James Surowiecki's column in The New Yorker last week focused on a simple yet rarely discussed fact: When it comes to finance, many Americans are basically clueless. They don't know the difference between fixed-rate and adjustable-rate mortgages; they don't understand inflation; they can't explain what compound interest is. Making matters worse, many people don't know how much they don't know, which makes them extremely easy marks for predatory lenders and other unscrupulous purveyors of financial products. Exploding ARMs, anyone?
Surowiecki's prescription is to establish what he calls the financial equivalent of driver's ed. "If financial education taught people only how little they actually know, it would accomplish quite a lot," he writes, arguing that the less people know, the more overconfident they tend to be -- and the less research they tend to do before signing their lives or fortunes away on the dotted line.
It was hard not to keep Surowiecki in mind while perusing The New York Times Book Review last week, which was chock-full of yet another crop of post-crisis business titles. The books, which range from memoirs (Bear Stearns Cos.' Ace Greenberg) to accounts written by financial journalists (Sebastian Mallaby on hedge funds; Suzanne McGee on Goldman Sachs) to voyeuristic looks at the lifestyles of the rich but not so famous (Vicky Ward on Lehman Brothers), are just the latest entrants in a category that has easily produced three dozen titles. For a nation of people who don't understand how credit cards work, we sure produce a lot of books about business, finance and Wall Street. It's a bit like obesity. We publish a ton of diet books, but just keep getting fatter.
The diet books, at least, have an obvious audience -- people who want to lose weight. For the business books, it's less clear. Whom, exactly, are all these books -- and, by extension, all financial media, from newspapers to magazines to blogs to the talking heads on cable TV -- really for? Practitioners, the professionals who don't have to consult Google when faced with terms like CLO, CDO or credit default swaps? Or the clueless masses, who don't even know that they don't know anything about finance?
The economics of publishing suggests the answer is the latter, which creates all sorts of challenges for the genre. With finance as bewildering as it is, how do you simplify it in a way that makes it accessible and entertaining -- without dumbing it down so much as to render it useless, or even harmful? Can accessibility and sophistication co-exist? In his piece, Surowiecki notes that critics of financial education fear that it will make people overconfident of their knowledge and therefore more likely to make bad decisions. Will reading some of these books make people overconfident as well?
All of these issues leave financial authors in a tough spot, which comes through in the reviews. Reuters' Felix Salmon, who has broached the accessibility issue in his blog, writes of McGee's book, Chasing Goldman Sachs: "It's unlikely to teach professionals on Wall Street anything new or to change their minds, and there's little to grip the interest of the lay reader." Ouch. Reuters global editor at large Chrystia Freeland offers a similar warning to potential lay readers of Mallaby's book, More Money Than God: "If you are looking for the nose-pressed-into-his-sweaty-armpit carnal intimacy of today's best narrative journalism, I'm afraid you won't find much of it here. Mallaby tells some great stories, but he is more interested in his principals' spreadsheets than their psyches." Uh-oh. Freeland does, however, credit Mallaby for the "clear and sophisticated explanation" he provides of various hedge funds.
On the other side of the spectrum, there's Ward's Lehman tome, The Devil's Casino, which seems to have lots of stuff to keep lay readers engaged. Writes Times reporter Graham Bowley: "Ward entertains with rich detail: the rough-edged [Richard] Fuld taking elocution lessons and copying the nail-clipping habits of a smoother senior whose job he desires; Henry Kissinger at a board meeting, stirring his iced tea with a pencil." But, as Brooke Masters noted in her review in the Los Angeles Times, "this is not a book for people who care about the geeky details of what went wrong with the global banking system. Collateralized debt obligations rate just two mentions in the index, and credit default swaps get a paragraph and a half."
In other words, if you don't know what compound interest is, this is the book for you. Just don't expect to learn much.
Yvette Kantrow is executive editor of The Deal.