Book Bits For Saturday: 3.10.2012

Stewardship: Lessons Learned from the Lost Culture of Wall Street
By John G. Taft
Review and interview with author via Marketplace
The term “Stewards of Capital” used to mean the businesses of Wall Street, which were supposed to hold and grow assets for clients. Now, it’s a quaint archaic term that decades ago, gave way to “Masters of the Universe.”
John G. Taft, the CEO of RBC’s wealth management arm in the U.S., is trying to hit the brakes and take the Wayback Machine to a time when Wall Street businesses were there to serve clients – not serve themselves from a big buffet table full of money. Taft said that investors have lost faith that the market will grow their wealth over time, and he calls himself “someone who is dedicated to making sure that the financial system does more good on the earth than it does bad.”

Guardians of Finance: Making Regulators Work for Us
By James R. Barth, Gerard Caprio, Jr. and Ross Levine
Summary via publisher, MIT Press
The recent financial crisis was an accident, a “perfect storm” fueled by an unforeseeable confluence of events that unfortunately combined to bring down the global financial systems. And policy makers? They did everything they could, given their limited authority. It was all a terrible, unavoidable accident. Or at least this is the story told and retold by a chorus of luminaries that includes Timothy Geithner, Henry Paulson, Robert Rubin, Ben Bernanke, and Alan Greenspan. In Guardians of Finance, economists James Barth, Gerard Caprio, and Ross Levine argue that the financial meltdown of 2007 to 2009 was no accident; it was negligent homicide. They show that senior regulatory officials around the world knew or should have known that their policies were destabilizing the global financial system, had years to process the evidence that risks were rising, had the authority to change their policies–and yet chose not to act until the crisis had fully emerged.
From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics
By Thomas Palley
Excerpt via publisher, Cambridge University Press
The U.S. economy and much of the global economy are now languishing in the wake of the Great Recession and confront the prospect of extended stagnation. This book explores how and why we got to where we are and how we can escape the pull of stagnation and
restore shared prosperity.
The focus of the book is ideas. Marshall McLuhan (1964), the famed philosopher of media, wrote: “We shape our tools and they in turn shape us.” Ideas are disembodied tools and they also shape us. The underlying thesis is that the Great Recession and the looming Great Stagnation are the result of fatally flawed economic policy. That policy derives from a set of economic ideas. The implication is that avoiding stagnation and restoring shared prosperity will require abandoning the existing economic policy frame and the ideas on which it is based and replacing them with a new policy frame based on a new set of ideas.
The Assumptions Economists Make
By Jonathan Schlefer
Summary via publisher, Belknap/Harvard University Press
Economists make confident assertions in op-ed columns and on cable news—so why are their explanations often at odds with equally confident assertions from other economists? And why are all economic predictions so rarely borne out? Harnessing his frustration with these contradictions, Jonathan Schlefer set out to investigate how economists arrive at their opinions. While economists cloak their views in the aura of science, what they actually do is make assumptions about the world, use those assumptions to build imaginary economies (known as models), and from those models generate conclusions. Their models can be useful or dangerous, and it is surprisingly difficult to tell which is which. Schlefer arms us with an understanding of rival assumptions and models reaching back to Adam Smith and forward to cutting-edge theorists today. Although abstract, mathematical thinking characterizes economists’ work, Schlefer reminds us that economists are unavoidably human. They fall prey to fads and enthusiasms and subscribe to ideologies that shape their assumptions, sometimes in problematic ways. Schlefer takes up current controversies such as income inequality and the financial crisis, for which he holds economists in large part accountable.
Templeton’s Way with Money: Strategies and Philosophy of a Legendary Investor
By Jonathan Davis and Alasdair Nairn
Excerpt via publisher, Wiley
In 1954, looking for new ways to expand the business more quickly, Templeton decided to launch a new mutual fund. This was the Templeton Growth Fund, domiciled in Canada. It was unusual in being one of the very first mutual funds to offer North American investors the opportunity to invest in a managed fund that set out to invest across the globe. At the time, it was still a commonplace view among investment professionals that it was too risky to commit anything but a small proportion of their assets to investment opportunities outside the United States. In addition, legislation prevented many pension funds and charitable foundations from investing in securities outside the United States. The fund itself was the first of a number of new managed funds to be domiciled in Canada, where there was no capital gains tax. The tax advantages of the fund had obvious advantages to a U.S. investor, and they duly featured prominently in the way that the fund was marketed.
Behind those immediate benefits, however, were the seeds of a distinctive new investment philosophy. Templeton’s argument, still a minority view at the time, but now mainstream thinking, was that widening the range of potential investment opportunities could only increase the universe of potential bargains, to the benefit of investors. His view had always been that the risk of global investing is exaggerated and can in any event be offset by diversification.
Hannibal and Me: What History’s Greatest Military Strategist Can Teach Us About Success and Failure
By Andreas Kluth
Review via Kirkus Reviews
Economist writer Kluth takes lessons from the great military strategist and other historical titans in his quest for fulfillment beyond success. In 218 BCE, Hannibal and his army surprised the Romans by crossing the Alps to attack Italy by land. The author narrates Hannibal’s story with precision, but his analysis extends beyond the highlights of the battlefield. In this retelling of the ancient drama, the major players become archetypes whose motivations, triumphs and failures mirror those of more recent historical figures. The influence of Carl Jung pervades as the narrative as Kluth digs into their psyches—examples include author Amy Tan’s teenage rebellion, Eleanor Roosevelt’s loneliness and Albert Einstein’s dark side—to create a plausible formula for surviving disaster or even sudden, explosive success. Though brief, the contemporary examples bridge the gap between modern readers and the ancient world. Kluth’s own connection to Hannibal is tenuous, explained with a brief recap of how he took off his expensive tie and left London’s Wall Street to become a journalist. But his desire for a balanced life (and European disdain for ostentation) makes his voice unique among others who analyze the nuances of greatness.