I downloaded Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street. I mean that literally, of course – I read it on a tablet. But I also downloaded it – sucked it up via my eyeballs in a single Matrix-like data slurp. I’d hesitate to call Sheelah Kolhatkar’s debut the best book about the (still roiling) 2008 financial meltdown and its attendant consequences, but if you were searching for just one text that unravels the Great Unravelling, it’ll do in a pinch.
So, anyways: capitalism. The system’s dead, we’re scraping away inside its rotting carcass, and a man named Steven A. Cohen is to blame for it all. (That last part is not entirely true, but again, it’ll do in a pinch.) In better times, Cohen was a sort of Wall Street Keyser Söze, an unseen shadowy force wielding immense power, whispered about by those in the know. As one of the most successful hedge fund operators in the world, he and his traders moved the markets with a click of a mouse. And yet, for those who followed Wall Street closely, his SAC Capital Advisors remained something of an enigma: How were Cohen and his army of traders able to achieve 30-per-cent year-on-year returns, pocketing tens of billions of dollars in revenues and fees in the process?
Black Edge is a book about insider trading, so it’s hardly a spoiler to say: By cheating.
But what is a black edge? And what, for that matter, is a hedge fund? As far as the former is concerned, Kolhatkar describes it as a “kind of information – proprietary, non-public and certain to move markets.” This, of course, is the most valuable information of all, but by no means is it easy to acquire. For one thing, securing data that earns fortunes of money costs fortunes of money. For another, the legal implications are terrifically dangerous, because tapping the perfect source almost very often tips into insider trading. And yet, without a network that acquires proprietary info illegally, the viciously competitive financial sector folds in on itself, and a hedge fund becomes a less viable financial vehicle than betting on the outcome of grade-school spelling bees.
About hedge funds, Kolhatkar is not complimentary. She reminds us that the industry began small, with tiny boutiques serving as a means for the extremely wealthy to duck swings in the market. This was achieved by buying up and holding good shares, and “short-selling” what they figured were bad shares. In good times, betting long produced big returns. In bad times, going short often produced bigger returns – hence, hedging. The investment market changed quickly, and the old way of shunting investment capital through big stodgy houses such as Goldman Sachs and Merrill Lynch was no longer generating the sort of returns that earned traders $14-million mock Tudor follies in Greenwich, Conn.
Kolhatkar writes: “Over time, the name hedge fund lost any connection to the careful strategy that had given such funds their name and came to stand, instead, for unregulated investment firms that essentially did whatever they wanted.” If Wall Street was capitalism’s bowels, hedge funds became the butthole.
Kolhatkar, a New Yorker staff writer from Toronto, and a former hedge fund analyst herself, is superb at braiding these disparate informational strands into a narrative, while explaining them with admirable brevity. But for the average punter, all this stuff amounts to little more than the preamble on a deal memo unless there are characters to animate it. And boy, is Kolhatkar inhumanly blessed in this regard.
Wall Street spits out anti-social lunatics at a prodigious rate, and her portrait of Steven Cohen is exemplary. One of eight children who grew up middle-class-ish in Great Neck, New York, Cohen was the standard nebbish with a chip on his shoulder, who in a Saul Bellow novel would have served as a supporting character nibbling at the storyline’s fringes. But Wall Street in the 1980s provided the bitter, brilliant wonk with the means to get rich in a way that no one ever had before. New money? Cohen’s money was so new that it ceased being money, and became a form of weaponized wealth that existed only to create more wealth, while simultaneously undermining the system of capital generation on which it was premised.
Black Edge tracks the FBI agents and other arms of law enforcement as they trawl their way through the hedge fund industry, following the scent of its elusive apex predator. Thrillerish in its construction, terse in its prose, the book is grounded by brilliant reporting and enlivened by Kolhatkar’s storytelling nous.
The pointillist detail and Grisham-esque briskness does, however, come at the expense of the bigger picture. And at 30,000 feet, Kolhatkar is not very good. Like most polite liberals who write for American legacy publications, she believes that the system is salvageable should everyone just play by the rules, and should the Cohens of the world have their worst impulses regulated into benignity. This is just not so. Capitalism is, as we’ve already noted, dead. That’s the good news.
The bad news, as pointed out by the radical German economist Wolfgang Streeck, is that there is nothing to replace it. “Before capitalism will go to hell,” he writes in his essential How Will Capitalism End?, “it will for the foreseeable future hang in limbo, dead or about to die from an overdose of itself but still very much around, as nobody will have the power to move its decaying body out of the way.” This particular interregnum belongs to nutjobs like Steven A. Cohen. The small victories detailed so lucidly in Black Edge were pyrrhic at best, and meaningless at worst.
Richard Poplak’s most recent book is Continental Shift: A Journey into Africa's Changing Fortunes. He is currently working on a book about mining. He splits his time between Toronto and Johannesburg.Report Typo/Error
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