Shelia Kolhatkar’s Black Edge is a cracking good read about how the growth of hedge funds was rocket-fuelled by their extensive reliance on insider trading. The focus of the story is Steve Cohen’s SAC capital. The abuse was enabled by the fact that the regulators were slow to cotton on to the scale and interconnections of the sector, and by the presence at the head of the SEC at the time a Bush-appointed free marketeer who thought the government should keep out of the way of the markets. The book reads like a thriller (leaving just the usual slight uneasiness about how the author knows what people were feeling, and wondering who spilled the beans out of two people in a reported conversation).

It left me reflecting about the culture of financial markets and how quickly and extensively unethical and illegal behaviour spread, like a rampant infection, after the deregulatory turn in the US and UK. Perhaps the obvious conclusion is that a culture of eternal vigilance is necessary in finance, and there was something sensible about the extremely strong cultural prohibitions applying to finance in times past. It is interesting, and sobering, to note how much the main characters in this sorry saga act just like homo economicus.

The authorities did eventually charge Cohen with failing to prevent insider trading; SAC was fined Capital and the fund was closed. Cohen is active again in the markets and a super-wealthy man.

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