The best books for those who want to understand bankers, especially bankers behaving badly

This book tells the story of how an interest rate (“LIBOR,” for London Interbank Offered Rate) used to set mortgage, credit card, and auto loan rates was manipulated. Sounds important, but maybe not so interesting? Wrong.

You don’t need to have the slightest interest in LIBOR to love this book. What really propels the book is the human story, intricately but compellingly told. We learn who the LIBOR manipulators were, how and why they did what they did, and the dynamics of the community they created.

We learn, too, about the institutions – huge financial institutions – that nurtured and lavishly rewarded these people, and the regulators who took rather too long to catch them. 

This is a beautifully written story about bankers who rise, and fall spectacularly – into crime, in this case insider trading, with the loss of money, status, and prestige that followed.

What’s particularly fascinating is the historical, ethnic, and sociological backdrop. The book begins with a scene in which Indian-born Rajat Gupta, having come to the US and ascended to the highest echelons of the US business world, was attending a White House dinner for India’s Prime Minister.

The book ends as some people who had been on top are dealing with the aftermath of trials that went very badly for them. The word “Shakespearean” has been used to describe this book, and aptly so.

No, this book is not by John Coates the corporate law professor. It's by another John Coates, who was a Wall Street trader and became a neuroscientist (!).

The descriptions of the physiology of risk-taking are not only fascinating in their own right but also deeply intuitive, and should be of enormous help to regulators trying to address banker misbehavior. They give the lie to the idea that simple stories—people are good or bad! It’s all about incentives!—can do a good job in explaining what happened.

This book makes clear that we have to understand the role of biology as well. People can’t just turn their risk-taking tendencies and reactions on and off at will. We’ve seen what happens when banks and regulators don’t take that into account.    

This book is a wry look at investment banking from the inside. The author, a banker and professor school professor, provides a rich and entertaining perspective on banks and bankers.  

The book captures an era when banks were changing dramatically, and, some might say, were getting less genteel. The author is really gifted at conjuring up and caricaturing some of banking’s pathologies.

I particularly loved the culminatory line in an account of junior analysts’ jobs in preparing “pitch books” – the analysts had to tout the bank’s “number one” status, and, scrambling to find something the bank was number one in, might fantasize about saying “We have 100% market share of all deals we did.”  

As everyone knows at this point, anything Michael Lewis writes will be enormous fun to read, while being about something really important—something he’ll make you care about even if you didn’t when you started the book.

In this case, the subject is people who bet on the direction of mortgages (and thus, house prices), and how those who bet on a huge plunge were right. This book has an amazing cast of characters, all richly drawn: some are smart, some are not so smart; some are excellent schmoozers, some can barely tolerate human interaction; some care a lot about money, some care more about being right, especially if everyone else is wrong.

Each book I've recommended cries out to be made into a movie. This one actually was.