How the Markets Really Work

I have read many introductions to economics and finance, from lumbering 600-page textbooks to more conversational pop-economics bestsellers, but this little gem is by far the most useful and the most helpful. Kurtzman trots through all the basic ingredients of a market-driven economy - cycles, equity, securities, currency, value - but somehow manages to actually EXPLAIN how each one works in an accurate way without any condescension. He uses examples from history and the present day to really get the reader thinking about how markets work, a much better strategy than other books that spend too much time knee-deep in analogies about apples, oranges and cups of coffee. There are also invaluable references to other economists, investors and strategies, from Hernando de Soto to Warren Buffet, which all serve to deepen the book's scope. I was particularly impressed with Kurtzman's final chapters, in which he makes a brilliant and self-effacing argument in favour of research, education and humility when dealing with markets. Despite his ideological preference for free-market capitalism, he clearly is far more thoughtful about it than many other authors. The book is not written amazingly well, with overenthusiastic punctuation and mixed metaphors aplenty, but it is very concise and straightforward. I was honestly stunned to find that definitions that took up tens of pages in austere textbooks could be excellently summed up by Kurtzman in a matter of sentences. Great fun, very short and incredibly useful.

I lost count how many times the word "myriad" was used inappropriately. On the good side: This book was extremely light reading and can be finished in about three hours. There is a very approachable treatment of certain things that could be very technically difficult for some readers, such as regression to the mean. There was a (perhaps too) brief discussion about why Russia failed to thrive under the Communist system. I like brevity, but I could have done with a few more pages (or even a chapter) on why Communism doesn't work. Most people refute it on idelogical grounds, but Kurtzman had a great start in bringing up the technical problems of co-ordinating large amounts of (market-based time scale)information by bureaucracy (which uses a bureaucratic time scale) that he didn't develop at greater length. Finally, someone who understands that this is not a matter of opinion! Good discussion of initial public offerings of companies, which is something that we all "know" happens, but we often don't know the actors. Good discussion of exactly *what* Michael Milken did that got him into so much trouble. We all knew that he spent about a billion dollars in legal fees and is still worth hundreds of millions of dollars after the fact, but didn't know exactly why. Kudos to him for his beautiful treatment of the complexity of the market and telling us how many players are involved in even the simplest decision. It also gave an interesting explanation of something that I've wondered for a long time, which was how David Bowie managed to sell bonds in himself/ his catalog of songs and make so much money.

One of the things that Joel Kurtzman does very well in this pithy little book is demonstrate why the capitalist market system is superior to the old Soviet system of centralized control, why the decisions made by a decentralized economy work so much better than any top down system. However Kurtzman's enthusiasm for the market is eventually revealed as similar to E. M. Forster's for democracy. One recalls that Forster allowed himself just "Two cheers for democracy...there is no occasion to give it three."Kurtzman writes on page 148 that "Markets may move to the beat of their dumbest members." He adds, "In my view...markets are not rational." To back up his claims he reports that at the height of the Internet bubble in 1999, Yahoo! with sales of $456 million (that's million with an "m") had a market capitalization of $93-billion which he compares to GM, which at the same time with revenues of $177-billion (billion with a "b"), had a market cap about half that of Yahoo! (p. 147) This observation caused Kurtzman to ask, "Yo, Mr. Market, is anybody home?"Well, it depends on when you knock on the door. In October of 2002 Yahoo's market capitalization was down around $5-billion or so. The real truth is Mr. Market may be irrational for some period of time--indeed for some EXTENDED period of time, especially when you're holding the bag--but eventually a correction occurs, and for a brief shining moment (not the same moment) every stock is priced at what it's worth. (Of course it could also be pointed out that a stopped clock is exactly right twice a day.)I very much liked Kurtzman's conversation tone and his obvious acumen and the way he explains the underpinnings of the capital markets with an emphasis on understanding rather than mechanical details. (Although an explanation on how the weekend or overnight buy and sell orders received from Internet traders are reconciled at the New York Stock Exchange and at NASDAQ into an opening price would have been nice.) His championing of Michael Milken as one of the great financial geniuses of our times was tolerable, but did Milken really (as Kurtzman insists on page 144) take "an often bloating and ailing American economy" and make it "lean, mean and resilient"? And, although one does not doubt the genius of Warren Buffet, might Kurtzman have pointed out during his several fawning references to the man, that when you have as much economic clout as he has you might well be able to influence the markets to your advantage and to get information that others cannot, and in a nutshell prove beyond a shadow of doubt that money makes money and big money makes even bigger money? He might even have (to be topical and timely) pointed out that Shari'a law, which does not allow interest to be charged on credit, is not in keeping with the realities of the effect time has on capital.But Kurtzman is an ambassadorially polite man who saved his barbs for the failed communist system and the recent irrational exuberance