Railing against financial oligarchs

October 01, 2011  

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A takedown of hedge fund egos and practices

By Leah Spiro

Extreme Money: Masters of the Universe and the Cult of Risk 
By Satyajit Das 
FT Press
Extreme Money is a highly idiosyncratic, provocative tour of the past 30 years in finance, from Drexel Burnham Lambert’s Mike Milken to Blackstone’s Steve Schwarzman. Author Satyajit Das, a finance industry insider-cum-Cassandra, takes a dark view of the industry, portraying its denizens as parasites, locusts, pimps and hypocrites. "In good times, bankers are capitalists. During crises, bankers are socialists," he writes.

Das argues that over the past 30 years, what he calls the extreme money economy has hijacked the real economy. Extreme money is like extreme sports. Instead of a regular sport such as baseball, which focuses on competition, extreme sports require physical challenges like parachuting off buildings and bridges for the sheer thrill of it. This is not the regular money that you keep in your wallet and use to buy lunch. Extreme money is complex, leveraged and dangerous.

Das details five types of extreme money: private equity, hedge funds, securitization, structured finance and derivatives. He posits that hedge funds and private equity managers are financial oligarchs who rose to power in the past three decades, courtesy of Milton Friedman and celebrity central banker Alan Greenspan and even Ben Bernanke. They preached what Das calls "financial fundamentalism," or the Chicago pro-free markets school of economics, which "was actually political ideology," writes Das.

Das knows well what he writes about, having worked in finance for decades. He is a derivatives consultant who worked at Citigroup and Merrill Lynch. In 2006, he flagged the dangers of the structured credit markets in a speech called "The Coming Credit Crash." The author of "Traders, Guns & Money" (2007), he blogs for the Big Picture and Wilmott. In 2010, he made an appearance as a market naysayer in the documentary film Inside Job.

Das rails against what he calls hedge funds’ promiscuous access to banks and leverage. "Hedge funds are courtesans, high-class prostitutes whose clients come from the wealthy. Banks are the pimps and bordello keepers," writes Das. He recounts his own experience helping a European bank invest in a hedge fund. Changing the names to disguise the real people, he portrays the hedge fund managers as three-card monte dealers trying to fleece the overeager bank.

Das also targets the hubris. He dismisses George Soros as craving "acceptance as a thought leader" and unearths a quote about Soros’ 1998 book, "The Crisis of Global Capitalism" from the Economist: "Mr. Soros gorged on chopped philosophy, mashed economics and facts and figures swimming in grease." Das goes on to slam Soros for his philanthropy: "Half the day he engages in the most ruthless financial exploitations, ruining the lives of hundreds of thousands, even millions. The other half [of the day] he just gives part of it back," says Das, quoting a Slovakian academic.

John Paulson, Ray Dalio and Steve Cohen also come under his withering pen. Paulson’s crime is making $5 billion in 2010 without helping to create any jobs or wealth. Dalio’s fault is indulging in "billionaire drivel" in a management manifesto. And Steve Cohen’s failing is his taste in art and his überrich lifestyle.

Das’s strong suits are his pithy quotes, his flashes of insight and his willingness to criticize powerful people. However, he is prone to sweeping generalizations, unsubstantiated conspiracies and a hyperactive writing style. Nuanced he is not, but with the global economy in tatters, look for more populist books like this that blame the world’s woes on hedge funds, the purest of capitalists.

Leah Spiro is president of Riverside Creative Management, a literary agency.

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