Typically entertaining Michael Lewis book. In short, this is the story of a group of Wall Street do-gooders who founded the IEX stock exchange a few yTypically entertaining Michael Lewis book. In short, this is the story of a group of Wall Street do-gooders who founded the IEX stock exchange a few years ago in an attempt to make trading more fair. Specifically they were addressing the ability of high-frequency traders (HFT) to front-run investors. As context Lewis fills out the details of what high-frequency trading is all about and how HFT'ers were abusing loopholes in trading laws to gain individually small, but plentiful, pricing advantages in trades -- advantages IEX was created to mitigate. ...more
Back about 2007 I started using Washington Mutual as my main bank. That was because it was located across the parking lot from my workplace, and paid Back about 2007 I started using Washington Mutual as my main bank. That was because it was located across the parking lot from my workplace, and paid out the highest interest on savings accounts of any bank I knew of. A year later it went bust. I was wholly unaffected thanks to the quick work of regulators to effect an immediate sale of WaMu to JP Morgan Chase. So I was interested to discover this account of the WaMu collapse to learn the details all these years later.
The core of WaMu's problem was in issuing an overly-complex type of home loan during the 2000s called an Option ARM, and promoting them to people who were poor credit risks and who were too unsophisticated to understand what they were getting themselves into. These Option ARMs became a priority for WaMu because they were more profitable than traditional fixed-rate mortgages. More profitable for WaMu when it still held the loans, more profitable to securitize and sell them to Wall Street, and more profitable for the world's bond investors when rolled into a securitized bond. More profitable for everyone ... until the borrowers began defaulting en masse.
The "option" part of such a loan meant that the customer could choose from various levels of monthly payment each month. Naturally many customers would choose the lowest amount they were allowed to pay -- but that would not even cover the interest charge, so the interest would add to the principle and the balance would only increase instead of decrease over time. In this way Option ARM's became reverse-amortization loans for many people: month after month, the loan balance would increase instead of decrease.
Then when the "adjustable rate" part of the ARM kicked in, the loan would reset, and the option of paying a very low monthly payment often ended. Combined with declining home prices starting about 2006, the result was that many low credit-rating borrowers found themselves with monthly payments they could not afford, and with home loans that were now increasingly underwater, without the benefit of increasing home equity to save their bacon. Walking away from the loan becomes a rational option. Meanwhile, companies such as WaMu found the usual drug of securitizing these crap loans and selling them to Fannie Mae, Freddy Mac, and Wall Street investors suddenly was disappearing as an option because of deteriorating conditions and because, as securitized bonds, these were often proving to be poor-performers. So WaMu was stuck with these loans it was creating as 2008 progressed.
Interestingly per the chronology, even as late as summer 2008 it was not clear there was any real disaster in store. Shareholders were angry that WaMu had just reported a quarterly loss and had just issued shares in a big capital-raise that diluted ownership; and had also cut the dividend almost to zero. A turnaround was needed but it wasn't obvious that anything fatal was going on.
Things came to a head during the two weeks in mid-September 2008. This was when things got scary. Starting on a Monday, big investment bank Lehman collapsed, and the government refused to rescue it. Then Merrill Lynch had to be taken over by Bank of America. Multinational insurance firm AIG almost failed and was only rescued because the government had gotten spooked by what had happened when it didn't rescue Lehman a few days before.
As all this unfolded, a bank run commenced on WaMu.
At this part of the book, the narrative becomes quite a thriller! WaMu and its new CEO, multiple other big banks, and multiple regulators went into non-stop meetings and negotiations trying to sort out what to do even as Congress and the Bush Administration were dealing with the threat of broader economic collapse. With each passing day the bank run depleted WaMu's liquidity even further towards doom. Could WaMu sell itself off before collapsing, thus getting something for shareholders? Or would potential buyers just wait for its collapse so as to wipe out shareholders and get WaMu extra cheap from a government seizure?
Well. The latter, as I found out. Though WaMu still had some liquidity left, the FDIC decided the jig was up, and not even waiting for the customary Friday, took over WaMu on Thursday Sep 25, immediately selling it to JP Morgan Chase. I can recall by Monday the Chase sign was being erected at my branch. By moving in and not waiting for an actual collapse, the FDIC did indeed protect all the customers like myself without even having to tap into the deposit insurance fund. The losers were the shareholders, and there were plenty of sob stories from all the widows and orphans who owned WaMu stock but who had failed to properly diversify their portfolios.
A fundamental and fatal problem for WaMu was that its Board of Directors was weak and incompetent and badly failed to protect shareholders, so this is a fine lesson in corporate governance. The long-time CEO Kerry Killinger seems not to have been malicious or crooked or a sociopath as one might expect in such a story. Seemed like a pretty nice and well-meaning guy. (Sure he divorced his first wife and remarried. But instead of a hot young trophy wife, he married a woman older than himself!) But he was Peter Principled for a bank the scale and complexity that WaMu became, and he was out of his depth.
Yet the one thing he did manage to do was control the ineffective Board, of which he was Chairman, to the detriment of WaMu shareholders -- a good argument that on Corporate Boards no one should be "Chairman and CEO". Finally in the 11th hour Killinger was fired and a turnaround artist was brought in. One gets the impression the new CEO could have saved the day if he'd had time, but it was just too late.
As is clear from this overlong review, this was a very educational book. I've never highlighted so many Kindle passages in a book before. It was a very interesting peak into the Global Financial Crises from the ground level. It all happened mostly because of banks like WaMu making dumb loans to unqualified people who'd soon enough default. And THAT happened for multiple reasons -- partly because the government was pressuring banks to make those loans to exactly those people per the "Community Lending" concept; partly because everyone became complacent in an era of unstoppable increases in home values; but also because such community lending turned out to be profitable for all concerned ... right up until it very much wasn't....more
Biography of Elon Musk up to 2015. Pretty interesting, and unsurprisingly with more detail than I've seen before on Tesla and Space-X, as well as his Biography of Elon Musk up to 2015. Pretty interesting, and unsurprisingly with more detail than I've seen before on Tesla and Space-X, as well as his earlier companies, Zip-2 and the early PayPal days. Like Steve Jobs, he's driven to accomplish great things and you can be thankful other people are willing to work for him, but YOU sure as heck wouldn't want to. Aside from learning some history and facts about Musk's life I don't feel this book conveys any particular wisdom, or business lessons, or keys to success. ...more
Taking a break from fiction to catch up with some nonfiction. This is the story of the recent decline of General Electric.
It's not a tale of lurid flTaking a break from fiction to catch up with some nonfiction. This is the story of the recent decline of General Electric.
It's not a tale of lurid flagrant fraud, as with Enron or Theranos. Nor of outright collapse, as with the Rogue Trader of Barings Bank in the 1990s. GE's decline is a story of gradual degradation of cash flow, aggressive accounting, dysfunctional managerial economics, poor capital allocation, dumb acquisitions, imprudent stock buybacks, too much complexity -- and most interesting to me, an overlooked massive liability relating to long term care insurance.
I once was a financial advisor, and around 2003 - 2004 one of the things we at my company promoted was long-term care (LTC) insurance, especially from GE (which supplied it at the time through GE capital). I spent a great deal of time crunching the numbers, and satisfied myself that these LTC policies were a pretty darned good deal, and that I should have no hesitation to pitch the policies to clients. Sure you might die first and get nothing out of it, but if you DID end up spending much time at all in a nursing home or assisted care facility or even certain types of home care, with the fat benefits these paid out you'd quickly recoup the premiums paid over time, and then amply more besides.
Well it turns out I was RIGHT -- in hindsight GE and other insurers had badly mispriced the premiums too low, while still having to adhere to the benefit obligations, which made these policies a great deal for people who bought them in the 2000s (in some cases, from me!). But also made them a huge problem for the LTC insurance industry.
GE was worse hit. Though spinning off the insurance business as Genuity in 2004, GE had had to agree to keep much of these LTC liabilities itself as part of the effort to cleanly launch the independent Genuity. This caused a festering liability at GE that was unknown to almost all GE executives (who all thought GE had "exited insurance" altogether), with the possible exception of CEO Immelt, who left in 2017, and his CFO who followed shortly thereafter. But by 2018 the chickens had come home to roost and the new short-lived CEO Flannery was startled to discover the problem he had on his hands and the amount of precious cash it suddenly would eat up to meet obligations and satisfy regulators by setting aside reserves. At which point he sorely regretted the billions in wasted cash that his predecessor had spent on stock buybacks.
Flannery wasn't given much time to fix things at GE and was soon booted in favor of Larry Culp, a former conglomerate CEO who was not a GE lifer. That's where things stand now.
Really I would have been happy to see a lot more specifics in this book, as the problems and criticisms were explained in broad strokes, but I can guess that might have bored a general audience. A worthwhile read that will entertain business geeks, though I'd say there's not much actionable stuff to learn from it....more
Published in 2019, here's an engaging history of space commercialization efforts so far. By its nature, it covers primarily Elon Musk, secondarily JefPublished in 2019, here's an engaging history of space commercialization efforts so far. By its nature, it covers primarily Elon Musk, secondarily Jeff Bezos, and to a lesser degree Richard Branson and Paul Allen (the latter two leaning heavily on designer Dick Rutan). If our Science Fiction dreams come true, and someday space travel is a robust part of the everyday private economy, these early years and their history will someday be seen as extremely important. In recent years I've devoted a lot of care to mapping out areas of knowledge that I want to retain and pursue and learn, so that I know how productively to spend my time. Space commercialization -- its history and progress -- is one of those areas, and this book is my own first step in fostering this specific branch of knowledge....more
With a name like "Platform Studies" I was concerned it would be a book full of circuit diagrams. But not at all. There's a dose of programming snippetWith a name like "Platform Studies" I was concerned it would be a book full of circuit diagrams. But not at all. There's a dose of programming snippets and technical jargon here and there but mostly this is a plain-English narrative centered around certain iconic games as a frame for describing the Atari VCS's hardware, its limitations, and how programmers overcame them to make games with play value. And you really do get an appreciation of the amazingly severe limitations of RAM and ROM and image processing on the VCS. It seems a miracle these guys could write games for it at all. The narrative touches on such icons of video game history as David Crane, Warren Robinett, and Howard Scott Warshaw, and discusses the clever hacks they used to make their games do something worthwhile....more
This is an excellent, thorough history of video games -- primarily console video games. Very readable (if you're into that) and informative. I won't cThis is an excellent, thorough history of video games -- primarily console video games. Very readable (if you're into that) and informative. I won't call these criticisms, because the book is pretty thick as it is and you can't expect everything. But two things to know about Kent's book are: it was published in 2001, so obviously is missing the last nearly two decades of history; and its focus is on CONSOLE gaming, with not much coverage of gaming on personal computers. Giving a good narrative of the birth of video games on academic computers at MIT, the book proceeds to focus on early arcade machines and the first console, the Magnavox Odyssey -- then turns almost exclusively to the home console business after that, up to the point of the introduction of the XBOX, PS2, and Game Cube, bowing out with a mention of Sega discontinuing the Dreamcast.
As an example of the book's many anecdotes about the greats of video gaming, it contains probably the most thorough and objective account of the notorious incident when young Steve Jobs cheated Steve Wozniak out of his share of an Atari bonus for designing Breakout.
I would love to see a book like THIS that focuses on computer gaming instead of console gaming, it would be a great companion for the bookshelf....more
Recounts the invention of the discrete transistor at Bell Labs in 1947 and the lives of its three Nobel-prize winning inventors, Brattain, Bardeen, anRecounts the invention of the discrete transistor at Bell Labs in 1947 and the lives of its three Nobel-prize winning inventors, Brattain, Bardeen, and Shockley. A bit boring compared with other tales of invention I've read. The audiobook was annoying because the voice-actor sounded like an old cowboy reading around the campfire, which just clashed with this tale of high-tech innovation. But still a must-read if you want to follow the thread of innovation in modern technology....more
Nice narrative, good overview of such instruments as CMOs, CDOs, CDS's, quant hedge fund operations, and how these all contributed to the meltdowns ofNice narrative, good overview of such instruments as CMOs, CDOs, CDS's, quant hedge fund operations, and how these all contributed to the meltdowns of 2007-2008. Particularly valuable for the portrayals of the pioneers and leading quantitative hedger fund managers, personalities I hadn't run into elsewhere. Good as an audiobook, will probably buy a hard copy as a reference. Cameos from such luminaries as Claude Shannon, Fama and French, Sharpe, Bachelier (finally know how that's pronounced, like Bosch-Elly-ay), Bill Gross, and Ed Thorpe -- who wrote the book on winning Blackjack and then became a pioneer quant fund manager. ...more
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