Fooling All of the People Some of the Time
A Long Short Story
David Einhorn
426 pages
Wiley, John & Sons, Incorporated, 2010

This is not the sort of book I can imagine myself having chosen. Yet when I had finished my last book, there it was. I started in, expecting it to be every bit as boring as the topic suggested. It is hard to imagine anything more uninteresting than the intricacies of asset valuation and accounting practices. Somehow it did not bore me. On the contrary, the esoterica of of bookkeeping to which retail investors (read: filthy peasants) are not privy really do shed light on how the crisis of the past half decade came into being.

The story began thus:

A founder of Green Light Capital, Mr. Einhorn was asked to give a speech for a charity. The topic was to be the best bit of investment advice he could give. Having recently done work on Allied Capital, his topic could be summarized as “bet against Allied Capital.” The repercussions became this book.

Einhorn is a hedge fund manager. He is a member of that monied class at whom we (the filthy peasants) like to aim our rage. This narrative, however, gives an interesting perspective on the hedge fund industry. I found it amazing that much of what he does is very like science. Dissecting of business practices of other companies compares quite well to scientific research. Much of this book focuses on what the science world calls “peer review.” In the case of business, however, it is far easier to hid pathological bad practices. Aside: In way, we see this effectively done in the Global Warming denial business. Having read, the book Merchants of Doubt, I wonder if the business of professional denialism was informed by the business of business…

While aspects of the conspiracies involved here are decidedly too muted for a cloak-and-dagger action movie, they do make for an interesting case study in the rampant dishonesty that one can get away with in a time of very little regulation. Einhorn is often critical of the government’s lack of oversight and inability to deal with obvious frauds. Einhorn criticizes both political parties. He notes that Democratic Senator John Kerry was highly protective of the Small Business Administration and even of the most blatantly fraudulent business Einhorn describes. As well, it is difficult to get a government entity to act against a company whose board includes the former chairman of the Republican National Convention.

I would be interested to see another side of this story, but it seems that time has proven Mr. Einhorn correct in his assessment of Allied Capital and its subsidiaries. It is definitely eye-opening and well worth the time for the peasant investor.