The best books on stock market plumbing

Susanne Trimbath Author Of Lessons Not Learned: 10 Steps to Stable Financial Markets
By Susanne Trimbath

Who am I?

My entire career has been spent in finance. From life insurance to central banks, from stock exchanges to post-trade clearing and settlement, this is all I’ve ever done. My college degrees include BSBA in Business/Marketing, MBA in Management, and PhD in Economics. In addition to knowing what a lot of people know about finance, I also worked inside the “black box” of the Federal Reserve System and depository trust and clearing corporations (in 4 cities, on 2 continents). Therefore, I know more about the plumbing of stock market infrastructure than most people who have careers (and education) as long as mine.


I wrote...

Lessons Not Learned: 10 Steps to Stable Financial Markets

By Susanne Trimbath,

Book cover of Lessons Not Learned: 10 Steps to Stable Financial Markets

What is my book about?

This book shows that the theoretical framework for regulating financial systems available since at least 2001 could have prevented the systemic failure in the United States that led to the collapse of global credit markets in 2008. Step by step the book guides you through what could have been done to prevent the crisis and what investors can do to protect themselves from the next one. It concludes with a key idea for making financial services businesses stand out from the crowd, ensuring future success. For each step, the reader will find: legislative and regulatory background on existing rules; academic research on the theory behind each step; and the facts and data connecting each missing step to the financial crisis of 2008.

The books I picked & why

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A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

By Burton G. Malkiel,

Book cover of A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Why this book?

This is the first book I read about the stock market. I was taking a college course on investments and working as an editor at the Federal Reserve Bank of San Francisco. Watching the Fed try to hit various monetary targets looked to me just like what this book was suggesting: throw a dart at the stock quote page of the Wall Street Journal (back in the days when people looked in newspapers for stock quotes!) and you were just as likely to make money as you would when you did research into a particular company before buying their stock.


The Economic Way of Thinking

By Paul Heyne, Peter Boettke, David Prychitko

Book cover of The Economic Way of Thinking

Why this book?

This was required reading in my MBA program at Golden Gate University. In fact, the economics teacher, Joe Fuhrig, inspired me to go on for my PhD in Economics at New York University. The book explains how economics isn’t just about mathematical models: it is about how people think and behave. Once you learn to think like an economist, you will find investing (and even grocery shopping!) a completely different experience.


A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

By Richard Bookstaber,

Book cover of A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

Why this book?

I started working at Depository Trust Company in New York in September 1987 – a month later the “Black Monday” stock market crash happened! At the time, it was very difficult to see exactly what caused it. “When you are up to your neck in alligators, it is hard to remember why you drained the swamp!” This book explains how Wall Street banks hatched all those alligator eggs by hiring MIT math-whizz-kids and turning them loose without explaining the simplest thing about the stock market to them. One of the errors in their models was that they did not take bank holidays into account when calculating the time value of stocks and option prices.


How Markets Work: Disequilibrium, Entrepreneurship and Discovery

By Israel M Kirzner,

Book cover of How Markets Work: Disequilibrium, Entrepreneurship and Discovery

Why this book?

At New York University, I attended the Austrian Colloquium every week. I learned more about economics listening to Dr. Kirzner talk for 5 minutes than I did in any 2-hour class. Austrian economics is about human action – not unlike what you’ll find in The Economic Way of Thinking. The US stock market today seems to be drifting further and further away from Kirzner’s definition of a market: “Disequilibrium prices generate direct disappointment of plans… Such disappointment can be expected to alert entrepreneurs to the true temper of the market” and result in price discovery. Market makers and short sellers disrupt this process by altering the appearance of supply and demand for the shares of companies. This reason alone should call into question the stock exchange as a “marketplace.”


This Time Is Different: Eight Centuries of Financial Folly

By Carmen M. Reinhart, Kenneth S. Rogoff,

Book cover of This Time Is Different: Eight Centuries of Financial Folly

Why this book?

Co-author Ken Rogoff taught my PhD course in Global Economics while he was a visiting professor at NYU (from Princeton). We used Foundations of International Macroeconomics as our textbook; Ken was writing the book with Maurice Obstfeld. When I turned in a handful of pages to him with editorial corrections, he hired me to edit the rest of the book and a research paper for him! It caused quite a stir among my peers when Ken thanked me by name when the article was published (JEL, June 1996). This book traces eight hundred years of financial crises to demonstrate that they are, in fact, predictable. Economists and policymakers are taken by surprise only because they do not learn the lessons from one crisis to the next.


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