Book Recommendation: *Wall Street*

On the recommendation of Henry Farrell, I picked up Doug Henwood's Wall Street, and I agree with Farrell that it's really good. Here's a taste:

In a soundbite, the U.S. financial system performs dismally at its advertised task, that of efficiently directing society’s savings towards their opti-mal investment pursuits. The system is stupefyingly expensive, gives terrible signals for the allocation of capital, and has surprisingly little to do with real investment. Most money managers can barely match market averages — and there’s evidence that active trading reduces performance rather than improving it — yet they still haul in big fees, and their brokers, big commissions (Lakonishok, Shleifer, and Vishny 1992). Over the long haul, almost all corporate capital expenditures are internally financed, through profits and depreciation allowances. And instead of promoting investment, the U.S. financial system seems to do quite the opposite; U.S. investment levels rank towards the bottom of the First World (OECD) coun-tries, and are below what even quite orthodox economists — like Darrel Cohen, Kevin Hassett, and Jim Kennedy (1995) of the Federal Reserve—term “optimal” levels. Real investment, not buying shares in a mutual fund.

Probably the most impressive thing about the book is it was written in 1997, at the height of Wall Street worship. I wholeheartedly endorse Farrell's recommendation for a kickstarter to fund an updated second edition. You can download the book for free here.