Weekend Reading: The Undoing Project

I have read most of the books of Michael Lewis. When The Undoing Project came out last year, I grabbed a copy to read right away.

Mr. Lewis picks the story of Israeli psychologists Daniel Kahneman and Amos Tversky who created the field of behavioral economics. Their work came to the attention of Mr. Lewis after Moneyball came out. Cass Sunstein and Richard Thaler pointed out in their review that Moneyball was really about behavioral economics and mentioned the work of Kahneman and Tversky. That reference lead Mr. Lewis to write this book.

It seems like the classic formula for Mr. Lewis: take a complicated topic and explain it using interesting people.

But when I started reading The Undoing Project, I kept putting it down. A year later, I finally decided to read it. (I needed to read a book about social science for the Book Riot Read Harder Challenge.)

I found this to be the least favorite of the Michael Lewis books I have read. I think the problem is that the book is much more of a biography than a concept study using people. It’s not that Kahneman and Tversky are uninteresting. I just didn’t find the lengthier biographical sections of the book to be compelling to read. Most of the first half of the book is biographical.

The book really shines when it focuses on the work of Kahneman and Tversky.

Kahneman and Tversky showed that in decision-making and judgment human beings did not behave as if they were statisticians. Instead our their judgments and decisions deviate in identifiable ways from theoretical models. Human errors are common and predictable.

It’s not that The Undoing Project is a bad book. I just that I had much higher expectations. A mediocre Michael Lewis book is still better than 90% of the books on my shelf.

Weekend Reading: Brothers at War

With the threat of war (or the crazy rantings about war) with North Korea, I thought I should learn more about the history of the conflict. I realized that most of what I knew about Korea and the Korean War I had learned from MASH. In browsing through books to read on the issue, I came across Brothers at War: The Unending Conflict in Korea by Sheila Miyoshi Jager in a review in The Economist.

The book starts with the end of World War II. Japan had invaded the Korean peninsula in 1910. With Japan’s loss of the WWII, the Soviet Union and US divided the spoils and each took half of Korea, with the 38th parallel as a dividing line. Japanese troops to the North of this line were to surrender to the Soviet Union and troops to the South of this line would surrender to the United States.

The division was not intended originally to be a partition. But the Cold War between the US and  the USSR made negotiations difficult. The separate administration quickly led to two separate governments arising. In the North, the Soviets were happy to allow a communist government to take control. The US was not wiling to let the South turn to communism and kept control.

In June 1950, troops from North Korea invaded South Korea to free it from American imperialism. China encouraged the confrontation with the United States. The Soviet Union also supported the invasion, but less enthusiastically. It was this triad of communism that continued in the North for decades.

After three years of fighting, the war ended with an armistice agreement. The cease fire line was back to the 38th parallel. No peace treaty was signed, nor has one been signed.

For a decade after the war, the North was more prosperous than the South. It was not until the 1980s that the countries’ prosperities turned sharply in different directions. North Korea had devoted too much of its production to the military, causing stagnation. Then the Soviet Union, its financial benefactor, collapsed. The South was under autocratic leadership until a democracy movement resulted in an elected president in 1987.

The South continued on a path of democracy and capitalism.

Meanwhile, the North turned into a dynastic communist state. When Kim Il-sung died in 1994, his son, Kim Jong-il, continued the dynasty. When he died in 2011, his son, Kim Jong-un, took control. That dynasty became focused on developing nuclear weapons to ward off the perceived threat from the United States to attack the North and once again occupy the South.

That leaves us 67 years later still dealing with a poorly thought out post-war division of the Korean peninsula, where the threat of war has persisted over those decades.

If you are interested in learning more about the Korean War and how that legacy of that war has continued to toady, this is an excellent book to add to your reading pile.

Weekend Listening: Lincoln in the Bardo

George Saunders’s first novel is a weird, wonderful and woeful book about young Willie Lincoln, son of the President, who is trapped in the “bardo.” That is a Tibetan term for the intermediate state or gap we experience between death and our next rebirth. 

Willie has died and been taken to Oak Hill cemetery, buried in a marble crypt. Based on true historical data, on at least two occasions the president visits the crypt to mourn the loss of his son. The cemetery is populated by the spirits of the dead who have been unwilling to complete their journey to the afterlife and in the bardo. They have continued to remain near their corpses.

The spirit’s narrative is interspersed with quotations from primary and secondary sources about Lincoln’s life. They paint conflicting depictions of the president and his mental state. The spirits themselves are conflicted, referring to their coffins as “sick boxes”, as part of their strategy to avoid facing the reality of their deaths.

The spirits are motley assortment: soldiers, rapists, slaves, drunks and a hundred others. Their advice is also an assortment of conflicting advice on whether to stay or go.

I’ve been consuming a great number of books year as audiobooks. Lincoln in the Bardo is one of the best produced audiobooks. It has a cast of dozens voicing the spirits who are the main characters of the book. That includes the wonderful Nick Offerman and David Sedaris as the lead spirits. There are different voices for the main historical quotes. In total the audiobook production has a 166-person cast.

The narrative readings are as compelling as the words in the novel themselves. This a book you should add to your to-read stack or to-listen library.

Weekend Reading: Behold the Dreamers

Imbolo Mbue created a great novel on immigration and the American Dream in her 2016 Behold the Dreamers. I admit that I only came to read this book because of a reading challenge. Book Riot’s Read Harder Challenge number 5 was to read a book by an immigrant or with a central immigration narrative. Behold the Dreamers was my choice for the challenge. It’s not a book I would have naturally grabbed to read. But that is the point of the challenge.

I found the book to be wonderful. The central character of Jende Jonga grapples with the financial crisis as Lehman Brothers collapses. It’s not that Jende, an immigrant from Cameroon, was working for Lehman Brothers. Jende had started driving a cab to support his family while waiting for his asylum application to be approved. His wife is with him on a student visa.

Jende knows that he may have to return to Cameroon if his application is unsuccessful. He has left that country for the hope of prosperity in America. Jende is joyous at being in America and believes in the American dream that hard work will lead to success.

His hard work allows him to move from driving a cab to working as a personal chauffeur for a Lehman Brothers executive. As you might expect, problems arise.

The writing is spectacular. The characters are wonderful. The depiction of the American dream and immigration are thought provoking. Behold the Dreamers will be an excellent addition to your reading list.

Weekend Reading: Bourbon Empire

I went on Spring vacation to Kentucky with Mrs. Doug and the compliance nuggets. There was a lot of bourbon and horses. For vacation reading, I dug into my ever-growing tower of books to read and brought along Bourbon Empire by Reid Mitenbuler to read. It seemed appropriate.

Reid Mitenbuler portrays bourbon as a balance of Jefferson and Hamilton’s ideas, still being argued today in politics. On one side is the small agrarian culture championed by Jefferson, in opposition to the capitalist growth of Hamilton. Bourbon is Jefferson on the outside, with Hamilton on the inside.

In Kentucky, bourbon finds that its color. History collides with myth, filling in the recorded gaps with burnt oak.

I found the origins of “proof” to be a fascinating relic of taxation. Ever since President Washington imposed the whiskey tax, distillers have tried to work around taxes for profit. Tax collectors would measure the strength of the whiskey by mixing it with gunpowder and setting it on fire. If the flame sputtered, the alcohol content was low and if it flared up it, there was too much alcohol. A steady flame proved that the alcohol content was proper. This proof came at about 50% alcohol. So if the whiskey was 100% proved, it was was about 50% alcohol.

There was little government oversight of what could be put in the bourbon bottle or put on the label. The biggest first step of regulation was the 1897 Bottled-in-Bond Act that required the whiskey be made a single distillery by a one distiller, aged for at least four years, unadulterated and bottled at exactly 100 proof. The bottle’s label had to identify the distillery where the whiskey was distilled and bottled. If it met those standards, the whiskey would have the right to bear the green stamp of approval featuring the image of John G. Carlisle, a Kentucky congressman.

Whiskey, like all alcohol, was scrubbed out of existence by Prohibition. Okay, so that is clearly an overstatement. It went from local farmers and big distillers, to the underground criminal element. One interesting loophole of prohibition was an exception for medicinal whiskey. (Medicine has come a long way in the last few decades.) If you are going to dispense medicine, you need pharmacies. Walgreens grew from 20 stores in Chicago to over 525 stores during the era of prohibition. Mr. Mitenburger points to The Great Gatsby in which Daisy describes the mysterious bootlegging Mr. Gatsby as having “owned some drugstores, a lot of drugstores.”

Bourbon and Kentucky are linked. My tourguide at the Woodford Reserve distillery point to Kentucky limestone, with its removal of iron from the water, as the key to Kentucky bourbon. Whatever may be the truth or the myth or marketing, 95% of the world’s bourbon is made in Kentucky.

With the fall of Prohibition, government regulation of alcohol increased. That was especially true in labeling and identification of what was inside the bottle. To earn the “straight” identification, the whiskey needs to be aged in brand-new charred oak barrels for at least two years.

It was the rise of Maker’s Mark in the 1980s that turned bourbon towards its “craft” status, embracing quality over mass-production in its marketing. It was the embracing of the Kentucky mystery and Jeffersonian small-batch aesthetics that define most bourbon today. Behind the scenes, a handful of distilleries make the vast majority of bourbon and pour different variations into long line of product labels.

I enjoy a good bourbon and I enjoyed Bourbon Empire.

Weekend Reading: Evicted

Matthew Desmond took a deep dive into poverty and housing. He published the story of what he saw in Evicted: Poverty and Profit in the American City. The book follows several people in deep poverty living and being evicted from terrible housing in Milwaukee. Mr. Desmond lived among them in 2008 and 2009. He split his time between the poor, white College Mobile Home Park full of the white poor on one side of town and a rooming house on the poor black side of town.

The housing problems did not appear to discriminate based on race. However, Mr. Desmond found that the vast majority of evictions were against black women. Regardless, the problem was a lack of money. Most of the subjects were scrapping by without any meaningful work or on public assistance. That assistance paid for the rent, but left little remaining after rent. They pay a crushing share of their income for rent. The book’s subjects were paying 75%+ of their income for rent. That left little for food, health care, clothing, furniture, and transportation.

Part of book’s story is that evictions are much more common than previously thought. More than one in eight Milwaukee renters faced a forced move in the course of three years. A forced move includes a larger selection of reasons beyond formal evictions, including strong arm tactics, building condemnation, and paying unwanted tenants to leave. In Milwaukee, 16 families lose their homes each day: 16,000 people being forced out of 6,000 housing units every year.

Mr. Desmond also included the two landlords in the book. They were doing better financially than their tenants, but they were not fat cats rolling in cash. There is money to be made from renting to the poor. But it also means an uneven flow of cash when rent goes unpaid, properties are damaged, and the court fees for getting an eviction. The biggest financial windfall for the landlord was when one of the buildings caught on fire. She pocketed the insurance money and bulldozed the charred remains.

The landlord are overlooking the convictions and evictions to rent to tenants that would be excluded from other mainstream housing. In exchange, the tenants overlook the poor housing conditions.

There are no easy answers in the book. In the epilogue, Mr Desmond offers some direction. It requires money. More government assistance for the poor to get housing.

The book is compelling. While not necessarily enjoyable to read, it is well written and easy to digest, as distasteful as it may be. The book has won many awards, including the Pulitzer Prize.

Publishers occasionally send me books in exchange for a review. That was the case the here.

Weekend Reading: Black Edge

The 2009 arrest of Raj Rajaratnam of the Galleon Group was the start of a long trail of insider trading prosecutions that culminated in the prosecution of SAC Capital. The SEC had identified Steve Cohen as the worst of the insider trading hedge funds and the SEC put his SAC Capital in its cross-hairs. It convinced the Justice Department to prosecute the offenders with criminal charges.

Sheelah Kolhatkar tells the tale in Black Edge.

Ms. Kolhatkar was a hedge fund analyst and is now a staff writer at The New Yorker, where she writes about Wall Street, Silicon Valley and politics among other things. She shows a keen understanding of traders and regulators, and conveys the story into a page-turner.

I know what happens in the end to SAC Capital and Steve Cohen. I knew some of the insider trading prosecutions. I never appreciated how all of those prosections from 2009 to 2014 were tied together.

Matthew Martoma plays one of the biggest roles in the story. He was a former trader at SAC Capital who was caught red-handed on insider information about negative results from a drug trial. His source, a doctor working on the trial, passed Martoma the information. Martoma made SAC Capital a lot of money on that information and Steve Cohen profited handsomely. What the feds really wanted was for Martoma to implicate Cohen in exchange for a lesser sentence. I won’t spoil the end for you.

Besides Rajaratnam and Maratoma, the feds brought cases against Michael Steinberg, a portfolio manager at SAC, Anthony Chaisson of Level Gobal and Todd Newman of Diamondback Capital.

It was this last one that lead to the undoing of some of the ability to prosecute insider trading. The Newman appellate decision slapped tighter requirements on the government when trying to prosecute an insider trading case.

Black Edge is well worth the time if you have any interest in the area.

Weapons of Math Destruction

With big data, comes formulas to parse through the data trying to make sense of it. Those algorithms can help make sense of the data and help filter through the noise to find trends. But those algorithms can also be easily misused and have harmful, if unintended consequences. Cathy O’Neil explores these problems in Weapons of Math Destruction.

weapons of math destruction

Ms. O’Neil is a former academic, hedge fund quant, and data scientist for startups. At the hedge fund she was looking at ways to make money by predicting financial trends. As a data scientist she was looking to predict people’s purchases and browsing habits to monetize those habits. Those are good algorithms where the people using them understand them and update the algorithms as they see problems and can check to see if they are working properly by verifying outcomes.

Many data driven outcomes fail. Those are the focus of Weapons of Math Destruction.

I’m a big fan of the Slate Money podcast with Cathy O’Neil, Felix Salmon, and Jordan Weissmann. When the publisher offered me a review copy of Ms. O’Neil’s book, I jumped at the chance.

It’s a short book and even though the title makes it sound like it’s full of math, it’s not. It’s more about social policy. She points to the danger of decision makers blindingly following algorithmic output that they do not understand.

Take the US News and World Report listing of best colleges. This is preeminent guide for high school students trying to figure out which college to attend. The rankings do not look at actual student outcomes. The publisher does not look at happiness, learning or improvements. It looks at proxies for the outcomes like SAT scores, alumni contributions, and graduation percentages. Colleges started making decisions to improve their rankings in the algorithm by improving those measured proxies. As anyone writing checks for their college bound children, affordability is not one of the measured proxies.

As you might expect there are big chunks of the book dedicated to failings in the financial sector by relying on poorly designed algorithms. The biggest problems often being false assumptions plugged into the data running through the algorithm.

With the election season upon us, the chapter on political algorithms is fascinating. The data scientists of commerce were brought into political campaigns. They are able to micro-target potential voters sending different messages to different groups highlighting the positions that would make the candidate more favorable to that segment of the population. Civic engagement and the political process is increasingly being algorithm driven.

Since our world is increasingly being driven by big data, it’s important to understand what is happening behind the decision-making. Weapons of Math Destruction is an excellent tool to help you understand data driven decision-making.

Weekend Reading: Rise of the Warrior Cop

It only takes a few minutes of watching the national news before you will see a crime story with police dressed in battle gear.  In Rise of the Warrior Cop, Radley Balko traces the history of US law enforcement to see how we got to this.

Mr. Balko thinks the founding fathers, distrustful of a standing army, would be appalled by today’s approach to law enforcement. Of course, the United States has changed dramatically over the last 240 years. The City of Boston had 15,000 residents then and has grown to over 650,000 today. The colonial era approach to policing of constables and private justice would not work today.

Mr. Balko takes the position that the current approach of militarization of the police also does not work.

Mr. Balko keys the rise of militarization to one event: the Texas Bell Tower Sniper. Local police did not have the weapons or techniques to end that mass shooting.

The next advancement was the work of Daryl Gates in Los Angeles. swat tvHe pushed for the creation of the first SWAT team. I remember that television show. But they were far from the battle-clad soldiers of today’s SWAT.

Next up was Nixon’s “war on crime” that pushed federal money to local police. That transformed into the “war on drugs” and the latest iteration, the “war on terror”. Each of those came with federal money for local police to buy weapons. Surplus military gear was made available to local police. Who would not want to have a tank for their police force.

All that money lead to this: Battle-clad, heavily armed police.

swat

Mr. Balko proposition is that when they have these tools, they use them. Even if other police techniques would have been more effective. Rise of the Warrior Cop is full of stories of botched police raids using excessive force to invade people’s homes for non-violent offenses.

He further presents the theory that acting more like the military than civil protectors, police forces develop an “us versus them” mentality. It’s clear in the war who the enemy is. It’s not clear on the streets.

Many will dismiss Rise of the Warrior Cop as anti-police, libertarian propaganda. There is no doubt that Mr. Balko brings his viewpoint to the story and his Cato Institute philosophy.

This book was published in 2013 and predates the current Black Lives Matter and Blue Lives Matter debates that are happening today. The book takes a harsh look at the development of policing that got us to this point. It’s not just the militarization of the police, but the erosion of Constitutional rights that I find troubling.

How To Pay A Bribe

A thick envelope arrived in the mail from Trace International, the firm of anti-bribery compliance experts. The title caught me off guard: How to Pay a Bribe.  I would have thought Trace would be focused on how to stop bribes.

bhow to pay a bribe

Then, of course, I read the subtitle: Thinking Like a Criminal to Thwart Bribery Schemes. It’s a learning tool to help compliance practitioners identify the signs of a bribery scheme.

This is the third version of this book, collecting stories about the inner workings of bribery schemes.

The first chapter is prophetic look at banking in Panama and the law firm Mossack Fonesca. This seems obvious with the release of the Panama Papers. But if you look at the publication date, the book was sent to the printers and released before the Panama Paper were released. The chapter’s author Ken Silverstein pulls no punches. “Panama has been run by assholes for more than a century.”

Richard Bistrong tells his story as convicted bribe payer. He tells his missteps as he sunk into a pit of corruption.

The chapter authors describe various methods used to pay bribes and different mechanisms to move corrupt money. The goal is teach the reader how to avoid the pitfalls and identify potential problems. In the end it is full of practical advice on how to discover, deter and defend against corruption.