The main idea of this book is to provide kind of guide to contemporary finance, its professions, operations, and objectives. It divided into part I describing who does what and part two pretty much describing positive and negative consequences of these actions and motivation behind them. The bottom line: finance is necessary and effective tool of economy without which contemporary world would be impossible despite all problems it causes and generally negative attitude of the public caused by recent financial crisis and bailouts.
Part One Roles and Responsibilities
- Chief Executive Officers; 2. Investment Managers; 3. Bankers; 4. Investment Bankers; 5. Mortgage Lenders and Securitizers; 6. Traders and Market Makers; 7. Insurers; 8. Market Designers and Financial Engineers; 9. Derivatives Providers; 10. Lawyers and Financial Advisers; 11. Lobbyists; 12. Regulators; 13. Accountants and Auditors; 14. Educators; 15. Public Goods Financiers; 16. Policy Makers in Charge of Stabilizing the Economy; 17. Trustees and Nonprofit Managers; 18. Philanthropists;
The first part is somewhat trivial going through 18 different types of participants in financial operations and creating necessary framework for such operations: from education, lobbying, and regulations all the way to actual operators such as traders, bankers, and investment managers. Probably the most interesting part of these small narratives is description of incentives that people have in each of these professions that more often than not deviate quite considerably from formally advertised objectives of organizations that operate in each area.
Part Two Finance and It Discontents
In part two author goes into somewhat philosophical review of financial operations, their meaning, and positive / negative outcomes.
- Finance, Mathematics, and Beauty
This is about the beauty of mathematical representation of finance. It is mainly based on ideas of the beauty of symmetry. Too bad it remains purely theoretical because real world includes all kind of imperfections that pretty much make this beauty not really applicable.
- Categorizing People: Financiers versus Artists and Other Idealists
This is about type of people who are doing finance. Contrary to usual few of it being area of either boring and honest types or cunning crooks author provide examples of financially effective artists, revolutionaries, and philosophers.
- An Impulse for Risk Taking
This is about risk taking opportunities provided by finance and type of people who take it.
- An Impulse for Conventionality and Familiarity
Correspondingly this chapter is about financial types that counter risk taking by conventionality and familiarity. In a word it is about security provided by finance so it contains a piece about entitlements such as social security.
- Debt and Leverage
This is about the logic of debt and leverage and how it used in finance. Quite appropriately it discusses financial crisis of 2007 and dangers of overleverage. Interestingly author tries to establish new notions of odious and salubrious debt one if detrimental to social welfare and another promoting it. By adding moral dimension to a debt, author calls for more regulations required to use it to assure prevalence of salubrious debt.
- Some Unfortunate Incentives to Sleaziness Inherent in Finance
Obviously author had to address typical approach to finance as something sleazy. He does it here by comparing it to gambling, but at the same time trying to explain that some financial operations look sleazy only because people do not understand their meaning and purpose. He practically begs not to overreact to sleaziness, by restricting financial operations to the level of understanding of regular people.
- The Significance of Financial Speculation
This is an attempt to explain merits of speculation as financial tool that is necessary to improve functioning of markets. He discusses various corporate forms that limit liability and makes suggestions how to improve existing process by regulation.
- Speculative Bubbles and Their Costs to Society
Obviously it is not possible to discuss finance and not discuss financial bubbles, which author does in this chapter. As it seems to be usual for him, he sees remedy in regulations by wise bureaucrats who somehow superior in judgment to market participants.
- Inequalities and Injustice
This is discussion about how finance lead to inequalities through compensation bubbles, supporting family dynasties, and just plainly benefiting rich for being rich. He gives a nice example of book by rich that are immediate bestsellers because they are written by rich (Trump, Oprah). He suggests usual remedy against inequality: progressive and estate taxes.
- Problems with Philanthropy
This is about financial implications of philanthropy and its limitations. It is mostly about tax exemption and other initiatives to do it.
- The Dispersal of Ownership of Capital
Here author discusses government policies to disperse capital starting with land allocation policies and then going through support for home ownership, retirement accounts, and employee ownership of business. He believes that it support dispersal of capital that prevent concentration of economic power.
- The Great Illusion, Then and Now
Here author discusses what he calls the great illusion: idea that military power provides for national advantage. He looks at history and practically expands this idea to cover all forms of aggression including in business and life. At the same time he stresses that interconnectedness implied in finance if the way to counter aggression by presenting much better return on effort than aggression and wars.
Epilogue: Finance, Power, and Human Values
At the end author discusses relationship between financial wealth and power and how over XIX and XX Centuries power moved from hands of aristocracy into hands of the rich. Actually it seems to be not that bad in terms that it is much better when power struggle occurs not at the battlefield, but on financial markets leaving to mainly bloodless financial battles transfer of power between players, especially when this process often increases overall wealth creation for everybody. Author believes that the future prosperity depends on maintenance of existing and creation of the new forms of financial institutions that would help to resolve existing contradictions and provide supporting system of democratic finance for individuals to achieve their goals.
MY TAKE ON IT:
It is 30 thousands feet description of finance, its role in society, and players who fulfill this role. Overall I think it is a very good idea to move as much as possible human interaction related to creation, distribution, and exchange of resources to financial area where it could be done peacefully, effectively, and even relatively fair. The only serious disagreement that I have with author is his highly positive attitude to bureaucracy and regulations. I think that any regulation is limiting ability for business to function effectively and efficiently. Instead of reliance on wise bureaucrats to make decision and setting framework for decisions that people are allowed to make, I would rather limit bureaucratic interference to enforcing contract with specific designation of some contracts that would not be enforced. I would also leave to government power to obtain financial and other business related information and provide estimate of honesty and trustworthiness of economic players. In other words I would leave all decision making with people and use bureaucracy only for contract enforcement and effective informational support of decision-making both of which require ability to use violence or at least threat of it.