This is extraordinarily good news for lovers of free valuable things. Due to extraordinary shortsightedness, Verso Books have allowed Doug Henwood’s “Wall Street” to go out of print, the rights thus reverting to the author. In an equally extraordinary act of generosity, Doug has decided to release it to the internet, gratis, under a Creative Commons Licence. Download it quick before he gets his marbles back is my advice.
Pretty much Wow. Wall Street is an ace book; in my professional opinion as a business school graduate it contains the clearest explanation you will find of how financial markets work, much better than the one in Principles of Corporate Finance, Modern Investment Theory or any similar MBA textbooks. There is also a lot of very good material on Keynesian economics[1], and a short essay on Social Security privatisation that is, despite having been written about ten years ago, much better, more quotable and freer of error than almost anything written in the last two years. There are also a number of good jokes and a couple of absolutely priceless footnotes on the sexual appetites of Wall Streeters. My suggestion to Doug was that he should have jacked the price up to $85 and gone after the textbook market, so getting it for nothing is a bargain to say the least.
In respect of which, the author apparently got quite royally screwed financially from writing the thing; less than $10,000 despite it selling 20,000 copies and taking six years to write. He’s put up a Paypal tipjar which I hope you will all use; otherwise (and perhaps more realistically) you could say thankyou by buying After the New Economy which is also a top book[2], or perhaps subscribe to the Left Business Observer newsletter, which also looks woefully underpriced at $22 for 11 issues given that along with the left-wing polemic it contains two pages of the sort of high quality flow-of-funds analysis that serious people pay serious money for. You don’t get any bonus Ginsu knives or anything, but net that, it’s probably the best bargain you’ll find on the internet today. Sorry to come over like a pitchman and all that but it really would be a shame if Doug ended up financially no better off for making Wall Street publicly available. I own or subscribe to all these products myself, by the way.
[1]Brad agrees with me that the economics is top-notch stuff. I tend toward Brad’s side of this particular argument; stock markets don’t produce nothing, they produce liquidity. It is true that there is no such thing as “liquidity” for the economy as a whole; we can’t all have the ability to buy or sell stock as we wish at the same time. But on the other hand, we can’t all stay in the Ritz Hotel at the same time either, but that doesn’t mean it’s fictitious. Doug’s main point, however – that the stock market is not either a material source of funds for industry or a “capital allocation mechanism” of any value whatever – is spot on and is a critique which is not made nearly enough. Anyway, RTFB. Maybe I’ll write something more about this at length later.
[2]If you do end up buying “After The New Economy”, perhaps you would be good enough to write a review essay and email it to me so I can put it up on CT like I’ve been promising to do for the last year.
{ 32 comments }
Kieran Healy 04.08.05 at 3:37 pm
Hey, that’s great. What a generous thing to do. It’s a terrific book.
John Quiggin 04.08.05 at 4:08 pm
Great idea!. I’ve now subscribed to LBO, which I was going to do as soon as I got a round tuit (probably around the time the SocSec fund is exhausted, on past form).
Cryptic Ned 04.08.05 at 4:36 pm
I know what “blog” and “bleg” are, but “blag”?
Barry Freed 04.08.05 at 4:39 pm
BTW, Doug Henwood also produces an excellent weekly hour-long radio program on NYC’s Pacifica station WBAI 99.5 FM. I’ve since moved away from the signal area so I can’t recall when it’s on (yes, they stream but…) Fortunately DH posts downloadable mp3s of his shows (my only beef concerns the length of time between updates). Check out the page for summaries of each weeks guests and topics. I very highly recommend this.
http://www.leftbusinessobserver.com/Radio.html
Colin Danby 04.08.05 at 4:44 pm
As I note over at Brad’s, his argument is with Verso’s overheated blurb, not with Doug’s actual writing. All of Doug’s books are great and make excellent gifts, too!
Daniel 04.08.05 at 4:49 pm
cryptic: to “blag” somewhere is to burgle it. In extended usage “a blag”; a steal. I’m trying to popularise it as an alternative to the frankly vile word “bleg”.
Jennifer 04.08.05 at 5:19 pm
Pay for the fine book, it is deserved in every respect.
Ian Whitchurch 04.08.05 at 6:37 pm
” subscribe to the Left Business Observer newsletter, which also looks woefully underpriced at $22 for 11 issues given that along with the left-wing polemic it contains two pages of the sort of high quality flow-of-funds analysis that serious people pay serious money for.”
Reminds me of the story about the COmmunist Party newspaper in Sydeny in the 1930s, which had a lot of readers.
Partly, this was because there were a lot of communists in the 1930s, but mostly because it had four pages of the best racing analysis in Sydney.
PS Daniel, is Doug Henwood looking for a reasonably non-job ie a directorship ? I could be putting together a play where a US-based left winger could be handy on the board, and he seems to know his way around the markets.
PPS Daniel, are you etc etc ?
John Quiggin 04.08.05 at 6:44 pm
Not to challenge you on English criminal slang, DD, but I thought a “blag” was an armed holdup rather than a burglary.
Ian Whitchurch 04.08.05 at 7:06 pm
John,
Agree with you on blags.
PS Moby Oil and Gas (MOG) … that was a hell of a blag. Set up a new company with you as the chairman, have it buy assets off you at inflated prices, then IPO it with you as the underwriter. Ahhh, capitalism.
Dirk 04.08.05 at 9:36 pm
“the stock market is not either a material source of funds for industry or a “capital allocation mechanism†of any value whatever”
I would definitely like to hear you elaborate on this statement. High industry valuations in the market are associated with flows of private (and some public) equity into the same sector and hence capital allocation – see biotech and IT over the last 15 years or so.
coturnix 04.08.05 at 10:56 pm
Have you read “The Divine Right of Capital” by Marjorie Kelly. There is an 11-page excerpt from “Tikkun” cashed somewhere online for a taste of it.e
Daniel 04.09.05 at 7:18 am
High industry valuations in the market are associated with flows of private (and some public) equity
Well that’s it. Private equity isn’t part of the stock market and public equity markets only occasionally get involved. The stock market is a material source of funds for indstry about once every fifteen years during IPO booms.
Jack 04.09.05 at 7:31 am
Not so fast. If private equity investment follows market valuations then the market is a capital allocation mechanism and source of funding, even if it is indirect. I’ll RTFB but some more precision here would be useful.
abb1 04.09.05 at 11:48 am
The stock market is a material source of funds for indstry about once every fifteen years during IPO booms.
Hmm. What about various secondary stock offerings as a source of funds? Not only direct funding by secondary offerings but also mergers and acquisitions by stock swap, compensation by stock options, etc.
I mean, I agree that the stock market is much less of a source of funds and much more of a casino than most people think, but it sure is a source of funds to a certain degree.
Daniel 04.09.05 at 12:15 pm
But on a net basis, in a normal year, equity issuance is negative. It’s all in the book.
Donald Johnson 04.09.05 at 12:30 pm
I read Wall Street and wondered at the time whether Henwood was right about the stock market not being a serious source of funds for business. It made sense to me but since my training in economics amounts to one semester in college and some very scattered reading, I wondered if there was some subtle point that Henwood was glossing over and which would naturally escape me. So it’s interesting to see that he might be right.
jimbo 04.09.05 at 12:50 pm
It’s not a serious source of funds, but that doesn’t mean it’s useless. In Henwood’s marxist analysis, the market acts a way for the capitalist class as a whole to “divide the spoils”, which actually isn’t a bad way to look at it. The pricing of the stock market sends signals about capital allocation, thus enabling the sort of continuous “creative destruction” that Shumpeter talked about. I’ve always thought the best explanation of it was given by “Larry the liquidator” in the movie “Other People’s Money”…
John Emerson 04.09.05 at 12:52 pm
A “blagueur” in French is a joker or bullshit artist. I’ve tried to popularize the term, but no one seemed interested.
abb1 04.09.05 at 12:53 pm
I’ll read the book. Still, intuitively, OK: back when I had a mortgage and a credit line, on a normal year my home-equity issuance would be negative too, still the mortgage market certainly was a source of funds for me.
What is undeniably true is that when my mortgage note was sold, changed hands (at least twice in the 1990s) it had absolutely no effect whatsoever on my financial situation.
Daniel 04.09.05 at 1:56 pm
The pricing of the stock market sends signals about capital allocation
Kinda-sorta, but who listens to them?
John: “you blagger” is, I believe, slang in Coventry for an unserious person.
Barry Freed 04.09.05 at 3:24 pm
Capitalism: It’s a great blag if you can get it.
Doug Henwood 04.09.05 at 4:36 pm
Hi folks. Thanks for all the kind comments everyone, especially Daniel.
I don’t deny the stock market produces liquidity. As I remember (it’s been a long time!) I quote Joan Robinson’s characterization of the stock market as “a convenience for rentiers.” In fact, my argument is that it’s an institution that allows the owning class to diversify its claims, effectively owning the productive capital stock as a whole, more or less. Of course it does provide funds to corps via IPOs, but as I show in After the New Economy, it does that most intensely when buying the offerings makes the least economic sense. The great distinction of the late 1990s market was to provide finance for the likes of Pets.com, which didn’t deserve the time of day, much less several bil.
guerby 04.09.05 at 6:02 pm
A funny thing about equity are dividends: they’re marketing tools, not a way to pay shareholders (as commonly known). Since their allocation is based on having a stock overnight just before the “ex date”, market arbitrage says that you’ll see the stock dip by the dividend amount “during the night” (no free lunch), hence netting zero gain for the stock holder. A much better system would be to allocate dividends proportionally to the time you’ve been holding the stock (like normal coupons). I understand it would have been a nightmare to manage before electronic booking and trading systems but now it should be possible. This would probably decrease volatility and may be liquidity too…
Laurent
Donald Johnson 04.09.05 at 6:51 pm
But I loved the ads for Pets.com. I guess this is an example of the free-rider problem–I loved the ads, but someone else footed the bill.
abb1 04.10.05 at 3:24 am
Also interesting that the initail ‘public’ portion the IPO stock is not sold using the stock market mechanism. In the 1990s usually the initial price was fixed and shares sold in a most cronyish and counterproductive kind of way; and the dutch auction thing isn’t much better. But that’s probably in the book too (I started reading yesterday night).
Adam Kotsko 04.10.05 at 11:02 am
Any ideas on how to print this thing off?
Bernard Yomtov 04.10.05 at 3:09 pm
But on a net basis, in a normal year, equity issuance is negative.
OK. But is it really meaningful to net things like buybacks (do dividends also count as negative equity issuance?) against new issuance in deciding to the degree to which the stock market is a source of new funding? It’s two different things, after all – withdrawal of equity from firms with no good use for it and provision of equity to those with prospects.
Isn’t this sort of reallocation a benefit of the securities markets?
Doug Henwood 04.11.05 at 8:40 am
“Provision of equity to those firms with prospects.”
I haven’t updated these figs since 2002, but a few words on that topic. From 1970 through 2002, IPO proceeds in the US were equal to an average of 1.8% of nonresidential fixed investment; even at the peak years in the late 1990s, that share never rose above 5%. From 1970 through 1989, the average was 0.9%. As a percentage of total market cap, IPOs never exceeded 0.5%. So there’s a very large apparatus surrounding a very small provision of funds function.
I realize, though, that the IPOs could never have happened without the larger makret providing a place to sell the shares. Which brings us back to the “convenience for rentiers” function, the most important of all.
Bernard Yomtov 04.11.05 at 10:59 am
But IPO’s, and even secondary offerings, are not the whole story of providing capital.
Investors (a less loaded word than “rentiers,” I think) who provide private equity normally expect to realize their return in the public markets. That is, they hope that the firm they finance will ultimately go public or be acquired by a public company. This has to count in favor of the market as a provider of capital.
This is especially so since many of these acquisitions are paid for with stock, rather than cash.
UncleVinny 04.11.05 at 11:53 am
Am I the only one who’s having .pdf formatting issues? Many words in the book have an erroneous space inserted in the middle.
trotstky 04.11.05 at 10:14 pm
I got the odd extra spaces too. My big .pdf technical question is, How do you mark your page with an Adobe e-book?
Up to 79 just now … it is surprisingly readable for all its talk of FoF an FIRE.
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