TODAY'S MONEY markets are sophisticated, complex, fast-moving, and increasingly intertwined. These books try to explain how the markets break down and why the regulators can't fix them.
Mario Possamai, who started investigating money-laundering in the mid1980s as a reporter with Canadian Press, loves to spin yams. Money on the Run tells colourful stories about corrupt dictators, such as Haiti's Jean-Claude "Baby Doc" Duvalier and Romania's Nicolae Ceausescu, and how they stole money from their impoverished homelands and spent lavishly on themselves. By diverting the cash into safe havens around the world, including Canada, they managed to wipe out all traces of their larceny and make their crimes almost impossible to prove.
Fortunately, Baby Doc's wife, Michele, kept a record of the couple's profligacy in a notebook seized by police in a raid on their villa near Cannes in 1988. Thanks to the diary, it was only a matter of time before Haiti's investigators tracked down the Duvaliers' spending money - $41.8 million laundered through Canadian banks. But despite all the evidence, the Duvaliers got off. Legal proceedings in Haiti, England, and France could not recover the pilfered assets.
"It boils down to a problem of too many borders," says Possamai, who begins and ends Money on the Run with the Duvalier case, using it to illustrate why moneylaundering is so hard to stop. The exiled dictator lives in one country, the crimes were committed in another, and the assets are scattered all over the world. Since court rules vary in each country, the looted fortune is never repatriated.
Some of the tales he tells have only a tenuous link to Canada. In Ceausescu's case, no money ever turned up here. The only connection is that a Canadian investigator, the former RCMP assistant commissioner Rod Stamler, was hired in 1990 to find the missing booty and fired a few months later. Either he'd come too close to the truth, Possamai speculates, or the whole investigation was a whitewash to assuage Romanian public opinion.
The book is also long on narrative and short on prescription, unlike Walter Stewart's The Golden Fleece, an "expose" of the stock markets in Canada and the United States. It doesn't take long to find out what Stewart thinks. just a few pages in, he starts his rant: "A sizeable share of the people who benefit from the operations of the exchange cheat. Cheat regularly, cheat massively, cheat without compunction or remorse. They always have; they probably always will." Stewart is an iconoclast, someone who loves to tear down established institutions. He's done it in a string of books, all written in a breezy, cute, folksy style, and he does it again here.
But Stewart, who's now a journalism professor in Halifax, should have done his homework before taking on this project. He seems to have interviewed no one except his mentor Eric Kierans, the former head of the Montreal stock exchange. The only people he quotes are other journalists and stock-market critics, whose books and articles are his main sources. (My own work features in a chapter on the media and the markets.) I wish he had unearthed some fresh scandals, because there are plenty waiting to be found. Instead, he writes lengthily about stuff that's been covered better elsewhere Bernie Cornfeld and the Fund of Funds debacle, Michael Milken and junk bonds, Ross Johnson and the leveraged buy-out of RJR Nabisco.
Stewart also shows a striking ignorance of some investments. Mutual funds, for example, are condemned without an understanding of how they work. He mentions a fund that showed a year-over-year gain of 6.63 per cent, but says he checked the price and found it had gone from $6.25 to $6.41 in one year - a gain of only 2.56 per cent. Doesn't he know that dividends make up part of the return? If you leave out some numbers, naturally they don't add up.
Even more disturbing is his argument, based on the experience of the last decade, that stocks will always underperform riskfree investments such as bank deposits, treasury bills, and Canada Savings Bonds. But 10 years do not a lifetime make. If you start young and stick around for the long run, say 30 or 40 years, stocks will beat other investments hands-down. Try to find a pension fund that puts all its money, as Stewart suggests, into T-bills and CSBs.
Stewart closes with some worthwhile proposals on reforming the markets. The main one, which he admits is not new, is to impose a tax every time investors buy or sell shares to curb speculation. "Until that happens," he says, "I am going to stay out of the markets." Given the 300-page polemic preceding it, his conclusion comes as no surprise.
