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April 11, 2005

Doug Henwood Freely Distributes His Book "Wall Street"

It's a very good book:

Wall Street: How It Works and for Whom: A scathing dissection of the wheeling and dealing in the world's greatest financial center. Spot rates, zero coupons, blue chips, futures, options on futures, indexes, options on indexes. The vocabulary of a financial market can seem arcane, even impenetrable. Yet despite its opacity, financial news and comment is ubiquitous. Major national newspapers devote pages of newsprint to the financial sector and television news invariably features a visit to the market for the latest prices. Does this prodigious flow of information have significance for anyone except the tiny percentage of people who have significant holdings of stocks or bonds? And if it does, can non-specialists ever hope to understand what the markets are up to? To these questions Wall Street answers an emphatic yes. Its author Doug Henwood is a notorious scourge of the stock exchange in the pages of his acerbic publication Left Business Observer. The Newsletter has received wide acclamation from J.K. Galbraith, among others, and occasional less favorable comment. Norman Pearlstine, then executive editor of the Wall Street Journal, lamented, `You are scum ... it's tragic that you exist.' With compelling clarity, Henwood dissects the world's greatest financial center, laying open the intricacies of how, and for whom, the market works. The Wall Street which emerges is not a pretty sight. Hidden from public view, the markets are poorly regulated, badly managed, chronically myopic and often corrupt. And though, as Henwood reveals, their activity contributes almost nothing to the real economy where goods are made and jobs created, they nevertheless wield enormous power...

I would disagree with Doug's claim that Wall Street contributes almost nothing to the real economy. I think that it contributes a great deal to the real economy as a (greatly imperfect) system of corporate governance and as an (effective) creator of real value by turning illiquid claims to physical capital and market position into liquid financial assets. It also fleeces enormous sums every day from a great many people who don't understand risk and return, adverse selection and moral hazard, and that the first question one should always ask is, "If buying this stock at this price is such a great thing for me, why isn't it an equally great thing for you? Why are you selling it?"

But highly recommended. And now it is freely available online.

Doug Henwood (1977), Wall Street: (New York: Verso: 0860916707).

Posted by DeLong at April 11, 2005 01:01 PM