Smart money

PUBLISHED : Monday, 05 March, 2012, 12:00am
UPDATED : Monday, 05 March, 2012, 12:00am


As Europe implodes in slow motion and the region's debt crisis threatens to drag the world down with it, Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das is a timely read. A sweeping history of modern money, the book explains the phenomenon of 'financialisation' in the past 30 years that has got us so irredeemably hooked on debt.

Das takes the reader on a tour of how finance, supposedly the monetary shadow of real things, eventually took on a reality of its own and came to overshadow the real economy. Along the way, he explains the complicated process of securitisation that has spawned the 'alpha-debt soup' of CDOs, ABSs, CDO2s, synthetic CDOs and so on.

Former US Federal Reserve chairman Paul Volcker once said that none of the financial inventions of the past 25 years matches up to the ATM. Das goes further and makes the case that these so-called innovations and their greed-fuelled ecosystem of charlatans and suckers have set us on a path of economic doom.

Examples abound. A currency swap deal between Greece and Goldman Sachs allegedly helped Athens conceal the true size of the nation's debt in 2001. JP Morgan also allegedly arranged currency swaps for Italy to help it mask the extent of its deficit back in 1996.

Detailing how financial derivatives are devised and operated - including many that were discredited during the financial crisis but have made a comeback in different guises - Das shows why these instruments, created to minimise risks, have ended up doing just the opposite.

He should know. With more than 30 years in the finance industry, he is the author of the widely cited Traders, Guns & Money, an insider's account of derivatives trading.

Extreme Money cleverly marries the arcana of high finance with popular culture, history, personal insight, quotes and observations, making it a good read.