Traders, Guns and Money
Satayajit Das, FT Prentice Hall, 2006, 334 pages, £20.00.
Traders, Guns and Money is a first-person, insider’s account of the business of derivatives trading and marketing and the structured products industry, throwing light on the culture, games and deceptions played out every day in trading rooms around the world – and played out with other people’s money. It describes the processes by which a small group of individuals use their knowledge of these financial products to create wealth for themselves, leaving shareholders, clients, regulators and the tax-paying ordinary public to bear most of the risk.
This book is part thriller, part exposé. It teaches the reader something about the business – detailing the players, how money is made and lost and the deceptions that underlie the entire process – and shows how these markets work, providing the reader with an insight into the out-of-control process that is trading in complex financial products that few understand.
Traders, Guns and Money contains various stories fictionalised, to keep the libel lawyers happy, but supposedly based on what really happens. The author conveys the basics of derivatives in stories about delivering training classes to “clichéd frat boys’ clubs” of trainee traders and “punctual and pedantic” Chinese executives “who did not even under-stand the concept of interest”. He gives an account of a deal between a US bank and an Indonesian noodle-maker that robbed the Indonesians as effectively as if they’d been lured down a dark alley and clubbed with a blunt instrument. He covers a series of unnecessary trades, complex formulae guaranteed to come out in the bank’s favour and a currency collapse that doubled the noodle-maker’s debt, concluding “the dealers had played these guys for the suckers they were”, and uses this as a lesson in currency and debt swaps. He also examines disasters, such as the collapse of hedge fund Long Term Capital Management (LTCM), to explore how risk can always catch you out, no matter how smart you may be.
Other parts of the book describe further aspects of derivatives. The first chapter – Weapons of Mass Destruction (Warren Buffett once labelled derivatives “financial weapons of mass destruction”) – explains what they are. Other chapters describe the different players – Beautiful Lies sets out what really goes on in banks and True Lies explains what goes on with clients, ie companies and investors. Show Me the Money explains how money is really made and lost. Perfect Storms describes how most organisations pay lip service to managing risk. It also explains what goes on in different parts of the financial world – like the currently ‘hot’ world of hedge funds and credit derivatives.
The working career of the author, almost 30 years, has coincided with the development of these financial markets, and he has worked in many parts of the business, including trading, managing and advising. He has also written many academic texts on derivatives. This book, however, is not technical but more of a beginner’s guide – whenever something is explained it is usually done in an easy-to-understand language.
Traders, Guns and Money will be useful for anyone with connection to finance but also anyone who cares about what might be going on with their money in this mysterious world, whether it is their pension money, the money they deposit with banks or the money of companies whose shares they own. This book will tell you some of the truth of what really does go on.
Patrick Norwood
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