Confidence Games: Money and Markets in a World Without Redemption

I am always skeptical of books that try to integrate trends in economics and finance with other disciplines because they tend to be written by experts from the other disciplines with only a facile understanding of economics and finance. The result is that they simply appropriate simplistically and selectively from the complex history of economic events to serve their argument. I was pleased, therefore, to discover right from the introduction of this book that Taylor has made some important and even profound observations on the human condition and its direction in the beginning of the 21st Century. Nonetheless, the book contains significant flaws that, upon reflection, seem unnecessary. Taylor's central argument does not depend on the errors in fact and interpretation that he makes throughout the body of the book. Taylor is a professor of religion with a deep understanding of philosophy, art history and, naturally, religion. In the mid-1990s he formed an internet-based education company, and in that process developed some real-world experience of modern financial markets. He augments his experience with some thorough study of modern finance and economics, though as becomes clear in the later chapters of the book, finance remains his weakest subject. Taylor observes that the rapid growth of interconnection throughout the world creates evolving networks that grow in complexity exponentially and unpredictably. In my view, this is the most defining characteristic of our age - not simply because increased complexity makes the world more difficult to understand, predict and navigate, but because the complexity frightens and confuses people, giving rise to fundamentalist movements throughout the world (and George W.'s presidency) as people react against the complexity by trying to force simplistic models onto their world views. In Confidence Games, Taylor develops this point much more completely. Observing developments in religion, art, physics and economics, Taylor shows how unified or dualistic explanatory models fall short in practice because they never account for the feedback loop that occurs when the object influences the subject, or the effect influences the cause. A straightforward physical example occurs when physicists try to model more than two bodies in motion, only to discover that the reciprocal influences of each body on the others creates highly sensitive nonlinearities that become impossible to model precisely. More to the point of the book, theoretical models of market equilibrium and stock prices do not incorporate the feedback loop of investors influencing each other, which can create unpredictable valuations and extended periods well outside of reasonable ranges for rational valuation. A better explanation for systems with multiple interrelated participants comes from models of complex adaptive systems, generally used by biologists to understand the behavior of groups of organisms struggling to survive and respond

This is obviously, from the Title, a very contemporary review (April 27, 2008) of Mark Taylor's "Confidence Games," which was published in the fall of 2004. Since July of 2007, financial markets in the United States are going through the longest and most rattling crisis since the Great Depression, when measured by the extent of the mortgage crisis (10% of the mortgages are "upside down" - with projections of from another 10-20% to follow) and the degree and nature of interventions by the Federal Reserve and central banks in Europe. The collapse of the investment bank Bear Stearns in under a week (Wed. March 12th- Monday, March 17th, 2008) was the dramatic punctuation mark upon the shakiness and utter incomprehensibility of the new financial architecture both to the general public and the Beltway elite. It was a run against a major bank, but without the public lining up in the streets for withdrawals. Instead, the run occurred due to loss of confidence by unspecified major players operating in the spectral electronic spaces described so well in Taylor's book - years in advance. We are still waiting, the public and investigating Congress, to find out what really happened. Today, as the press and public increasingly ask how this could have happened, even "wise men" such as Robert Rubin from the Clinton era "Committee to Save the World" are being questioned for their roles in and understanding of the still unfolding calamity. This reviewer thinks it is important to credit those who, however far removed from mainstream press consideration, saw the dangers early and clearly in the brave new world of our financial markets, built between 1980 and the late 1990's, the era of de-regulation and free market worship - and idolatry. Now Taylor's book is breathtaking in it's scope and interdisciplinary reach, not easy reading, but given the breadth of what he covers, it deserves a much wider audience. I direct readers' attention, in light of contemporary events, particularly to Chapter 5, entitled "Specters of Capital," just about 25 pages long, which should be required reading on Wall Street, in Congress, and in the world of journalists, such as they are, especially the ones who question and write about our presidential candidates. Here is the essense of Taylor's findings on the fruits of decades of "financial engineering," or, as I like to call it, our "new financial architecture." Page 152: "Contrary to expectation, the strategies and new financial instruments designed to avoid risk often end up creating greater volatility and thus actually increase risk." Page 166: "Derivative investments are not only highly speculative but are also off-book, i.e., they do not show up on balance sheets. Moreover, derivatives are highly leveraged; in some cases they require little or sometimes even no capital up front. Throughout the 1990's, the derivatives market continued to grow until, in 1998, it had a nominal value of $70 trillion, eight times the annual

What gives money its value? Are financial markets truly linked to the "real" world? Professor Mark Taylor, who has been praised as an "awe-inspiring theorist of everything," explores these and related issues in this interdisciplinary book. Taylor attempts to show the links between economics, financial markets, money, postmodernism, complexity theory, media, art and religion. It's quite an audacious task, and although one might debate if he was successful, Taylor takes the reader on a thrilling intellectual journey. Taylor claims you can't study markets in isolation. Markets are embedded in society, so to fully understand them you must understand politics, culture, science, religion, sociology, and psychology. To do so, Taylor takes us on a tour of not only various academic fields, but also of places from Las Vegas to Times Square. Stops on this tour support his thesis, which is that money and markets are essentially artful confidence games. For example, he notes that in the 1987 movie "Wall Street," the character Gordon Gekko says "Money...is transferred from one perception to another." Taylor then recounts how Wall Street fueled the public's perceptions of Internet stocks during the late 1990s stock bubble. Financial journalists, stock analysts, traders, advisors, and company officials all promoted fledgling Internet companies with skyrocketing stock prices. Ambitious teenagers talked up the price of small stocks in Internet bulletin boards and then sold them at a profit. The NASDAQ market opened a glitzy new TV studio for business reports in the media saturated & neon-lit Times Square. Using these examples, Taylor makes the point that the financial markets and the media are clearly intertwined, and that just some misplaced trust in them can bring financial markets through a boom & bust cycle. Taylor also discusses money and how it gets its value. Prior to 1971, the value of the US dollar was backed by gold held by the US Treasury. Generally, a gold standard prevents governments from arbitrarily running the presses to pay debts, which reduces the threat of inflation & boosts investor confidence. But what backs the value of gold? In short, only our collective confidence in it. Gold's value is not intrinsic to the metal; it's purely mental, and based on communal faith and trust. Because of that, going off the gold standard was difficult mental and emotional step for some in 1971. Taylor also discusses the sociologist Georg Simmel and his work on the philosophy of money. Simmel's view was that economic exchanges are a form of social interaction, albeit interactions that are turned into quantitative, rational, impersonal ones. He thought that the flow of money shows the relationships between people. Thus, money derives its value from to what one can exchange for it in these social interactions, and its value is just socially constructed. Taylor goes on to discuss multiple views of the economy. He cites Friedrich Hayek's view tha

Having read-or having attempted to read-a few of Mark C. Taylor's recent books, I was delighted to discover that this one, "Confidence Games" was both entirely different and more of the same. Where his always lucidly written, often provocative and sometimes esoteric reviews of contemporary science, art, architecture and fashion have often left me grasping for a conclusion, this book, "Confidence Games" delivers-BIG. If writing about the meaning of it all were a physical sport, I would hazard that this fleet-footed journey from the birth of money to the terrorist attacks on the World Trade Center is Taylor's marathon: a long, fast ride that covers as much ground as an old school Hollywood epic without the tin-eared dialogue. Throughout, Taylor deftly summarizes insights from celebrated economic and cultural thinkers of the last several centuries without getting bogged down in the dense foliage of history, all the while reminding readers that what paths may look today like a straight line are almost always a zig zag. What can you expect to get from this book? For many, it will be a pithy introduction to the incredibly complex financial world we have inherited. Others will likely nod their head as Taylor provides intriguing evidence for the parallels and connections between high finance and high art, God and Mammon, computers and contemporary culture. Like the best music, this book finds a deep groove early on and smoothly segues from pleasant chords to surprising riffs, never missing a beat even as the drummer gets wicked. This is clearly not summer or beach reading. But, given the often-cited consensus that 9/11 changed everything, a book like "Confidence Games" gives readers an unabashedly pleasurable opportunity to struggle with the very complicated questions that define the world in which we have found ourselves. Taylor's tenacity in pursuing "the meaning of it all" through the lens of money and markets provides us with the rare opportunity to see the big picture in sharp focus. Disclosure: Over a decade ago, I was a student of Mr. Taylor's and continue to correspond with the author on current affairs.