'The Quants' by Scott Patterson
[Cross-posting latest book summary I added to LinkedIn.]
The Quants (http://www.amzn.com/B0036894XC) is a survey of the growth of math-based modeling in financial services and its impact on profit making and crisis generation. The author is a reporter with the Wall Street Journal and he mostly tells his story from the perspective of some younger quants (two running hedge funds and two working within Wall Street investment banks) as well as two 'pioneers' in the field - Ed Thorp and Jim Simons.
The book is a quick read and the extensive direct access Scott Patterson had to many of these players as well as his interviews with other people such as Benoit Mandelbrot provided a personal dimension to the tale. The Quants overlapped somewhat in scope with The Myth of the Rational Market (http://www.amzn.com/0060598999) by Justin Fox which I had read earlier this year. That book, which I preferred, charted a more rigorous focus on the development of Finance theory in the 20th century but offered less of the day to day impact on Wall Street. Due to timing, it also did not really cover the most recent financial crisis whereas Patterson's story ends in 2009 as the pieces were being put back together and lessons were trying to be learned.
In that respect, it's hard to dispute that the quants over-reliance on the accuracy of financial models which undervalued risk coupled with the 'industrialization' of computer-based trading were an important contributing factor to the start of the crisis. However, they were certainly joined by lots of other bad policies, strategies and actors in the full realization of the crisis.
This is the first book by the author and it shows. While it's breezy writing does make it a fast read, parts of the book seem a bit cobbled together with repetitions from earlier parts and Patterson's somewhat breathless style and overwrought figurative language were more annoying than helpful to me and temper my recommendation.
