September 1, 2009


By Michael Lewis,
W.W. Norton, 2009

Panic! The Story of Modern Financial Insanity

Michael Lewis, former bond trader at Salomon Brothers and author of some of the best financial books of this decade, has put together an anthology of engaging financial writing of the last two decades in an effort to figure out the recent phenomenon of “the seemingly causeless panic.”

He covers the stock market crash of 1987, the Asian market collapse of 1997, the bursting of the high-tech bubble at the beginning of the new millennium, the current sub-prime mortgage collapse and the resulting recession. Each chapter begins with a piece written immediately before the event to show the general mood of the time, then follows with one fascinating, well-written piece of journalism after another. Some are by Lewis, others come from Scott McMurray at The Wall Street Journal or Paul Krugman of The New York Times op-ed page, a few interviews from Frontline and, most hilariously, Dave Barry on “How to Get Rich in Real Estate.”

But first, Lewis explains the options pricing model called Black-Scholes, on which portfolio insurance is based. Not being an options investor or Wall Street analyst, I had never heard of Black-Scholes but, in essence, it’s what created the current panic. Black- Scholes says “a trader can suck all the risk out of the market by taking a short position and increasing that position as the market falls.” Unfortunately, that’s not true when the market plummets. “When you most need to sell—or to buy—is exactly when everyone else is selling or buying, in effect canceling out any advantage you once might have had,” Lewis writes. What happened, then, is “the very theory underlying all insurance against financial panic falls apart in the face of an actual panic.”

It is that sort of lucid, no-nonsense writing and thorough, knowledgeable reporting that makes this book such a joy to read. Finally, financial insight that comes not from Wall Street’s hideously flawed masters of the universe but from objective reporters who know what they’re talking about and how to make it comprehensible to the less informed.

Read this book. And while you’re on a Michael Lewis kick, read Liar’s Poker, his memoir about the four years he spent at Salomon Brothers, and Moneyball, the best book I have ever read about baseball.


By Michael Lewis,
W.W. Norton, 2009

Brain and Culture

My college roommate once said that she wanted to live in reverse. She wanted to get smarter as she aged, rather than dumber. Mind you, this is when we were all convinced that you couldn’t trust anyone over 30. Every generation suffers from the hubris of youth, but it turns out that she was actually onto something.

“Learning and action are in inverse relationship throughout the lifespan,” writes Bruce E. Wexler, professor of psychiatry at Yale Medical School and director of the Neurocognitive Research Laboratory at the Connecticut Mental Health Center. “We learn the most when we are unable to act. By the time we are able to act on the world, our ability to learn has dramatically diminished.”

Interesting but rather clinical. What makes this book worth reading is what Wexler comes to next. Unlike others in the new study of neuro decision making, Wexler connects his findings to societal issues such as war, ethnic strife, grief, immigration, politics.

In a vast oversimplification, what he says is, once we reach adulthood, we have decided how things should be done, based on the consistent formation of our brains to expect and accept certain norms. This led the British to march around the world in their woolen clothing and pith helmets and treat most native peoples as savages. This led to the Holy Roman Empire setting off on disastrous Crusades to rid the world of the Muslim infidels. This leads to religious war in Northern Ireland, racial hatred in the South, profound pain of refugees violently deracinated from their home countries. Given that human beings can alter their environments more than any other species, this is especially true in the modern world where “children in Euro-American societies have been raised in almost entirely human-created environments.”

Do not think that this is a sad book about how we are doomed to repeat our mistakes, how we are unable to change and how scientists can predict our fate. Instead, it is a deeply optimistic book about resilience that offers some actual causes to the seemingly incomprehensible. And once we know the causes of our behavior, our chances of doing better improve.


By Robert I. Sutton,
Business Plus, 2007

The No Asshole Rule

In 2003, the Harvard Business Review asked Dr. Robert Sutton, professor of management science and engineering at Stanford University, if he had any ideas for inclusion in the publication’s annual list of breakthrough ideas. He proposed something called the “no asshole rule,” sure that the staid HBR would never go for the off-color word. When it was included, printing the word eight times in the short essay, Sutton was deluged with e-mails, phone calls, letters and requests for interviews. Tales of abuse at the hands of nasty bosses and malevolent co-workers poured out, and Sutton, who had long implemented the rule among his own department, knew he was onto something.

The result is this little book. I say little because at 186 pages (without the index, footnotes and acknowledgements), big type and plenty of white space, there’s not a lot here. There are, unfortunately, plenty of examples: Al Dunlap, former Sunbeam CEO, nicknamed “Chainsaw”; Linda Wachner, former CEO of Warnaco; John R. Bolton, President Bush’s nominee for U.S. ambassador to the United Nations; Steve Jobs, co-founder of Apple. As long as you don’t have to work with any of them, the tales of bad behavior are pretty dishy: Harvey Weinstein, former head of Miramax Films, “his eyes dark and glowering, his fleshy face unshaved, his belly jutting forward half a foot or so ahead of his body,” jabbing a finger in a rival’s face and screaming, “You’re going to go down for this!”

Hiring an asshole is a bad idea. They breed like rabbits, says Sutton, hiring people in their own evil vein. They cost money in everything from anger management and lost clients to lawsuits. There is evidence that employees steal more from companies where assholes work to “even the score.” They run through employees like water; Scott Rudin, a Hollywood producer, went through 250 personal assistants in five years.

Sutton does offer two tests for separating the assholes from the mere jerks. 1) They make their “targets” feel worse about themselves. 2) They always go after the less powerful. There is also a guilt-inducing, 24-question self-assessment test: You know you’re an asshole if … you feel surrounded by incompetent idiots, your list of friends is short and enemies long, people won’t make eye contact with you, people seem to stop having fun when you show up.

It’s a breezy little read that could do with a lot more rigor. Vague references to “studies show,” and a lot of anecdotal sob stories don’t make for a very serious book. I would like to know more, for instance, about Intel’s required course on “constructive confrontation” and less about things such as “assholes suffer, too.” Poor things.