Wall Street Wars by Richard E. Farley


This is the fascinating story of how government officials came together to create federal securities law.

Ha just kidding, god this book was boring. I was in bed with the stomach flu for two days and there was nothing good on the internet.

So here’s the gist: Financial regulation generally follows one of two themes, depending on whom you want to villainize.

  1. Rich people will do anything to become more rich. They follow the letter of the law while violating the spirit of the law.

    Eventually, one or more of them is hoisted by his own petard. Regulators realize this is bad. They make a rule to punish this activity. While they’re at it, they think of possible permutations of the activity and make a rule banning each one.

    That’s why the Securities Exchange Act is 371 pages in 8-point font, with 914 pages of amendments* in the form of Sarbanes-Oxley and Dodd-Frank.

    Rich people pay lawyers to read through all the rules. They find a new profitable activity that follows the letter of the law while violating the spirit of the law. Rinse and repeat.

    *There are actually way more amendments, but I didn’t feel like looking up everything between 1934 and 2002.

  2. Everyone is happy and things are getting better all the time. Credit expansion is encouraged. The government subsidizes loans and provides tax credits to borrowers.

    To maintain growth rates, lenders become less discriminating with their practices. Soon everyone and their deadbeat cousin has borrowed money to buy a house, found a startup, invest in an East Indian trading Company, or get an MBA from the University of Phoenix.

    Then some borrowers don’t repay their debts. Lenders collapse. Panic ensues.

    It turns out there were good reasons why credit had previously been constrained. Regulators make some rules about that.

    The economy contracts. Then things start to look good again. Repeat ad nauseam.

    See Also: How the Economic Machine Works, by Ray Dalio

If you like reading 300-page history texts, read this book. If you’re a normal human being, here’s Schoolhouse Rock:

Disclosure: The author of this book is a partner at the law firm that represents the company that gives me a paycheck every two weeks.

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