TRADERS, GUNS AND MONEY: KNOWNS AND UNKNOWNS IN THE DAZZLING WORLD OF DERIVATIVES BY SATYAJIT DAS
BOOK REVIEWS BY BINOD
BINOD’S RATING: 8/10
Key lesson from this book: you can be an expert practitioner and yet write fluently with humor and verve, something that 99.99% of financial types on the planet can’t do to save their lives!
Long before the 2008-09 credit crisis and collapse, one of the strongest warnings about the dangers of derivatives came from Satyajit Das.
The book starts and ends with the hilariously told yet instructive story of a naïve Indonesian noodle maker who got excited by derivatives (“no risk”) and was taken to the cleaners by a big bank.
TG&M is a wickedly comic expose of the culture, games and pure deceptions played out every day in trading rooms around the world. And played out with other people's money.
This sensational insider's view of the business of trading and marketing derivatives explains the frighteningly central role that derivatives and financial products played in the GFC. The quants who create them may understand the equations, but not the real-world consequences. The salespeople who sell them don't really understand them, and the buyers - in a system where the seller always knows more than the buyer - rarely ever do.
It's a great insider's view of how and why derivatives evolved, with great and simple explanations of why various structures were created (generally, to evade taxes, get around trading regulations, and other ways to give investors more yield and earn banks more fees).
This book is a very cynical (yet I suspect highly accurate) account of derivatives trading from a guy that's been there and done that. Das does an excellent job of explaining extremely complex financial products. He also does a good job of exploring the culture in and around the trading of these products. This book is also like the greatest hits compilation of the derivative market scandals. It's fast, funny and viciously juicy. Also, delightfully, this book has the best explanation of Black-Scholes formula that I've ever read, and it's translations of bankerese are hilarious yet insightful.
So many quotable quotes.
Like this one:
“I used to be responsible for showing the trainees around the trading floor.
“Look, it's quite simple,” I said, breaking down the hierarchy of the trading floor. “There are salespeople - they lie to clients. Traders lie to sales and to risk managers. Risk managers lie to the people who run the place- correction, think they run the place. The people who run the place lie to shareholders and regulators. I forgot the quants- when last heard from, they were trying to develop a model for lying”. “And clients”? One of the trainees asked tentatively. I thought for a few seconds. “Clients. They lie mainly to themselves!”. To enter the world of derivatives trading is to enter a world of beautiful lies”
Or this:
"In 1998, I was talking to the head of trading for a bank. 'Thank God for the Asian crisis,' he said. I expressed surprise. The bank had lost over $1 billion, blaming the collapse of Asian markets. 'You have no idea what we were able to write-off,' he said with a broad grin."
Or this gem:
“Fashion models and financial models are similar. They bear a similar relationship to everyday world. Like supermodels, financial models are idealized representations of the real world, they are not real, they don't quite work the way that the real-world works. There is celebrity in both worlds. In the end, there is the same inevitable disappointment"
I am indifferent to derivatives ( ever since my CFA student days) and have a passing familiarity with them. Hence I found his lengthy explanations at times slightly tedious and time consuming to plough through as he goes into technical detail on certain deals and derivative products. So TG&M took me longer to read than some of the other non-fiction books but various hilarious anecdotes with colorful characters broke up the complex technicalities.
This book is not the typical Michael Lewis easy to read thriller. It gets technical. If you can put up with it, Das gets into several excellent explanations about the many types of derivatives used to bend tax-laws, redirect risk, and confuse investors. This is fascinating reading, but only for those who are deeply interested in the topic. If you are a private banker or an investment advisor or work on a trading floor or work with derivatives and other structured products, you will get something out of it, and might even really enjoy it.
I don't recommend this book for anyone who is not fascinated by trading and the financial markets or to someone who doesn't already have a basic grasp of derivatives. The depth of the subject covered in this book not for a casual audience.
Also, it has a few 'filler' topics that people who work in or follow the industry will already know and will get bored reading, such as the downfall of LTCM, drawn out explanations of how derivatives work, etc. At times felt like I was reading a Wikipedia page.
Plus, I don't think a gun ever made an appearance, so I felt suckered by the title!
Given the fact that this book was written pre GFC, one can say it served as a witty warning of things to come. Too bad that nothing has changed much since then.
It actually manages to entertain, educate and inform. WHETHER you are an investor, an observer of financial markets, or even an investment professional, TG&M should prove worth the while.
Satyajit Das received a bachelor's degrees in Commerce and Law from the University of New South Wales followed by an MBA from the Australian Graduate School of Management. Between 1977 and 1994, Das worked on the 'sell side' (Commonwealth Bank of Australia, CitiGroup and Merrill Lynch) and the 'buy side' (TNT Group). He is also the author of Extreme Money (2011) and the author of books on derivatives and risk management, including Swaps/ Financial Derivatives Library (2005) and Credit Derivatives, CDOs and Structured Credit Products (2005).
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What are your thoughts about the book and Das’ teachings? Be sure to comment below and let me know!