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Ask HN: Book recommendations for understanding financial systems?

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Re: Ask HN: Book recommendations for understanding financial systems?

#181
I listened to the audiobook version of 3 books by Adam Tooze in the past year and found them to be excellent for understanding how finance works, through 3 separate case studies/examples if you will ..

1. The Deluge: The Great War, America and the Remaking of the Global Order describes how most of the current global financial structures were formed, through the lens of WW1 policy

2. The Wages of Destruction: The Making and Breaking of the Nazi Economy .. moves you forward to WW2/post-depression economy

3. Crashed: How a Decade of Financial Crises Changed the World (recommended elsewhere in this thread) .. brings things up to current times

Re: Ask HN: Book recommendations for understanding financial systems?

#182
post #163

Earlier quoted context omitted.

Agreed that Money Stuff generally technically accurate. The only gripe I have about it is that it has a bias in the direction of "everything is so messed up / comical". This is an irreducible bias as it's the job of the journalist to make a topic seem engaging and interesting. However, if you take the theme of Levine's articles too literally/thematically, you'll think that finance is filled with quirky rules that pro…

I've always gotten the impression that under the jokes and sarcasm, Matt Levine loves finance, though I agree that he focuses on the interesting in a way that might skew a layman's perception of the likelihood of various things happening.

He really does love it in an intellectual sense, which is an infectious passion that is hard to find in an industry where many are optimizing just for financial success.

As someone who accidentally got into finance as a software engineer, he more than anyone has made me really fall in love with the domain.

Re: Ask HN: Book recommendations for understanding financial systems?

#183
post #134

Surprised no one has mentioned "Trading and Exchanges: Market Microstructure for Practitioners". Lots of people recommending Ernie Chan - and he is very big in the space but he uses 100 words when 10 will do its a hard time slogging through it. De Prado is incredibly technical , if there was a De Prado cliff notes Id say read that. And don't forget if you are coding this stuff up, lots of people have but those books…

Harris’ Trading and Exchanges is about types of traders and market microstructure - it has very little to do with what OP asked for (“… how money works in our society. Fiat currency, the federal reserve, the stock market, etc.“)

i embarrassingly didn’t read the body, and I am also ignorant of those things i’ll be reading this thread again , thank you.

Re: Ask HN: Book recommendations for understanding financial systems?

#184

Earlier quoted context omitted.

I agree but painting the whole of macro with the same brush as undergrad is a mistake. Yes, undergrad textbooks are tedious and the content varies between the misleading and wrong (and I definitely agree about learning accounting and how the plumbing works). But it is also true that past the level of undergrad, it does get more useful. There is still a lot of dubious stuff going on, and you have zealots engaging in t…

> But there is also some pretty good research that helps you understand the economy. I'd love to see some. I looked quite hard into two topics, gravity models of trade and the Philips curve, and I never found much I thought was convincing. I think the culture of academic macro doesn't appreciate just how hard it is to thoroughly test a model. It's not as simple as writing down some dynamics, estimating via maximum li…

...yep, I mean the gravity model of trade is just a regression. It is very unlike pretty much everything else in macro because its validity is statistical rather than theoretical (and more models that are justified by theory often perform worse...although this is kind of complex).

The Philips curve changes over time. It is, however, quite easily testable so it either applies or doesn't. If you are looking for some hard rule that applies every time then you should take an interest in something else (indeed, this was my initial point...the issue is that economists believe that the economy are a set of equations to be solved...in reality, the nature of the economy is changing constantly).

I don't think that is the case. Economists are confronted with the difficulty of tests everywhere (the issue is that they often don't handle this well), it is why econometrics is distinct from statistics. As an example, interest rates and growth are positively correlated (i.e. higher rates appear to cause higher growth)...we know this isn't the "true" relationship (interest rates are a function of expected growth) but there has been a ton of work done to separate these effects (this isn't only in macro, controlling for confounders/ommitted variables is really what econometrics is about). Econometrics is really the best part of economics.

Re: Ask HN: Book recommendations for understanding financial systems?

#185

Earlier quoted context omitted.

> But there is also some pretty good research that helps you understand the economy. I'd love to see some. I looked quite hard into two topics, gravity models of trade and the Philips curve, and I never found much I thought was convincing. I think the culture of academic macro doesn't appreciate just how hard it is to thoroughly test a model. It's not as simple as writing down some dynamics, estimating via maximum li…

...yep, I mean the gravity model of trade is just a regression. It is very unlike pretty much everything else in macro because its validity is statistical rather than theoretical (and more models that are justified by theory often perform worse...although this is kind of complex). The Philips curve changes over time. It is, however, quite easily testable so it either applies or doesn't. If you are looking for some ha…

> interest rates are a function of expected growth

Again, you're saying that as if it's a matter of fact. When I looked into the relationship between growth and interest rates, I found baffling discussions of demand for money as it relates to a financial system completely unlike the one we use today.

I just find it impossible to separate the nonsense from the useful insight. At some point I just gave up.

Re: Ask HN: Book recommendations for understanding financial systems?

#186
post #13

Ascent of Money - Niall Ferguson The Long and Short of It - John Kay A great place to look is the second hand study books for professional qualifications like the CFA, Chartered Banker and so on

Ascent of Money is indispensable as a foundation for the whys and hows of banking from it's origins and first principles. It's a history book. Anything technical (mathematical finance) is really not going to provide a foundation without the historical why of the instruments creation and use. One you have that, the most efficient way to understand it after would be with Quantlib ( https://www.quantlib.org/docs.shtml )…

I disagree that Taleb is "middle-brow", check out his new technical incerto book, from what I've heard its rather rigorous.

Re: Ask HN: Book recommendations for understanding financial systems?

#187
post #131

Earlier quoted context omitted.

> Whatever domain you're in, whatever interests you have- having something of a model of the financial machinery that basically underlies all human activity, both in the small and in the large, I would argue is super valuable. What’s strange is I’m generally in favor of “staying informed”. But I typically skip most financial news. For example, looking at last week’s issue of The Economist, there are several articles…

Hear you- it sounds like you have a sufficiently rich mental model that the reports "make sense"- some semantics/meaning are conveyed. They might even "sound obvious"- why is X even news? Etc. That's a tough place to be- on the usual models of learning curves for a practitioner that's right at the edge of transitioning out of beginner. A lot of people who are "book smart" are here. In order to learn more, to actually…

That makes sense. It’s challenging to think of a “problem to work on”. If it was programming or math, I’d find a project to try out whatever technique I’d picked up. There doesn’t seem to be a ready analogue for that here.

Re: Ask HN: Book recommendations for understanding financial systems?

#189

Earlier quoted context omitted.

...yep, I mean the gravity model of trade is just a regression. It is very unlike pretty much everything else in macro because its validity is statistical rather than theoretical (and more models that are justified by theory often perform worse...although this is kind of complex). The Philips curve changes over time. It is, however, quite easily testable so it either applies or doesn't. If you are looking for some ha…

> interest rates are a function of expected growth Again, you're saying that as if it's a matter of fact. When I looked into the relationship between growth and interest rates, I found baffling discussions of demand for money as it relates to a financial system completely unlike the one we use today. I just find it impossible to separate the nonsense from the useful insight. At some point I just gave up.

It is a matter of fact because interest rates are determined by the Fed...who say: we look at expected growth. Don't make things more difficult than they need to be (you can also see this quantitatively).
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