Now here’s a book well worth reading on your summer holidays. It’s called Debtonator by Andrew McNally. Indeed if you are taking a long-haul flight to your holiday destination, you might be able to read it in one sitting. Like all good books it is short at only 98 pages excluding notes and index, and the format is small as well. But there is an enormous amount of information embodied in there.
It covers the problems caused by excessive debt in the modern world. The author explains how the balance of company finance has moved from equity to debt which has had many negative effects. He links the rise in income inequality, a major social concern in leading economies, to the excessive use of debt and the discouragement of investment in equities by Governments and pension regulators. The housing market is another example of the distortion created by too much debt at very low cost, engineered by Government and central banks.
The author suggests we need to move to an equity financed, rather than a debt financed economy and proposes how that could be achieved. Reform of the tax system is one aspect of achieving that.
He is also scathing about the current costs of equity investment for retail investors due to high “intermediation” with too many people taking a cut of the real investment returns before they arrive in the hands of the beneficial owners. That’s despite his apparent long career in the investment industry.
The book is a very good summary of what is wrong with the modern financial system. But it also gives the reader some tips on how to become one of the wealthy few rather than the impecunious many. You need to take a direct stake in the real economy where companies are generating real returns, and minimize the costs imposed by advisors, brokers, platform operators and all the other gougers who erode the returns.
In summary one of the best books I have read lately on the defects in the modern financial world. A little gem of erudite analysis.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
