Publishing Year: 2017
Publisher: Profile Books (Hardcover)
Bridges finance and the humanities, but tiptoes through important issues
I always found Finance classes sleep-inducing even though I had a great interest in the subject. Most of the teachers in finance I came across were not as good at storytelling as they were in deciphering numbers. And, this is the general perception about finance, somewhat, like mathematics, that it’s a dour and daunting subject.
Enter Mihir Desai. Mihir teaches finance and tax law at Harvard Business School and Harvard Law School. In The Wisdom of Finance, he attempts to inject the craft of storytelling into the dry world of finance. He deploys literature, music, movies and art to explain the fundamental concepts of finance.
In a long time, I have read a book about finance where the author talks about ‘great values’ in finance. He appears to be against the demonization of finance when the more prevalent discourse out there is Wall Street Economy vs the real economy. He even discredits those who rail finance in public forums saying “It has become fashionable to deride the values of finance in intellectual circles and political campaigns.”
I seriously had to come to grips with that. In the later chapters, Mihir does talk about the malice that we associate with finance, but in a very conciliatory tone.
He remarks,“It’s not finance that’s bad. It’s not the people who finance attracts who are bad. It’s just that finance fuels ego and ambition in an unusually powerful way.”
Every chapter in the book follows a template. Mihir introduces at least a couple of characters from history or a work of classic fiction. He then summarizes the backdrop before decoding the concepts, fundamental or otherwise.
From Flitcraft and his doppelganger Charles Pierce of Dashiell Hammett‘s detective novel ‘The Maltese Falcon‘ to Alexandra Bergson of Willa Cather’s ‘O Pioneers!‘, the book imports characters from classic texts who have a financial lesson to teach the reader.
My favorite chapter from The Wisdom of Finance is ‘Living the dream’. Mihir summons the 18th-century philosophers – Jeremy Bentham and Adam Smith to kick off the discussion on leverage. From a more factual setting, we move to a fictional one.
He introduces Shylock, Antonio and Bassanio from ‘The Merchant of Venice‘. The use of Shakespearean play to deliver the message that leverage does not only matter for financial entities, but it also holds water in relationships.
Here’s his assertion on leverage:
Commitments to smart and demanding people keep us from doing stupid things. We gain from those commitments. Leverage is not a zero-sum game.
I don’t have any misgivings about the breadth of Mihir Desai’s intellect. He is a consummate writer, but it is his cautious approach that irked me. If the finance is a noble, life-affirming profession, he should have singled out the bad eggs that are hell-bent on tarnishing its image.
In the whole book, you won’t find a single individual whom the author puts in the crosshairs for sullying the ‘dignified’ profession.
I would have loved Mihir to take a stance on controversial issues, but he tiptoes through them and instead sidesteps into defending finance. In the penultimate chapter, he defends the bankruptcy of debtors. He remarks, “Failures should not be stigmatized, they are occasions for a fresh start.“
Some failures must be stigmatized!
The GM and Chrysler failed financially due to their own incompetence. Their rescue by the US government was a reward for their ineptitude. A morally reprehensible move if you ask me. Such ships should not be rescued and allowed to founder.
I paraphrase Nassim Nicholas Taleb here: Unless the bailed-out institutions are forced to put their skin in the game, they would be reckless again with much higher stakes.
In the last chapter called ‘Why everyone hates finance”, Mihir does address the impending issue of financial greed but in a disarming way. He declares, “It is actually a noble profession where people are behaving by worthy ideals but are being slandered nonetheless.” Wait, what? Who provides the fertile grounds for all the criticism, Professor?
Throughout the book, I kept asking myself: Why is he romanticizing a domain which is inherently rotten? And then I realized that it is because he’s a pure academician at the heart and most academicians are not good critics in general much less the critics of their own field.
I assume the main audience for The Wisdom of Finance is people who relate to finance and not the people who read classic literary fiction. Now the problem is that if you haven’t read ‘The Pride and the Prejudice’, ‘The Maltese Falcon’, ‘The Financier’, ‘O Pioneers!‘, etc., then this book won’t exactly turn you on. That said, credit goes to Mihir Desai for deciphering every piece of classic fiction so that a non-reader could also relate to them.
I recommend The Wisdom of Finance to those starting in the field of finance. But for the battle-scarred veterans and even the greedy wolves, I am afraid there is not much substance to glean.