A couple of days ago, I finished reading Michael Lewis’s book Boomerang. I have always been a fan of Lewis’s work, mainly due to how he packages complex topics (such as the subprime mortgage crisis of 2008 in his book The Big Short) into captivating, easy-to-follow stories. The focus of Boomerang was looking at various banking strategies across the world, comparing/contrasting these approaches, and analyzing the effects they have had on their respective countries. What I found especially interesting is how Lewis ties these banking strategies to the history of these countries, explaining how national banks’ behaviors when financing is easily-attainable says a lot about the mindsets and cultures of the people residing who reside there. I was fascinated by Lewis’s explanation of how German banks allowed themselves to be screwed over by the subprime bonds sold from Wall Street, with Lewis blaming the German tendency to play by the rules without considering potential corruption underlying these rules. Lewis writes: “At bottom, he says, the Germans were blind to the possibility that the Americans were playing the game by something than the official rules. The Germans took the rules at their face value: they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free.”(163).
The reason why I include this quote is because, prior to reading Lewis’s book, I didn’t realize the subprime mortgage market was created to dupe overseas banks as well. In my previous research on this subject, I came to the conclusion that subprime mortgages were devised as a method of massively increasing the volume of mortgages in the U.S, knowing that these loans would never be repaid and that the common person would have to pay for the inevitable damages. This really altered my view on finances, and international banking in general.
Towards the denouement of the book, Lewis flips the script by drawing parallels between the shortcomings of foreign banking strategies and the local finances in the United States. Lewis mentions the city of Vallejo, California, which went bankrupt in 2008, with 80% of its debts “…wrapped up in the pay and benefits of public safety workers.”(201). The workers unions for public safety workers, such as police officers and firefighters, had extorted the city government to receive maximum possible benefits and salaries. When the city either refused/was unable to meet these requests due to insolvency, the public safety workers simply left and moved to another city, where the repeated the process. Incredibly, the majority of cities in California, the most financially significant state in the U.S (GDP of nearly $2.5 Trillion), were in deep debt, mainly because of this same reason (along with countless other problems as well). This made me think about the future direction California can head in — Either the state changes its policies to prevent extortion from such workers unions, or it continues indebting itself and inflating its GDP in the process.
The reason why I mention all of this is because I have decided that reading finance-related books over my Senior year would be a great way to extend my Capstone project, while also learning more about the field that interests me. One could say that reading various books, which may seem extraneous to my overarching goal of programming my own trading algorithm, sounds pointless. However, I think there is a genuine value to this, as I can learn new perspectives, theories, and even investment opportunities through such books.
I have compiled a short list of books I want to read throughout the year:
- The Black Swan, by Nicholas Nassim Taleb.
- The Intelligent Investor, by Benjamin Graham
- A Template for Understanding Big Debt Crises, by Ray Dalio
- Quantitative Trading, by Ernie Chan