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More Money Than God
Hedge Funds and the Making of a New Elite
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The first authoritative history of hedge funds; from their rebel beginnings to their role in defining the future of finance.
- Book
- Foreign policy analyses written by CFR fellows and published by the trade presses, academic presses, or the Council on Foreign Relations Press.
Read an excerpt of More Money Than God.
In the aftermath of the global financial crisis, policymakers in the United States and around the world have focused on the problem of "too big to fail" institutions, debating remedies ranging from higher capital requirements to proposals to break up large banks. In his book, More Money Than God: Hedge Funds and the Making of a New Elite, CFR Senior Fellow Sebastian Mallaby argues that governments should instead encourage small-enough-to-fail hedge funds. Between 2000 and 2009, a total of about five thousand hedge funds went bust, but because they were too small to threaten the financial system, not a single one required a taxpayer bailout.
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The author, director of CFR's Maurice R. Greenberg Center for Geoeconomic Studies, writes that, despite the failure of these five thousand funds, the hedge fund sector as a whole survived the 2007–2008 mortgage bubble extraordinarily well compared with the banking industry. Mallaby outlines four reasons for this stark contrast:
- Regulation. The capital requirements on banks that accept deposits are intended to shore up the solvency of such institutions but, in some instances, allow banks to run their books in ways that the requirements suggest are safe, even when they are not. Conversely, hedge funds are far more likely to make their own risk decisions and thus frequently fared better.
- Incentives. "When [bank] traders take enormous risks, they earn fortunes if the bets pay off. But if the bets go wrong, they don't endure symmetrical punishment—the performance fees and bonuses dry up, but they do not go negative. . . . Hedge funds [on the other hand] tend to have 'high-water marks': If they lose money one year, they take reduced or even no performance fees until they earn back their losses."
- Distraction of multiple profit centers. "The banks' proprietary trading desks coexisted alongside departments that advised on mergers, underwrote securities, and managed clients' funds; sometimes the scramble for fees from these advisory businesses blurred the banks' investment choices."
- Culture. "Hedge funds live and die by their investment returns, so they focus on them obsessively. They are generally run by a charismatic founder, not by a committee of executives: If they see a threat to their portfolio, they can flip their positions aggressively."
Drawing on unprecedented access to the industry, including three hundred hours of interviews and binders of internal documents, Mallaby charts the history of hedge funds, telling the stories of the industry's pioneers, from the undercover anti-Nazi activist A.W. Jones, to the philosopher-financier George Soros, to the cryptographer and mathematician James Simons. He concludes that to a surprising and unrecognized degree, "the future of finance lies in the history of hedge funds."
A Council on Foreign Relations Book
Educators: Access More Money Than God's Teaching Module.
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In the News
Sebastian Mallaby on CNBCA CFR Book. Penguin Press
Daily Beast on More Money Than GodA CFR Book. Penguin Press
BBC Radio: Hedge Funds "Safe to Fail"A CFR Book. Penguin Press
Sebastian Mallaby on Tavis SmileyA CFR Book. Penguin Press
Sunday Book Review: Hedge HogsA CFR Book. Penguin Press
FT on More Money Than GodA CFR Book. Penguin Press
Sebastian Mallaby on Charlie RoseA CFR Book. Penguin Press
Independent on More Money Than GodA CFR Book. Penguin Press
Zócalo Public Square: Are Hedge Funds Heroes or Villains?A CFR Book. Penguin Press
Bloomberg: Hedge-Fund Lackeys Grow SuicidalA CFR Book. Penguin Press
NYT: David Brooks on More Money Than GodA CFR Book. Penguin Press
WSJ: The Long and Short of ItA CFR Book. Penguin Press
Guardian on More Money Than GodA CFR Book. Penguin Press
Irish Times on More Money Than GodA CFR Book. Penguin Press
Hedge Funds: Obama’s Next Big Headache?A CFR Book. Penguin Press
Washington Post: Why we need hedge funds to make financial reform workA CFR Book. Penguin Press
WSJ: Learning to Love Hedge FundsA CFR Book. Penguin Press
Atlantic: “Go for the jugular”A CFR Book. Penguin Press
Sebastian Mallaby on Conversations with HistoryA CFR Book. Penguin Press
Bloomberg TV: Bitcoin Craziest Thing Since Tulip ManiaA CFR Book. Penguin Press
Economist: Over the edgeA CFR Book. Penguin Press
Sebastian Mallaby on Andrea Mitchell ReportsA CFR Book. Penguin Press
NPR: "More Money Than God," But Morally BankruptA CFR Book. Penguin Press