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Lords of Finance: The Bankers Who Broke the Worldby Liaquat Ahamed
2010 Pulitzer Prize Winner
Synopses & Reviews
It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person's or government's control. In fact, as Liaquat Ahamed reveals, it was the decisions made by a small number of central bankers that were the primary cause of that economic meltdown, the effects of which set the stage for World War II and reverberated for decades. As yet another period of economic turmoil makes headlines today, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, their fallibility, and the terrible human consequences that can result when they are wrong.
"A magisterial work...You can't help thinking about the economic crisis we're living through now." The New York Times Book Review
As another financial crisis makes headlines today, the year 1929 remains the benchmark for true economic mayhem. Ahamed lays the blame for the 1929 meltdown on a small number of central bankers--men as prominent in their time as Alan Greenspan is today.
A young scholar tells the story of the physicists and mathematicians who created the models that have become the basis of modern finance and argues that these models are the solution toand#8212;not the source ofand#8212;our current economic woes.
andldquo;Weatherall probes an epochal shift in financial strategizing with lucidity, explaining how it occurred and what it means for modern finance.andrdquo;andmdash;Peter Galison, author of Einsteinandrsquo;s Clocks, Poincareandrsquo;s Maps
After the economic meltdown of 2008, many pundits placed the blame on andldquo;complex financial instrumentsandrdquo; and the physicists and mathematicians who dreamed them up. But how is it that physicists came to drive Wall Street? And were their ideas really the cause of the collapse?
In The Physics of Wall Street, the physicist James Weatherall answers both of these questions. He tells the story of how physicists first moved to finance, bringing science to bear on some of the thorniest problems in economics, from bubbles to options pricing. The problem isnandrsquo;t simply that economic models have limitations and can break down under certain conditions, but that at the time of the meltdown those models were in the hands of people who either didnandrsquo;t understand their purpose or didnandrsquo;t care. It was a catastrophic misuse of science. However, Weatherall argues that the solution is not to give up on the models but to make them better. Both persuasive and accessible, The Physics of Wall Street is riveting history that will change how we think about our economic future.
After the economic meltdown of 2008, Warren Buffett famously warned, and#8220;beware of geeks bearing formulas.and#8221; But as James Weatherall demonstrates, not all geeks are created equal. While many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, a special breed of physicists has a much deeper history of revolutionizing finance. Taking us from fin-de-siand#232;cle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles.
The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Modelsand#8212;whether in science or financeand#8212;have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didnand#8217;t understand their purpose, and didnand#8217;t care. It was a catastrophic misuse of science.
The solution, however, is not to give up on models; it's to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist use a model designed for earthquakes to predict a massive stock market crash. We discover a physicist-run hedge fund that earned 2,478.6% over the course of the 1990s. And we see how an obscure idea from quantum theory might soon be used to create a far more accurate Consumer Price Index.
Both persuasive and accessible, The Physics of Wall Street is riveting history that will change how we think about our economic future.
About the Author
Liaquat Ahmed has been a professional investment manager for twenty-five years. He has worked at the World Bank in Washington D.C., and the New York-based partnership of Fischer Francis Trees and Watts, where he served as chief executive.
Table of Contents
Introduction: Of Quants and Other Demonsand#8194;1
From Coastlines to Cotton Pricesand#8194;49
Beating the Dealerand#8194;76
Physics Hits the Streetand#8194;105
The Prediction Companyand#8194;130
Tyranny of the Dragon Kingand#8194;159
A New Manhattan Projectand#8194;181
Epilogue: Send Physics, Math, and Money!and#8194;205
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