy and fantastic performance, it tended to self-combust. BMW quite simply replaced every single car with the next model, the 525td, but the lessons gleaned from the enormous experiment that had been the 524td fast-tracked BMW to Diesel stardom. If you’re driving on the Autobahn and something indeterminate suddenly overtakes you in a rush of wind and disappears into the distance, it was a 4-door BMW Diesel sedan. Count on it.

Ford was much more practical. They did a deal with Diesel pioneers Peugeot. Twenty years later, my Ford C-Max is running the same 1.6 turbodiesel engine you will find in any Peugeot, Citroen or DS. The fancy Jaguars above 2 litres today still run Peugeot engines today, reflecting the legacy of former Ford ownership. As does your Volvo V40 D5, though not for long. With Chinese money (and input from Denso of Japan), Volvo are now developing their own.

Bosch, masters of everything electronic, had to eat humble pie and buy the rights to common rail Diesel technology from Fiat.

GM refused to play. They stuck to gasoline for so long, that by the time their “whispering Diesel” was finally on the market, their market share was no longer compatible with profitability. They are no longer in Europe. They sold out, to Peugeot, inevitably, last year.

To make a long story short, the plans of the Eurocrats have worked out well. Renault is back to thriving, Peugeot-Citroen (after a quick brush with death) now has the largest market share in its history, and Fiat actually owns Chrysler of the US! Oh, and Diesel is now part of the moral high ground, because it uses less CO2, it’s now our ally in the war against global warming. How convenient!!!

The opposition to the Eurocrat juggernaut lies either crushed or humbled and the weapon was Diesel.

Not so Volkswagen. Led by the indomitable Ferdinand Piech, the Volkswagen group, the “sick man of Europe” of the 1990’s singlehandedly fought the bureaucrats of the EU and won.

And boy did they do it in style. Much as he did with Porsche in the seventies and much as he did with Audi in the eighties, Piech stamped his authority on this new challenge via motorsport. No expense was spared in developing in-house Diesel technology, with multiple strands competing inside the same group. When Piech had picked the winner, he got a catchy name for it (TDI) that he would first sell on the luxury Audi brand and then allow to percolate down to the lesser brands like VW and Skoda.

When in 2006 the Automobile Club de l’Ouest, organizers of the Le Mans car race, and 100% captive to the French industrial complex, announced favorable rules to Diesel, so Peugeot could become the first ever Diesel winners of the 24h du Mans upon re-entering in 2007, they were in for a surprise: seemingly out of nowhere, Audi would ALSO be fielding a Diesel contender, and straight away, in 2006. They won!

2007 was a closely-fought thing, but Peugeot, twice winners in the 1990’s lost. Audi and TDI triumphed. Peugeot had to wait two agonizing years more and did not squeak in a win till the 2009 edition of the race, as German racing nous overcame what was probably still a French technological advantage. Piech repeated this exact same feat with hybrid electric power, incidentally, pulling the same move on Toyota for the 2012 race, also scoring the first ever hybrid victory. Toyota are still chasing that first victory, incidentally, some five long years later…

The upshot is that VW has bulldozed its way from bloated and hopeless “sick man of Europe” to being the continent’s (and, briefly, the world’s) #1 car maker.

But there have been costs. The Diesel battle in Europe, which was emphatically won against state-supported opposition, both on track and in the marketplace, meant that VW took its eye off the American market.

This is the historical background you need to understand what happened with the Diesel scandal. The man who beat the French, the Italians and the Eurocrats at their own game via a mostorsport and technology led marketing campaign made some very wrong decisions, thinking he could also bulldoze his way around American regulation. He lost. And now he may lose his company.

That’s the story I was expecting “Faster, Higher, Farther” to tell!

Instead, author Jack Ewing chooses to tell a story that is only tenuously related to the Diesel scandal. He takes you to the founding of Volkswagen by you-know-who and tells the story of Ferdinand Porsche, his sons and grandchildren. It’s got so hopelessly little to do with the Diesel scandal, it really adds nothing other than pages.

Moreover, by telling stories from when Piech was a boy and from there moving on to the machinations involved in his ascension to power inside the VW group, this really reads like a petty corporate scandal, of the kind we regularly read about in the Wall St. Journal. That’s a true pity, because what we have here is a story worthy of classic Greek drama, full of hubris and, eventually, nemesis.

I’d give it one star, except for two things.

First, I learned stuff from this book. I made discoveries from which my hours of reading of car magazines (which depend on advertising from the car industry) had sheltered me. Allow me to list them:

1. The original, 2009 defeat device acts on two different parts of the engine: when it’s active, it both makes less gas recirculate and it also flushes out the NOx trap less frequently. It was no afterthought.

2. The brain behind it started life in Audis. Diesels only really burn nice at high pressure / temperature (thought that’s precisely when they emit more NOx). At lower revs the burning is uneven, leading to local explosions inside the cylinders, causing them to rattle. Audi combatted this by injecting more gasoline at idle, which eliminated the poor burning. But they needed a way to keep rattling if the car was being tested for emissions, leading to the technology to detect if the car is being tested (and to the name of the defeat device: “acoustic function,” because it stops the engine from sounding awful)

3. There were new, separate, devices in the 2012 car, to meter urea slowly when not being tested, in order to ensure the contents of the urea tank could last between inspections.

Second, Ewing explains very well what VW did wrong. Yes, yes, it is absolutely ridiculous and hypocritical that Americans, the most wasteful polluters the planet has known, feel they have a right to criticize a company that makes some of the least polluting and most economical vehicles on earth, BUT:

1. VW set out to break the law. It did not merely fail to report. The analogy to tax, made by the author, works well. VW is not like somebody who did not declare tax. It’s like somebody who filed a false declaration.

2. VW set out to misinform the public and misleadingly advertised its cars as “clean.”

3. VW, once found, refused to come clean. They tried for two years to cover up.

4. VW has refused to concede that the fish stinks from the top.

“Faster, Higher, Further” has helped me understand these issues better, so I’ll part-forgive it having listed the wrong history. It scrapes with three stars.


Machine, Platform, Crowd: Harnessing the Digital Revolution
Machine, Platform, Crowd: Harnessing the Digital Revolution
by Andrew Mcafee
Edition: Hardcover
Price: £18.99

3 of 4 people found the following review helpful
3.0 out of 5 stars Engaging, but way too broad and depressingly shallow, 29 July 2017
Warning! Red Alert! At the end of each chapter this book has summaries of the main points and questions, and in particular questions about how the content of the chapter may relate to the goings on at “your employer.” It is clearly meant to be packaged into “continued education” courses offered by the authors’ employer (the Sloane School of Business at MIT) to middle aged (hence the enormous print) middle managers on a two-week jolly / off-site / executive MBA. This, sadly, I discovered only after the book had come through the mail.

I decided to read it anyway, because the authors of “Machine Platform Crowd” are who I thank for waking me up to the fact that we are living through a proper, bona-fide depression. Just like the depression that the discovery of the tractor and phosphates caused in the 1930’s, by dint of putting out of work, permanently, the 25% of the US workforce who used to work in agriculture, McAfee and Brynjolfsson argued six year ago in their 76 page monograph “Race Against the Machine” that we are living a new depression brought about by a “Second Machine Age.” (which is the title of their second, less sombre, book, incidentally) The victims this time round are educated people who do repetitive work that once upon a time (but not any more!) could only be performed by an educated human. Oh, and we’re only getting started.

Sure, blame the deficits, blame the banks, blame the ninja loans, blame the Fed, blame who you like, but only for trying to solve this intractable problem in silly ways that won’t work and thereby for making things even worse. The deeper cause of the depression, however, is that the educated class has educated itself to do repetitive tasks that are increasingly done by machines. Oh, and the 1% of guys who can “run with the machines,” yeah, they are going to be the bad-guy 1 percenters. Ooops.

This was a good way for the authors to become famous (and earn my respect forever) but not a terribly good way to get rich themselves! “Dismal” does not sell. Ask that Malthus fellow.

Boy, have they changed tack since 2011.

“Machine Platform Crowd” is to the machine age what Candide and Ingenu were to the Enlightenment, but with no trace of irony, sarcasm or, indeed, doubt about what promises to be the best of possible worlds.

Let’s start with us humans. We suck at judgement, it turns out. Our Kahneman “System 1” is trash and an algorithm will always beat it. But wait. Not all is lost! That info is solid gold for those of us who are smart enough to understand that we have been doing things backwards. All we need to do is let our “System 1” free to come up with whatever garbage a billion of years of evolution have taught it to do, and then feed it all as input to the algorithm. Job done. Conversely, don’t dare take the results of the algorithm and judge them with your experience. You’ll mess it all up.

Don’t meet the client. Trust that FICO score. Call up the guys at FICO and ask politely if their computer will talk to your loan officer. It may well be able to process his otherwise useless experience into an even better FICO score. (You’ve guessed right, it does not say this in the book, that’s me extrapolating, sorry)

Next let’s look at the machines themselves. In the words of ZZ Top, they come in two classes: First, the kind that we program with some sensible ideas we have (example “adjectives in English absolutely have to be in this order: opinion-size-age-shape-color-origin-material-purpose-Noun” p.70) and then have the machine implement much faster than we ever could. Second, the kind that don’t need us at all and look at reams of data and come back with some answer and we just tell them how well they guessed. (That’s called “supervised learning” for those in the back who are not paying attention)

The first kind has been beating idiots like me at chess since I can remember. The second kind (steered, but not quite, by a fellow Greek, let’s hear it for Demis!) did something much more awesome the other day, it beat the world champion in Go, which is apparently much harder because there are fewer atoms in the known universe (and any undiscovered parallel universes) than there are ways to lay your pieces on a Go board. Maybe. Approximately. Where’s Val Kilmer when I need him?

The second kind of machine does not know what it knows or how it learned it, it embodies the Polanyi paradox. What’s new and amazing, basically, is a machine that, like me, could not tell you why it played the move, but very much unlike me, plays the correct move! All from having played many many many more times than I ever have, mostly with itself. (no, honestly, that’s what it does) And it’s finally possible today thanks to (i) Moore’s Law (ii) Amazon Web Services and (iii) the availability of “big data” to train itself on.

The future is in machines that don’t know what they know, just like us, basically. Instead of asking for the “Highest Paid Person’s Opinion,” also known as the HiPPO, ask this machine. It may not know what a liver transplant is, but if it thinks you need one, stop reading and call Alvin Roth now. (Kidney, liver, it’s all the same, don’t heckle! Instead, pray that it’s as well trained in recommending rare medical procedures as Demis’ Deep Mind is at playing Go with itself. I’m sure it will be fine. Better than the highest paid doctor’s opinion, you can be sure of that.)

The final frontier is that machines are starting to do creative work. Exactly how they play Go without knowing why they played the move, merely that it will probably work, they can design a radiator that looks like no radiator you’ve seen before, rig up a very effective chassis for your racing car, or compose a piece of music that you are likely to enjoy. Amazingly, after all the mumbo jumbo of the first 100 pages in the book, I actually found this (fifth!) chapter to be totally fascinating and convincing.

From “Machine” the book moves on to “Platform,” which actually is a tremendous section. (There are two authors at work here, basically, and this is the one I prefer)

The authors start by explaining that Apple makes 110% of all money made in phones today because 1. it controls the “platform” for all the apps and 2. nobody is counting the money Google is making off of Android. Jokes aside, they make the very strong point that making devices comes down to competing on costs, whereas establishing a platform allows you to reap the positive externalities generated by every single new participant in your platform. The virtuous circle works like this:
• every app that runs on an iPhone creates demand for the iPhone itself
• if many people own an iPhone, this creates a bigger supply of good apps
So 700 dollars is a lot of money for a telephone, but not if it can run 700 apps you’d pay a dollar each for, and things work out such that it will. And Apple no longer has to find its competitive edge in squeezing down the costs of making its beautiful devices.

Next come up the “two-sided” platforms, which are all the craze. I do not remember my days of starting book2eat.com that fondly (a good 40 VC’s were aghast at the fact that I was trying to sign up both restaurants and punters at the same time, and another 200 never answered my calls or emails) but the point is that if you manage to fill more seats the word gets out and you sign up more restaurants and if you’ve signed up more restaurants punters are likelier to make a booking on your platform and this creates a dynamic that becomes irresistible. So much so, that for example a company called ClassPass (that filled exercise studios with punters who were happy to be told at the last minute where to take their yoga mat to) had to revise its pricing policy (p. 178) due to the unmitigated success of the business model in filling exercise classes!

Next up is an analysis of Uber. Here I finally understood something that had always been a mystery to me: Uber’s obsession with low price is so huge because that’s where the demand curve is most elastic: All the way to the right, the demand curve is almost horizontal. People switch over from the train to Uber at some point, basically, and then all your cabs are full all of the time. The chart is on p. 213 and I totally buy it. Congestion in that city would be awful, but that’s down to the choice of the taxi example, of course. The point about why double-sided platforms love a low price is very well made.

The way ratings have solved the asymmetric information problem is discussed here too, with the inevitable name-dropping of the authors’ colleague down the hall who got the Nobel Prize for first posing it. Oh, and don’t worry, Airbnb will not kill the hotels industry, because hotels cater to business travelers. Don’t forget, it’s all good! The fate of the cabbies and the longshoremen is left to the reader to ponder, but they can all go work for Travis, no?

The third, final, section of the book is about “the crowd”

It starts by explaining that crowdsourced software rocks, basically, and that the ingredients you need are:

1. Openness: who knows what motivates them, but people do contribute
2. Noncredentialism: good software can be written by absolutely anyone
3. Verifiable and reversible contributions: unlike a novel, you can test software quickly and undo any poor contributions
4. Clear outcomes: via a good license you can assure coders that their work will remain public
5. Self-organization: people do best the work that they WANT to do and if that leads to a fork in the code, so be it
6. Geeky leadership: it’s the kind coders will write code for

Hayek and Polanyi make another guest appeareance in the chapter, but it works fine without them.

A further important point about the crowd is that very often the contribution to a project that makes the big difference does not come from an expert in the field. Indeed, the knowledge that will cut the Gordian knot may come from somebody with knowledge that is “far away” from the subject, i.e. somebody who will be surplus to requirements 99% of the time and thus a team of experts could never afford to have on board: “The expert you know is not the expert you need,” basically. He’s somewhere in the crowd and that’s where you must reach for him.

From there we jump to a painfully banal chapter on Bitcoin that addresses the points about cryptocurrency I could not care less about (like the mechanics of how it works, described just inaccurately enough for you not to be able to actually work it out, or the effete generalization that blockchain may be more important than Bitcoin,) barely gets into the aspects that matter (is it money? How does it provide store of value if there can be a million different otherwise scarce and deflationary varieties of Bitcoin? How will it compete if nobody will accept to be paid tax in it?) and complains that the Chinese are now dominating it.

By that point, we find ourselves in a final chapter that’s nothing to do with Machine, Platform or Crowd, but is there to make the customers feel good who are attending the seminar and assures them that companies will still carry on being necessary in the future, because they are who possesses “the residual rights to control: the right to make decisions not specified in contracts.”

Given that, presumably for the benefit of the same attendees, there is a need to sketch (very well, I must say, see pp 154-156) how the demand curve and the supply curve work and what happens when they intersect, one can safely say that this short paean to the firm is guaranteed to go over their head. But it must make for a warm conclusion. And now, back to work!


Cornered: The New Monopoly Capitalism and the Economics of Destruction
Cornered: The New Monopoly Capitalism and the Economics of Destruction
by Barry C. Lynn
Edition: Paperback
Price: £11.99

4.0 out of 5 stars From the heart, 14 July 2017
This is a straight, honest and passionate book. It’s written in the first person. It’s genuinely heartfelt and it’s a wake-up call. Author Barry Lynn sees himself as an evangelist here. It’s bad news he bears and he’s desperate for everybody to hear it: If we don’t pay attention, and time is running short, our world will soon be owned by a small cabal of neo-feudalist financiers.

He builds the argument in two parts: first “you are here” and second “this is how you got here.” From there, he actually leaves it to the reader to extrapolate.

The book the author really wanted to write was the “this is how you got here,” but in my view that part of the book is nowhere near as strong as the first part, which is a proper compendium of business-school case studies in monopolistic and oligopolistic behavior, including:
• Walmart, and how it works with a Chinese company called Menu Foods to dominate pet food.
• Luxottica, and how they came to dominate the optical business (from p. 31)
• The beer duopoly of SAB and InBev (from p. 36)
• The dominant position of Procter and Gamble in the US after it absorbed Gillette (from p. 42)
• The roll-up of the high street by Macy’s (from p. 57, and yes, post Amazon it sounds quaint)
• Jack Welch’s “#1 or #2” strategy (from p. 66) with a bonus case study (the RCA rollup into NBC)
• David Stockman’s rise and fall, with emphasis on his explicit pursuit of monopoly (from p.75)

The case studies are accompanied by
• a taxonomy of monopolistic behavior (p. 19)
• a primer on the benefits of common carriage laws and why the producer (not the intermediary) ought to be setting the price (p. 50)
• a case study on how monopoly stifles progress (the market for safe syringes, from p. 152)
• a primer on how patents can be a double-edged sword (and the story of the triple sublimation of George Westinghouse, Thomas Edison and Nikola Tesla, from p. 162)
• a busting of the monopoly innovation myth (p. 169)

Special emphasis is given to
(i) the “hydra” model of monopoly whereby a slew of allegedly competing firms depend on a single supplier for a vital part of their value chain and the risk this poses to the “resilience” of the system. Ford’s CEO Mullally is quoted here, in particular. He appealed for his competitors to be saved in 2008, remember, lest their demise hurt the suppliers he depended on!
(ii) the monopsony power that a small, concentrated number of agricultural aggregators exercise over the farmer, who these days operates once again in serfdom. For example, 80% of milk is bought by either Dean Foods or Dairy Farmers of America
(iii) the threat to biodiversity and the resilience of our ecosystem that these same companies (he names Monsanto and ADM) bring about when they insist on monoculture of their own special seeds.

The most evil guys in this book, however, are the moneymen, and chief amongst them J.P. Morgan, whose career reads like an anthology of all the above.

And that’s the rub: the “how we ended up here” part of the book, the book the author really wanted to write, has its moments, but in my view fails to convince. Lynn does not satisfactorily explain what it is that makes 1995-2005 different from 1945-1995. Even worse, he ascribes the entire process to politics, a topic he does understand, and therefore is in a position to discuss, but is in my view nothing more than the intellectual mantle under which the transition has taken place, rather than the actual mechanism. He knows he hates J.P. Morgan, he knows he hates Cerberus, but he does not actually understand how they operate and what laws made the difference.

If you’re looking for a manual to do some harm, the book is of no use: the line is not traced between the politics (however wrong the politics might be) and the actual legislation spawned by the politics, let alone the way monopolists used the relevant laws that brought about the outcomes. Simple as that! Compared with David Stockman’s “Great Deformation,“ which (hidden deep in its 750 pages) contains a virtual “how to” guide, this account is far too theoretical.

Regardless, the history of the politics as told by Lynn is totally fascinating and worth repeating:

The very foundation of the American state is ascribed to the struggle against monopoly. The Boston Tea Party of 1773 was a revolution against the Amazon of its day, the British East India Company, rather than the British Empire, the author alleges, and very convincingly too.

Next comes the necessary discussion about Alexander Hamilton (bad) and Thomas Jefferson (good), which neatly brings us to the civil war, which is seen through the same lens: the US decided to shut out via steep tariffs the international monopolies of the British and to foster its own productive capacities. The South, which had previously operated as part of this setup, found itself cut off the international market both for its output, which it was forced to sell domestically, and for its inputs, that it was also forced to source domestically, and the rest we know.

From there we move on to the progressive era. Harry Truman, we’re told, did not really cut the robber barons down to size because he cared about the economics of monopoly. His trust busting should be credited to the fact that the powerful monopolists were beginning to exert political power and had to be restrained. It is only because they were a political threat that he intervened, bottom line.

Woodrow Wilson is the author’s true hero from this era, and he’s credited with setting up the Federal Trade Commission, with speaking out against the practices of monopolists, with actively presiding over their breakup and with putting “Democratic-Republican” Louis Brandeis on the Supreme Court, whose antitrust ideas infused mainstream American thinking for decades, including the super-important FDR presidency when not only the welfare state was set up, but also important legislation like Glass-Steagall was enacted.

This is in juxtaposition with the turn for the worse in the thinking among our intellectuals after the war, best exemplified by the more “efficiency-minded” John Kenneth Galbraith, whom the author brands a “democratic socialist” and not particularly open to the idea of actively fostering competition. Indeed (p.146) Galbraith is accused of having “actively waged war against the very idea of antimonopoly law.” There are parallels to be seen here with Teddy Roosevelt and his desire for a better planning state, rather than an out-and-out rejection of corporate monopoly.

Even worse, this left the door wide open to the Chicago school of Milton Friedman, who calls upon the new god of the unfettered “free market” twelve times in his seminal “Capitalism and Freedom” and names government interference as the biggest impediment to progress, to redefine the terms of the game. (Lynn notes wistfully that “free market” is mentioned exactly once in Adam Smith’s “Wealth of Nations”, exactly once in Hayek’s “Road to Serfdom” and zero times in all of Schumpeter’s “Capitalism, Socialism and Democracy”) The result is that as of the Reagan presidency, the monopolist gets a get out of jail free card, provided he can be shown not to be raising the price.

Funnily enough, progressive Barry Lynn reserves his maximum contempt for Bill Clinton, who picked up where Reagan left off and, in the context of the “End of History” event that was the fall of the Berlin Wall, looked the other way as mergers and acquisitions went on overdrive, as Microsoft and Intel monopolized computing and Walmart killed the high street, but also enacted a series of laws that left the field wide open for finance (the ultimate enabler of the monopolist) to go wild, including laws that allowed interstate banking, the end of the Glass Steagall act, the deregulation of the derivatives market etc.

The basics were all in place, then, when the 2008 crisis hit for all business to consolidate into oligopoly or outright monopoly, with the weaker competitor in every single business either exiting the market, or being merged into the surviving player, and that’s where we find ourselves today.

What most annoys the author, however, is that we did not have to lose the narrative. It was the fair-trading US that won the Second World War and, contrary to how the story is told today by our very own intellectuals, the institutions that were put in place were those of a 100% benign empire: when we discuss Bretton Woods today we focus on the institutions that were established such as the gold standard, the IMF and the World Bank, but the main change was that the US could have organized a centralized imperial system, but instead decided to impose a system based on liberal trade (p. 197)

The US even deserves credit for the establishment of the EU: it was part of the decision to blend the German industrial system with that of the rest of Europe. The French baulked first, but the Americans were the ones paying to rebuild Europe, mainly through the Marshall Plan, and they got their way, ensuring peace and prosperity for two generations.

But the US never openly admitted it had created a decentralized, commerce-based, cosmopolitan “empire by integration” (p.202) because “the people who conceived this imperial system never trusted the world to support such high levels of integration, so they developed the habit of hiding their actions from the very people they believed they were serving” (p.203)

“And that, folks, is how Milton Friedman was able to seize the high ground,” you can hear the author say with sorrow. The direct result is that two very important terms we use daily have been perverted. Barry Lynn wants to set us straight:

1. “market” is a vital political institution, not a natural, superhuman mechanism as per Friedman
2. “a business is a political institution designed to govern people and properties.” It is not property itself. (p. 227) (an equally good definition can be found on p. 142)

Another thing we need to understand is that we don’t want competition because we want lower prices. We want “competition for the sake of competition,” in markets that are supported by government regulation (p. 96). That is the space in which citizens can thrive, where politics will be healthy and where growth can be shared by all, rather than re-distributed ex post to the losers.

I totally agree with Barry Lynn and there is little doubt that we are rapidly reaching the dead-end to which the deification of the market and the shareholder economy is leading us to. But the call to arms at the end of the book is misplaced. There will not be a revolution (we’re far too rich for that these days) and if we don’t change the laws there also will be no change.

Sadly, what is called for here is not a change in attitude or ideology. What we need is a change in the statute. On that front, Barry Lynn comes up waaaay short.

And here’s the funny thing. His second-biggest bete noire in the whole book, “villain” David Stockman has written his own version of this book, where he explains exactly what happened:

"we have a rigged system -a regime of crony capitalism- where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance."

Stockman further explains that

1. There is a large tax advantage to financing with debt rather than equity, because the cost of servicing debt can be carved out of your bottom line. This has always been the case

2. Tax on regular income (be it from dividends or from going to work every day) is much higher than tax on capital gains. This only became the case in the Reagan years, so it’s relatively new.

3. The Fed perceives GDP growth to be its chief mandate and its only tool to achieve this is cheap money, which was duly delivered, and especially so when asset prices were endangered. The Greenspan put and Bernanke QE are also very new.

These three factors have unleashed the four horses of the last 20 years' financial apocalypse of “corporate equity withdrawal” whereby every drop of value is squeezed out of corporations and shared by the 0.1 percenter class of financiers and their puppet CEOs.

1. 1992-2000 Tyco-style LBO acquisition bubble that aided and abetted but also fed off of the Internet bubble

2. The 1992-2008 private equity bubble that toward the end was 100% about Corporate Equity Withdrawal

3. The 2000-2008 GSE / mortgage broker / subprime / Wall Street / CDO housing bubble

4. The 1992- present corporate bond cum stock repurchase bubble to support stock option prices for CEOs and upper management.

What is unbelievably funny is that Lynn’s and Stockman’s politics read like the negative of one another. They each go through American history and if one guy loves a president, the other is guaranteed to hate him. Wilson, loved by Lynn is Stockman’s biggest object of scorn. Perhaps even hatred. Lynn loves “regulation,” where Stockman loves “the free market.”

Yet when it comes to markets, they are nigh-on indistinguishable. For example, they both hate traders, be it oil and commodities traders, futures traders or stock and bond traders. Very very funny. And they both fiercely abhor monopoly, much as Stockman once tried to put one together in the car supplier business.

Which takes me to my conclusion: if Barry Lynn were to update his book to 2017, he would do well to look for remedies to the problems posed by Stockman, starting probably with an equal withholding tax on all types of corporate distributions, be they bond coupons, dividends, buybacks or stock option grants, set at the top marginal income tax rate.

With that said, in the world of Google, Amazon and Facebook, a strong background in why we do not like monopoly remains highly relevant.


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