HOW MONEY BECAME DANGEROUS

An insider’s view of how an increasingly abstract financial system fails to align with human needs.

Investment banker and fund manager—and, as is often mentioned, former Disneyland employee—Varelas begins with a poignant lesson. As an elementary school student, he was impressed by a classroom visit from a banker who revealed that saving a dime each week would yield the fortune of $3 by the end of the remaining school year. He worked through high school, amassing even more money in a savings account, only to discover that it had zeroed out when the bank introduced a service fee without telling him. Therein was the end of his “naive trust that the system cared, somehow, about my well-being.” It doesn’t. What it cares about is how the numbers look at the end of the year so that the person manipulating them qualifies for promotions, bonuses, and all the “perverse incentives” of consumer society. Gone are the days, writes the author, when a person like his first major client, a diamond vendor, could borrow money on a handshake—and gone are the days when character mattered as much as collateral and capacity (i.e., “a borrower’s ability to handle debt and expenses”). Varelas charts the evolution—or, more, accurately, devolution—of the modern financial sector, noting that when banking firms went public there was no longer a personal stake in the game but instead only “employees looking to maximize annual compensation” without sufficient concern for risk, one of what Walt Disney called “the hard facts that have created America.” Other negatives in the system, writes the author, are time-sensitive algorithms whose speed divorces prices from “reality” and a corporate culture that turns the financial-sector worker into “merely a cog in a global delivery mechanism." The author’s exercise in forensic accounting as he examines a case of government bankruptcy is particularly fascinating.

Alarming at moments and a welcome user’s manual for anyone with investments, large or small, in the current market.