Book review: The Quants: The maths geniuses who brought down Wall Street

Have you even wondered what happen in 2008 on the markets? Why did so many people lose so much money? Why did the banks need saving? Behind all crisis, there is a story, this is what this book tells.

Discussion

The book tells the story of the 2008 crisis by starting it at the beginning of the quantitative research, even before Black and Scholes which is the basic equation that everyone in finance should know. All the big players get their time in the lights, from the banks to the hedge funds, by virtue of their leader.

I loved seeing how the quant explosion started with the advent of computers (without them, quant research would not have been possible), interweaved with people’s greed and an absolute short-term thinking. How could they have thought that all these products would actually help the economy? It felt like there was like a Ponzi scheme that was developing, with people injecting cash and thinking it would generate infinite money, despite the rest of the economy growing at its former speed. I mean, it was a real bubble, like the housing bubble was, and like the Internet economy was a bubble.

It was nevertheless amazing to see all these people connect, exchange, some of them being aware that there was a problem, but the others only seeing the theory of their models instead of the reality of non-Gaussian data. I’m not sure we learned our lesson for this catastrophe when you see how much data feels like a new bubble (when you look at the valorization of so many start-ups that don’t generate any money, just data, but they are still “worth” so much!). It’s sometimes the problem of the consequences of such a book: is it just a “this is how it happened”, or is it also a “how can we avoid the next crisis?”

If there is a criticism to make, it is that the threads are sometimes difficult to follow. Time doesn’t fly linearly between the chapters (you start with one pocker night in the new millenium, and then you go back to the university in the last century), and there is some kind of G.G. Martin feeling with the story of each main character being unrolled period by period (before going back in time). At least, it’s shorter and more fun than A Song of Fire and Ice!

Conclusion

I’m not sure how much of the book is true, probably almost everything, even if there are no official interviews there. At least, it’s a true story (contrary to The Hummingbird Project), and it tells what are the threads that lead to the finance world today.


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