By Mercenary Trader | 7 September 2010
If one could point to a single organization that really kicked things off— a sort of Mount Olympus for legendary global macro traders— it would have to be Commodities Corp, founded by Helmut Weymar and a partner in 1969. In terms of direct connections and indirect influence, Commodities Corp brought forth the likes of Paul Tudor Jones, Louis Bacon, Bruce Kovner, Michael Marcus, Ed Seykota, and others. The sheer amount of talent (and financial success) in that short list is astonishing.
In baseball terms, it's like seeing Babe Ruth, Ted Williams, Mickey Mantle, Sandy Koufax and Joe Dimaggio all having a connection to the same triple-A ball club. The story of Commodities Corp. is recounted in Sebastian Mallaby's More Money Than God: Hedge Funds and the Making of a New Elite. So far, it's a fascinating read. (Of course, you have to have a taste for this sort of thing— but since the great traders to me are like the great ball players to the average Joe Sixpack, Mallaby is right in my wheelhouse.)
But here's why I bring this up. In chapter three, Mallaby reveals something that made my jaw drop. As background, we all know the 'arrogance' of the Efficient Market Hypothesis, right? Particularly the high and mighty godfathers of EMH. Eugene Fama is on record as saying "God himself" could not dispute the efficiency of markets.
And of those EMH fathers, few were higher and mightier— or more insanely arrogant— than Paul Samuelson, the founder of 'neoclassical' economics. So here's the thing that blew me away. Right at the same time EMH was gaining real traction and right at the time Paul Samuelson was proclaiming in favor of absolute randomness for the markets Samuelson was investing his OWN money with Warren Buffett— and with Commodities Corp.
At the very genesis of EMH gaining a foothold as indisputable academic dogma, the guy pounding the table for that dogma was making big side bets with the great investors and traders of the era! I mean, talk about chutzpah! [[Well, it's why affirmed atheists sometimes mouth a silent prayer…: normxxx]] Here is this "I'm too brilliant for you to comprehend" S.O.B. telling the entire world that no one can beat the markets (and thus helping to legitimize academic theories that would later be major contributors to the systemic crisis through the foolhardy actions of poorly run institutional funds) at the very same time— the guy is investing his own money in the private belief that markets can be beat!
It's like the Pope practicing Islam on the side [[I wouldn't be surprised: normxxx]].
No, actually it's worse than that. There are no words. Samuelson's epic hypocrisy would be absolutely hilarious if not for all the damage that EMH has wrought over the decades[!?!] plus the damage it continues to inflict[!?!] through the widespread "license to be stupid" that academia has granted to all those who argue that "the market is efficient, and so prices can never be wrong."
Here's the excerpt where Mallaby spills the beans:
So the high priests of EMH never actually believed their own theory. They just got legions of less bright minions to take EMH as diehard gospel, with the final culmination of arrogance + ignorance being Alan "Bubbles Can't Be Recognized" Greenspan and Ben "Global Savings Glut" Bernanke.
In other words, "one of the most remarkable errors in the history of economic thought"— per the description of Yale professor Robert J. Shiller— was not just an error but a lie.
I hereby nominate Paul Samuelson one of the top ten biggest jerks in the history of modern finance.
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