Book reviews

The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets

Peter Norman, Wiley Business & Finance Publishing, 2011

Clearing houses, or CCPs, were among the very few organisations to emerge from the global financial crisis with their standing enhanced. In the chaotic aftermath of the bankruptcy of Lehman Brothers, they successfully completed trades worth trillions of dollars in a multitude of financial instruments across listed and over-the-counter markets, and so helped avert financial Armageddon. That success transformed the business of clearing. Governments and regulators around the world gave CCPs and the clearing services they provide a front-line role in protecting the global economy from future excesses of finance. CCPs, which mitigate risk in financial markets, responded by greatly expanding their activities, notably in markets for over-the-counter derivatives, and often in fierce competition with one another. In the book, Peter Norman describes how CCPs operate, how they handled the Lehman default, and the challenges they now face. Because central counterparty clearing is a complex business with a long history that continues to influence decisions and structures even in today‘s fast changing world, The Risk Controllers explores the development of CCPs and clearing from the earliest times to the present. Written in non-technical language, The Risk Controllers provides a unique and accessible guide to CCPs and clearing. It is essential reading for clearing professionals, legislators and regulators whose job it is to take this vitally important business into the future.

PETER NORMAN is a London-based journalist and writer. The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets is his second book explaining the workings and history of an important financial infrastructure. Plumbers and Visionaries: Securities Settlement and Europe‘s Financial Market, his path-breaking account of the history and prospects of the securities settlement industry in Europe, was published by John Wiley & Sons in December 2007.

Financial Origami: How the Wall Street Model Broke

Brendan Moynihan, Wiley Business Finance Publishing, 2011

The simplicity of Wall Street‘s business model is often masked by the supposed complexity of its innovations. While the “financially engineered” products that Wall Street peddles to investors may seem different, in reality, they are nothing more than financial origami—where the attributes of stocks, bonds, and derivatives are folded and refolded to form something that seems new. This is the perfect metaphor for how Wall Street works, and ultimately proved to be the underlying cause of the recent financial crisis. In the book, Brendan Moynihan describes how the Wall Street business model has evolved from a method to transfer risk into a method for manufacturing risk. Page by page, he skillfully dissects financial engineering and addresses how financial origami, along with its inherent conflicts of interest, have allowed individuals as well as institutions to skirt regulations or taxes, sometimes meet investor needs, and always boost their profits. Along the way, the author explains the events that have shaped financial markets, firms, and products over the past 40 years, and have hurt Wall Street over the past three. It also explores the evolution of Wall Street, shows the logical sequence of events that brought us to this point, and offers insights on how to fix some of the problems we face. The Wall Street business model effectively broke. But there are many lessons to be learned from what has transpired, and this book shows what they are – helping to avoid getting caught up in financial origami and the extreme of taking good ideas and running them into the ground.

BRENDAN MOYNIHAN is an editor-at-large for Bloomberg News, where he manages the popular column “Chart of the Day” and writes about the economy and Wall Street. He has been with the company since 2006, after spending more than 20 years on Wall Street as a trader and risk manager. Moynihan is the author of Trading on Expectations (Wiley) and co-author of What I Learned Losing a Million Dollars.

Sovereign Debt Crisis: The New Normal and the Newly Poor

Dimitris N. Chorafas, Palgrave Macmillan Studies in Banking and Financial Institutions, 2011

This book is about sovereign debt, fiscal deficits, the newly poor and the deceit of the State Supermarket. The issues confronting the global economy, particularly America, Europe and Japan, are inseparable from the current lack of social and political leadership as well as of a credible plan to deal with the mountains of debt amassed by sovereigns, households and companies, particularly banks. The many practical examples in the book expose the situation into which western society has cornered itself. It offers advice on how to rise up from this, even if it means slaughtering unaffordable endowments, unwarranted government rescues, and other proliferating but unsustainable big spending projects. Sovereign Debt Crisis considers the risks of losing sight of past failures, and our society‘s ability to solve its problems, with debt heading the list.

DIMITRIS N. CHORAFAS has advised financial institutions and industrial corporations in strategic planning, risk management, computers and communications systems, and internal controls since 1961. More than 8,000 banking, industrial and government executives have participated in his seminars in the USA, the UK, Germany, Italy, Asia and Latin America. Dimitris N. Chorafas is the author of more than 150 books, all critically well-received, and some of which have been translated into up to 16 languages.

Minding the Markets: An Emotional Finance View of Financial Instability

David Tuckett, Palgrave Macmillan, 2011

The 2008 financial crisis showed that human emotion has a critical impact on financial markets. Until now, economic theories have failed to take this into account. At the heart of the worst financial crisis in world history was a failure to organise markets in a way that adequately controls the very human emotion and behaviour which trading unleashes. The newly established discipline of ‘emotional finance’, pioneered by David Tuckett, draws on principles of psychoanalysis to enable financial markets to be understood in a completely new way. By recognising the crucial role played by unconscious needs and fears, the influence of groups and the nature of uncertainty in all investment activity, Minding The Markets provides a deeper understanding of the markets and timely ideas about how to incorporate that understanding into policies to make markets safer. Based on candid and in-depth interviews with over 50 fund managers internationally, this groundbreaking book not only presents a fresh academic theory, but also reveals the truth about what happens in the emotionally-charged real world of financial trading.

DAVID TUCKETT is Fellow of the Institute of Psychoanalysis and Professor at University College London, UK. David Tuckett has brought together his initial training as an economist with his subsequent work in sociology and psychoanalysis to initiate a new line of research, the significance of which has been recognised with recent invitations to speak at the Global Economic Symposium and the Global Risks Network of the World Economic Forum. He is the author of many papers and several highly successful books.