Extreme Money: Masters of the Universe and the Cult of Risk



The Human Race Created Money And Finance Then, Our Inventions Recreated Us In Extreme Money, Best Selling Author And Global Finance Expert Satyajit Das Tells How This Happened And What It Means Das Reveals The Spectacular, Dangerous Money Games That Are Generating Increasingly Massive Bubbles Of Fake Growth, Prosperity, And Wealth While Endangering The Jobs, Possessions, And Futures Of Virtually Everyone Outside Financevirtually In A Category Of Its Own Part History, Part Book Of Financial Quotations, Part Cautionary Tale, Part Textbook It Contains Some Of The Clearest Charts About Risk Transfer You Will Find Anywhere Others Have Laid Out The Dire Consequences Of Financialisation The Conversion Of Everything Into Monetary Form, In Das S Phrase , But Few Have Done It With A Wider Or Entertaining Range Of References Extreme Money Does Reach An Important, If Worrying, Conclusion Financialisation May Be Too Deep Rooted To Be Torn Out As Das Puts It Characteristically Borrowing A Line From A Movie, Inception The Hardest Virus To Kill Is An Idea Andrew Hill Eclectic Guide To The Excesses Of The Crisis Financial Times August 17, 2011 Extreme Money Named To The Longlist For The 2011 FT And Goldman Sachs Business Book Of The Year Award.Extreme Money: Masters of the Universe and the Cult of Risk

Satyajit Das is an international specialist in the area of financial derivatives, risk management, and capital markets He works as a consultant to banks and other financial institutions in Europe, North America, Asia and Australia providing advice on trading, pricing and risk management of derivative transactions Das, as he likes to be called, is well known in Australia, Asia, South Africa and Europe as an expert in the field and recognised for his capacity to communicate complex financial subjects and trends in simple and non technical language.Das was born in Calcutta, India in 1957 and now lives in Sydney He holds Bachelors degrees in Commerce Accounting, Finance and Systems and Law from the University of New South Wales and a Masters degree in Business Administration from the Australian Graduate School of Management.

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  • Kindle Edition
  • 481 pages
  • Extreme Money: Masters of the Universe and the Cult of Risk
  • Satyajit Das
  • English
  • 13 September 2019

10 thoughts on “Extreme Money: Masters of the Universe and the Cult of Risk

  1. says:

    Extreme Money by Satyajit Das is a critical and analytical book about the flaws in the modern financial system The context of the book is the causes of the global financial crisis of 2008.Evolution of money from commodity to promissory note Money evolved from barter system of commodity money to precious metals gold to paper money backed by gold gold standard finally superseded by promissory note backed purely by trust with no intrinsic value.Politicians, economists, and bankers gathered in Extreme Money by Satyajit Das is a critical and analytical book about the flaws in the modern financial system The context of the book is the causes of the global financial crisis of 2008.Evolution of money from commodity to promissory note Money evolved from barter system of commodity money to precious metals gold to paper money backed by gold gold standard finally superseded by promissory note backed purely by trust with no intrinsic value.Politicians, economists, and bankers gathered in the year 1944 in Bretton Woods, New Hampshire to establish the post Second World War international monetary and financial order The economic condition of US in 1944 was better The US produced half of the world s manufactured goods and heldthan half its reserves 26 billion in gold reserves out of an estimated total of 40 billion globally Britain, France other European countries devastated by two world wars, needed American money to rebuild their economies.Bretton Woods established a system of fixed exchange rates where countries would establish parity of their national currencies in terms of gold pegging All countries would peg their currencies to the US dollar as the principal reserve currency and, after convertibility was restored, would buy and sell US dollars to keep market exchange rates within plus or minus 1 percent of parity The dollar was as good as gold It was even better as it earned interest The US dollar became the most important currency in the international financial system.This gold standard would remain in place until 1971 The Bretton Woods system was ultimately undermined by the decline in US power and the insufficient supply of gold to make the present system workable as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth As the dollar was the global reserve and trade currency, the United States had to run large trade deficits to meet the world s demand for foreign exchange By the early 1970s, the ratio of gold available to dollars deteriorated from 55 percent to 22 percent People started losing faith in the ability of the United States to back currency with gold On August 15, 1971, President Richard Nixon closed the gold window, making the dollar inconvertible to gold directly.In February 1973, the global system moved to the era of floating currencies with no link to dollars or gold It was the final transformation of money of current promissory note Now the state, through its monopoly over the printing presses, controlled money and the economy Money became a matter of pure trustAt each step of the transition from commodity to paper to credit, money becameunreal, and detached from the real goods and services that money can be exchanged for Money transformed itself from a mechanism for trade into an object in its own rightExtreme Money, Satyajit DasMoney now is endless, capable of infinite multiplication and completely unreal The world is involved in creating, manipulating, and chasing reflections of real things Finance is the interplay of the real and its endless reflections In the end, money would change the real world financialize itExtreme Money, Satyajit DasFrom modest origins as a mechanism of exchange and store of value, money has evolved into something muchInfinitely malleable, it is the reflection of the world, but also a shaper of worlds Individual lives and business activities are increasingly molded by money Banks and financiers have become dominant forces in the world The interplay of the real world and its endless monetary reflection now drives economies and cities News about money is everywhere and deeply embedded in popular cultureExtreme Money, Satyajit DasExtreme money Extreme EcstasyIn the later half of the twentieth century, the flow of easy money and increasing financialization of the system in the US became a way to create wealth, increase economic activity, and stimulate growth Money from being a mechanism of exchange or store of value changed into something important in its own right It ceased to be a claim on real things, becoming instead a way to create wealth through manipulation and speculationMoney is pure trust and faith Money itself can have value gold It can have no intrinsic value paper Money can be easily debased It can corrupt and, in turn, be corruptedExtreme Money, Satyajit DasThe housing prices in the United States had increased dramatically since 2000 It was driven by a combination of low interest rates, and promotion over promotion of homeownership by the US government Banks and mortgage brokers lend to new homebuyers overenthusiastically using adjustable rate mortgage ARM Loans were available to anybody, even to NINJAs no income, no jobs, or assets.Financial engineering overtook real engineeringIn order to generate higher shareholder value, it requires either increasing earnings or reducing the amount of capital used by the business through productivity enhancement or decreasing the cost of that capital Improving business improvements are risky and very slow, akin to watching grass grow Financial changes or financial engineering are easier quicker Financial engineering overtook real engineering with trading, speculation and manipulation.The banks underwrote the loan, keeping it on the balance sheet for a short time, before converting the loans into securities to be sold to investors through securitization Banks even outsourced the origination of the loans to brokers incentivized by large incentives, as securitization reduced the direct risk of defaults It resulted into unprecedented growth in lending.In the early 1980s, Americans saved 12 percent of their income, and household debt was 63 percent of GDP, the country s annual production By 2006, Americans savings rate was negative as they spentthan they earned and household debt as a percentage of GDP soared above 130 percent, a doubling in 25 years Between 1989 and 2007 credit card debt quadrupled from 238 billion to 937 billion To fund consumption, Americans borrowedthan 3 trillion against their home equity, the difference between the value of their homes and the mortgage outstanding The Debt fueled consumption financed by low interest regime became the norm.The ability of governments and central banks to fine tune the economy through a mix of budgetary and monetary policy as well as regulation became accepted faith.Leverage is lovely in low interest regimeThe United States is the biggest economy in the world Export led countries China, Japan, South Korea, Taiwan export their goods to US, and earn dollars in the process These dollars were then invested in treasury bonds as well as financial securities With so much money chasing US financial securities, the issuers of these securities could in turn offer low rates of interest on them The low interest rate scenario despite US government running into a high budget deficit also allowed people to borrow money at low rates and buy homes.Low US interest rates also drove American pension funds and investors to seek out riskier investments This led to unprecedented growth of junk bonds, securitized debt, private equity, and hedge funds, which promised the higher returns needed to finance retirement income The lending standard deteriorated sharply Homeowners treated their properties as an automatic teller machine from which they extracted cash Individuals borrowed to buy houses, cars, gadgets, or take holidays Companies borrowed to invest in each other Companies borrowed to pay dividends or repurchase their own stock Spending that normally would have taken place over a period of years was squeezed into a short period because of the availability of cheap borrowing Business over invested in production capacity, assuming exaggerated growth would continue indefinitely.All this resulted into unprecedented increase in the price of assets to create the illusion of wealth, transforming individual lives, businesses, cities, and entire countries.Bursting of the bubbleAll debt borrows from tomorrow to pay for today To be sustainable, future income must be sufficient to pay the interest and repay the loan But much of the borrowing in the new economy was now unproductive, financing consumption or larger houses that did not produce income Earnings from investments were frequently insufficient to meet interest and principal paymentsBy 2006, when the interest rate was raised, house prices began to fall the EMI s on loans increased substantially, borrowers stopped making payments on these mortgages and large number of borrowers defaulted By 2008, the unstable system of money and unsustainable levels of debt in US resulted into global financial crisis impacting the entire global economy.As the financial crisis hit, it became clear that the power of money to transform economies, business, and lives had been greatly over estimated The amount of money available was also far less than thought It had just been the same money that had flowed around ever fasterIn the age of capital, financial assets and real wealth were confused Money was a claim on real things, to be used or enjoyed Increasing financial wealth, dividing real things into a larger number of pieces, did not create wealth Trading things and boosting prices does not change a loaf of bread or its nourishment value The world maximized something without understanding what it representedExtreme Money, Satyajit DasNo man touched the seed, or lusted for the growth Men ate what they had not raised, had no connection with the bread Owners no longer worked on the farms They farmed on paper and they forgot the land, the smell, the feel of it and remembered only that they owned it, remembered only what they gained and lost by itIn The Grapes of Wrath, John SteinbeckExtreme Money by Satyajit Das is an insightful book about the flaws in the modern financial system that resulted into global financial crisis of 2008 The book has been written with lots of pun towards modern financial system It s a good book to understand the implications of excessive leverage and excessive financial innovation in the system The series of three books by Vivek Kaul i.e Easy Money is written in much simpler, explanatory easy to understand language, and the context of the series is similar to Extreme Money by Satyajit Das

  2. says:

    Extreme Money delves into the realm of financial alchemy and reveals the practices of investment bankers that resulted in the global financial crisis A word of warning this book is not a breezy read It cuts to the nitty gritty of the finance world It s intense and thought provoking, well worth the time of anyone who dares learn about the new financial fundementalism.For the most part, I enjoyed the book I didn t care for the prologue without some foreknowledge of finance, it fell a little Extreme Money delves into the realm of financial alchemy and reveals the practices of investment bankers that resulted in the global financial crisis A word of warning this book is not a breezy read It cuts to the nitty gritty of the finance world It s intense and thought provoking, well worth the time of anyone who dares learn about the new financial fundementalism.For the most part, I enjoyed the book I didn t care for the prologue without some foreknowledge of finance, it fell a little flat Part one gives a great introduction on evolving banking practices Part three does a great job of detailing debt, securitization, derivatives, and hedge funds I have no background in finance, and while it was overly technical in some places, I found the book gives quite a good explanation of it Part four is extremely good, even if it makes me want to scream So many you have got to be kidding me moments.One thing I didn t like the text itself feels like it has a serious case of ADHD Das includes many historical examples and literary pop culture tie ins About half of them are illustrative and helpful, but the rest are distracting or only tangentally related to the subject at hand One minute you re reading about Enron or GE, only to be interrupted by something that happened in the 1600 s Then there could be a passage from Alice in Wonderland before you get back to the subject I didn t need a lesson on quantum mechanics, and I think most people know what a pinata is In places, it s overdone and distracting They take away from the points Das strives to make and just seem pretentious Some people might enjoy the style of breaking up the monotony of reading like a textbook I didn t care for it much.Overall, a good read I learned a lot about how the world got into this mess The only question left is how will we get out of it After reading this book, I wish I could be optimistic

  3. says:

    I read Das earlier book Traders, Guns, and Money It was given to me by the owner of a small trading company who has a somewhat pessimistic view of the stock market I really enjoyed that book.To me at times, when reading Extreme Money, it felt like I was rereading parts of Traders, Gun, and Money I haven t gone back to verify, but I m guessing that a lot of the content that provides context around what derivatives are and the historical information before about 2006 are similar to Traders, Gu I read Das earlier book Traders, Guns, and Money It was given to me by the owner of a small trading company who has a somewhat pessimistic view of the stock market I really enjoyed that book.To me at times, when reading Extreme Money, it felt like I was rereading parts of Traders, Gun, and Money I haven t gone back to verify, but I m guessing that a lot of the content that provides context around what derivatives are and the historical information before about 2006 are similar to Traders, Guns, and Money because it s all still relevant.That said, I think this was a good book overall Some reviewers have mentioned that it could have been shorter and without some many quotes anecdotes However, part of what I like about this book is that the writing style is somewhat similar to hanging out with Das and he gets on a roll telling stories As a consequence things may not be optimally ordered or as concise as they could be However, it is entertaining as much as a finance related book can be with a cynical dry sense of humor if you can t laugh at it, you may cry.At the end Das provides his ideas about how the economy needs to works The ideas make sense More reality and less fantasy in finance

  4. says:

    I am anything but economically literate, so it is a positive for this book that I could actually understand it However it is a depressing read and I fear no lessons have been learned from the economic disasters of 2008 It is always worth listening to Das, the economist who foresaw the financial crisis.

  5. says:

    this book is really long so i didn t read the whole thing not written by or for academics written by a financial consultant who is critical of over leveraging debt and pessimistic about the financial market s overall ability to withstand such practices he is amusing there are lots of anecdotes there are a lot of extremes in the financial market there is moderation as well, which is what i wish we could learnabout i am out here to learn not about overleveraging but about less excitin this book is really long so i didn t read the whole thing not written by or for academics written by a financial consultant who is critical of over leveraging debt and pessimistic about the financial market s overall ability to withstand such practices he is amusing there are lots of anecdotes there are a lot of extremes in the financial market there is moderation as well, which is what i wish we could learnabout i am out here to learn not about overleveraging but about less exciting, though relatively new financial products, like REIT shares This could work okay, or parts of it could work okay, for an undergraduate text

  6. says:

    Plenty of snark, not enough substanceJDN 2456783 PDT 11 34.A review of Extreme Money by Satyajit DasI had high hopes for this book I ve read quite a few books about the Second Depression now, but this one promised to tie it all together into a coherent narrative about what is wrong with modern capitalism But the narrative it delivers is an unconvincing one, filled with cynicism and pessimism about how this is just the way things are and we will have to accept our fate Das has a weird dissonan Plenty of snark, not enough substanceJDN 2456783 PDT 11 34.A review of Extreme Money by Satyajit DasI had high hopes for this book I ve read quite a few books about the Second Depression now, but this one promised to tie it all together into a coherent narrative about what is wrong with modern capitalism But the narrative it delivers is an unconvincing one, filled with cynicism and pessimism about how this is just the way things are and we will have to accept our fate Das has a weird dissonance in his understanding of the relation between the real and financial economies one moment he ll say that the financial economy is all made up and means nothing, and the next he ll say that because the financial economy failed we must all accept slower growth and reduced standard of living in the real economy He says several times that we must live within our means , apparently not grasping that we have the power to create money out of thin air if we so desire it A lack of money should never be a problem A lack of oil, or a lack of steel, or a lack of trees, or a lack of laborers, or a lack of physicists those could be problems But a lack of money is something the government can change with the strike of a pen If they fail to do so it is not because there is some irredeemable flaw in capitalism it is because our legislators are ignorant I guess it s not entirely his fault hardly anyone actually understands the true relationship between the real and financial economies but if you d like to be someone who does, I strongly suggest reading up on Modern Monetary Theory, starting here Das loves being snarky, and he s quite good at it Some of his lines are hilarious, like self regulation, which bears the same relation to regulation as self importance does to importance and his comparison of the SEC and DOJ to the Robin Williams sketch about Stop Or I ll should stop again But he lets the snark get the better of him, unwilling to take just about anything seriously, preferring to make fun of all possible views equally so that he can avoid ever being caught agreeing with someone who might be wrong He makes fun of Keynesians and Austrians alike He even mocks Nassim Nicholas Taleb, whose views as far as I can tell are indistinguishable from his own both seem to think that the world is hopeless and completely unpredictable and we should all give up and die The fact that financial markets are fat tailed isn t a reason to give up on modeling financial markets it s a reason to model them with fat tailed distributions, for goodness sake Not all animals are elephants, so we may as well give up on biology altogether Das makes odd literary and film references, some relevant but most not He even references Transformers to say something about our creations rising up to destroy us, even though that s not at all what Transformers was about and he d have had a much better andliterary example with, ahem, Frankenstein Some of his explanations of how derivatives work are not bad, though his diagrams are not as helpful as he thinks they are and there are better places to look if you want to understand derivatives Even worse, he makes some really weird and embarrassing errors His explanation of systemic versus diversifiable risk is utterly wrong, and coming from a man who spent years working in financial markets it suddenly becomes apparent why our financial system might not be working He buys into the whole Monetarist or should I borrow from Krugman and say sado monetarist notion that printing money is inherently inflationary, regardless of what s going on in demand he actually speaks of debasing the currency as though that were a real problem for modern fiat systems Worst of all, he offers us no solutions The entire book is an interminable rant about how horrible things are, and then at the end he gives us no policy suggestions and hardly even any hope that any of this could be repaired He takes the view that Krugman warned us about, the notion that we are all to blame and the system is fundamentally broken and everything is hopeless No, we are not all to blame In fact, the blame can be set squarely on a surprisingly small number of shoulders or did I need to remind you that HSBC laundered money for terrorists The system is not fundamentally broken, it is suffering from what Keynes called magneto trouble today we d say alternator It won t start, it won t run, everything is clearly wrong Oh, wait, replace that one part and everything is fine That one part is our banking system We need to fundamentally reform our banking system But the rest of the real economy Actually that s all fine The computers still run, the laborers still work, the physicists still think, the bridges still stand The United States is in real terms the richest country in the history of the world it s high time our monetary system reflected that

  7. says:

    This is an uneven book unevenly written and evenunevenly edited that nevertheless succeeds in expressing one well deserved sentiment for contemporary economics and finance contempt The economics professors may have been after some elusive truth but ended up as the piano players in the whorehouse The smart ones cut themselves a share of the action p 57 That is fair an example as any of the way this book is written At most times it is either freshly canning a quote or pulling a p This is an uneven book unevenly written and evenunevenly edited that nevertheless succeeds in expressing one well deserved sentiment for contemporary economics and finance contempt The economics professors may have been after some elusive truth but ended up as the piano players in the whorehouse The smart ones cut themselves a share of the action p 57 That is fair an example as any of the way this book is written At most times it is either freshly canning a quote or pulling a previously canned quote off the shelf and inserting it, often nonsensically, in a paragraph about an utterly unrelated event or field of study Only 67 percent of this book is text, with the other 33 percent of the book dedicated to footnotes and appendices An interesting note appears in the beginning of the Notes section, one that lends some insight into the book s unevenness In recent years, the availability of the Internet, online quotation databases, and websites and databases mean that many quotes are readily available online p 384 How else does one explain Tom Sawyer and Captain Ahab and Leonardo DiCaprio making appearances in a book that endeavors to indict modern finance on modern finance s own terms Well, here s a theory about that Satyajit Das, by all accounts a very smart man, set out to write an esoteric treatment of the world s most arcane financial products and there are a few in here that can be found almost nowhere else and then took his book to a publisher The publisher told him this sort of book could only be printed by a university press Das s writerly ambition was unsatisfied by that, and so he took salt and pepper shakers out and liberally seasoned his book with 50 pages of quotes to make itpalatable.Many of Extreme Money s opening 100 pages are nearly unreadable because they are way overseasoned Then, round page 200, Das s editor gets tired of reading, and Das sets out to write the book he envisioned Some of it comprises excellent reporting, like this treatment of AIG s risk models and modelers In November 2007, the CDS portfolio showed mark to market losses of 352 million By December 2007, the losses increased to 1.1 billion In May 2008, AIG announced a record quarterly loss of 7.8 billion, driven by write downs of the value of the swaps By August 2008, AIG estimated CDS losses at 8.5 billion AIG s risk models still showed that there was a 99.85 percent chance there would be no actual losses p 233 Much of it, though, is layered to a point of tediousness.Still, reading Extreme Money is a worthwhile endeavor because the book s heart is in the right place and its remedies, while not by any means revolutionary, are practical and right Banks go back to deposits and lending, and investment banks go back to advising and everyone does so with a hell of a lot less leverage

  8. says:

    I agree with the premise of the book our trust in governments and financiers to manage the show was greatly misplaced The financial markets are run by people whose level of arrogance, greed, self indulgence and voodoo mathematics reached unimaginable levels until the wheels fell off He gives many examples to illustrate the madness, however the book is larger than it needs to be to get his point across and starts to feel a bit self indulgent He waxes lyrical with quotes from great literatur I agree with the premise of the book our trust in governments and financiers to manage the show was greatly misplaced The financial markets are run by people whose level of arrogance, greed, self indulgence and voodoo mathematics reached unimaginable levels until the wheels fell off He gives many examples to illustrate the madness, however the book is larger than it needs to be to get his point across and starts to feel a bit self indulgent He waxes lyrical with quotes from great literature, philosophy and history to illustrate the folly of humans which I enjoyed quite a lot but it started to muddy the waters and overshadow the thread of his argument Halve the size of the book and the number of references to unrelated literature and this would have been a much better book for me Don t get me wrong I really like the author and I would highly recommend his interviews, there are a few around He has a great mind, clear thinking, worked in the thick of the financial industry for years, is skeptical about the status quo and is an avid bird watcher Whatcould you want in an observer of human folly Oh and he also has Aspergers so he tells it like it is without fear or favour or emotion his statement I highly recommend his interviewsthan this book

  9. says:

    This is actually an interesting, worthy book don t let my lowly 3 star rating fool you I actually agree with the author s overall view that, over the last few decades our Randian faith in unfettered markets has led to the creation of a outsized, intensely leveraged financial economy which the author refers to as extreme money that lies on top of, and both lives off of and dominates the real economy that operates underneath, and this arrangement has led to a number of societal ills, in This is actually an interesting, worthy book don t let my lowly 3 star rating fool you I actually agree with the author s overall view that, over the last few decades our Randian faith in unfettered markets has led to the creation of a outsized, intensely leveraged financial economy which the author refers to as extreme money that lies on top of, and both lives off of and dominates the real economy that operates underneath, and this arrangement has led to a number of societal ills, including the 2006 09 financial crisis, financial inequality and a severe shrinking of the middle class And the book serves as a useful compendium of all the bad stuff that has befallen the financial world during the last 30 years or so But the author s writing style is maddening, including oftentimes unrelated quotations at the end of his paragraphs hundreds of times and repetitively throwing culturally related non sequiturs into the discussion So, while the book was well worth reading, it was also maddening I d love to give it 3.5 or even 4 stars, but the writing style was so idiosyncratic that ultimately I must mark it down all the way to 3.0

  10. says:

    Finally finished slogging through this Rather than a linear narrative, Das provides a series of examples that fit each stage of the financial crisis in which we are still embroiled The book is heavily peppered with quotes from figures in the world of finance as well as celebrities, authors, and others I would prefer aunited presentation but the quotes were entertaining for the most part and I finished with a pretty good picture of the level of leverage involved in creating the catastrop Finally finished slogging through this Rather than a linear narrative, Das provides a series of examples that fit each stage of the financial crisis in which we are still embroiled The book is heavily peppered with quotes from figures in the world of finance as well as celebrities, authors, and others I would prefer aunited presentation but the quotes were entertaining for the most part and I finished with a pretty good picture of the level of leverage involved in creating the catastrophe Das does provide helpful diagrams of the various complex tiered investment vehicles and how they function The scariest part of the whole book is the ending, in which one realizes that nothing has really changed and the same sort of trading still continues This does not make me feel confident about the global recovery process

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