In some ways, Stuart Kells is the Antipodean version of American journalist and historian Michael Lewis. Mr Kells chronicles the strange behavior of corporate actors such as publisher Penguin Random House, diamond miner Argyle and financial market traders in the waters of the Murray-Darling Basin. The new book is published by Melbourne University Press, for which he also wrote a history.
In Alice: The Greatest Untold Story in the History of Money, he focuses on financial innovators. But Mr. Kells differs in his choice of protagonist from Mr. Lewis, whose latest book tells the story of famous crypto priest Sam Bankman Freed. Kells' book tells the story of Ian Shepherd, an Australian banking consultant whose ambitious plans to reinvent the financial system and reduce some of its risks go awry.
Book review: Alice: The greatest untold story in the history of money – Stuart Kells (Melbourne University Press)
The first half of the book Kells revolves around the two main characters, who are intelligent Australians stationed in America.
Kate Jennings (1948-2021) was a radical feminist writer and editor of Mother I'm Rooted: An Anthology of Australian Women Poets (1975). In her unexpected career advancement, she eventually became a speechwriter for Merrill Lynch, a corporate financial management company.
Publishing the text
Jennings wrote an acclaimed semi-autobiographical novel called Moral Hazard (2002) about his time in the US financial markets. She was selected as a finalist for the Miles Franklin Award. Author Gideon Haig described the novel as telling a “disturbing truth.” Some of the best lines in the Book of Kells (for example, “The only perfect hedge is in a Japanese garden”) come from there.
Jennings' collection of essays, Trouble: Evolution of a Radical, Selected Writings 1970-2010, includes a lecture he gave in 2003 to an unexpected audience at the Anne and Gerald Henderson Sydney Institute. It also includes criticism of the inadequate regulation of the country's financial system. In Kells' words, Jennings “found poetry in the world of money.”
Another important character in the Book of Kells is Shepard. He studied economics at the University of Sydney a few years before me, and like me, started his career at the Commonwealth Bank. After earning his MBA from Stanford University, Shepherd became a consultant specializing in banking at global management firm McKinsey & Company.
In the 1980s, the volume of transactions in financial markets rapidly increased, and so did the risks involved. Shepard thought deeply about those risks.
Read more: 'Famously disgusting'.How feminist writer Kate Jennings' work changed Australia
Alice's rise and fall
The Alice Project name itself does not appear until page 127 of The Book of Kells. This refers to the electronic market start-up that Mr. Shepherd founded in his early 1990s.
Alice tried to classify financial products such as deposits, loans, insurance, and options. Complex financial transactions are broken down into simpler components, each in the form of a collateralized contract.
The idea is a real-world version of the theoretical “Arrow debreu security” that takes the form of simple payment rules such as “If it rains tomorrow, I'll pay you $1, but if it doesn't rain, I'll pay you nothing.” was to develop.
The right combination of these contracts can provide the same benefits as existing financial instruments, but allow you to hedge many more types of risks.
Like Bitcoin inventor Satoshi Nakamoto and entrepreneur Elon Musk, Shepherd saw banks reaping huge profits from payment systems and sought out more efficient alternatives. In other words, we wondered if we could come up with a way to avoid some of the risks of the current system.
Alice was named after a Lewis Carroll novel, in deliberate contrast to the more macho names common in the financial world. Alice claimed that she was creating a market where anything was possible. National Australia Bank initially took a large stake in the company, but later increased it to about half.
For this plan to work, it would have required a very large user base to bet on both sides of the broad proposition to create attractive liquidity.
In May 2007, Alice was sued by CLS. CLS is a bank named after the goal of Continuously Linked Payments, a system for settling international transactions. CLS was backed by a consortium that included global banks such as JPMorgan and Citigroup.
Both CLS and Alice believed that the other had infringed their copyrights. National Australia Bank held shares in both, so there was some conflict. This case escalated all the way to the US Supreme Court in his 2013 year.
Alice lost the case. The Supreme Court ruled that the Alice system was not patentable. NAB subsequently withdrew its involvement with Alice.
handling of finances
In 2010, Shepherd heard an interview Jennings had with Philip Adams. Impressed by her, he contacted her and they met several times.
Both men were enthusiastic supporters of Enron's collapse, viewing it as akin to a bank run. Shepard once visited former Enron CEO and McKinsey alumnus Jeffrey Skilling in prison. I was surprised at how sympathetic Kells treated Skilling.
Jennings was present at the court hearing and would have been an obvious choice to write a book about Alice's adventures. However, by this time her health was deteriorating. Instead, Kells took on the project with the help of Shepard, who appears as the main character in the story.
In some ways the book falls short: the story of this stalled venture becomes virtually a one-man band and does not seem to justify the book cover's claim that it forms part of “the history of money.”
Melbourne University Press
Kells calls Alice “a new type of tradable security and a new type of market.” However, even after reading it again, this book did not give me a clear idea about the innovations that Alice would bring to the financial markets.
I thought that the explanation of the derivatives market was not very accurate. Buyers and sellers are not “exposed to unlimited profits and losses.” The option holder simply cannot exercise it and his loss is limited to the amount paid. And it is clearly wrong to claim that some countries are using virtual currencies to build alternative financial systems. El Salvador is the only country trying, but without success.
I enjoyed reading this book, but it could have been shorter. Do I need to read the correspondence regarding Jennings' seating arrangement in the courtroom?
Kells is neither an economist nor an investor. He is a bibliophile and seems comfortable writing about libraries. I thought his books The Library: A Catalog of Wonders (2017) and Shakespeare's Library (2018) were wonderful.
