Fake Charity Nerd Girl

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough
My rating: 5 of 5 stars

It was a bit slow for the first 100 pages or so, but once it got into the actual story I couldn’t put it down. It was dramatic, and informative, and helped crystallize a lot of things I’m confused about, like:
- How do companies work? Like in basic economics, you think about market participants each trying to maximize their profits, and everyone acting in their own interest ends up maximizing total welfare, and that makes sense in a zoomed-out way, and as far as I can tell is not a crazy model of the behavior of companies. But how do companies end up behaving this way?

My very uninformed impression of how companies work is something like:
- there is a CEO, who is a guy
- there is a board, consisting of a bunch of guys who are friends with the CEO
- they all have fiduciary duties and if they fail to meet them they will get yelled at by a judge in Delaware
- ???
- shareholder value gets maximized

This book was simultaneously scary and reassuring on this topic, portraying people’s incentives as pretty far from aligned with economic efficiency. This is scary, for obvious reasons. But also reassuring, because it’s kind of relatable. Money is nice, but it’s so abstract; it’s some numbers on a piece of paper. I’m way more motivated by things like revenge, or the desire to prove that I was right, or making guys think I’m attractive, or getting nice articles written about me in the newspaper, or expensive perks. (You can buy perks with money, but it’s not really the same if you have to buy it yourself.)

And so is everyone in this book, and it is reassuring that the whole system seems to kinda work anyway.

- Finance: good or bad? And how do you tell?

The book doesn’t really explore this that much, and most of the anti-LBO voices have dumb moralistic objections. But it does kind of feel like whenever you package and reallocate some risk, there is some tradeoff in which you might be increasing systemic risk but it’s opaque and hard to measure.

Anyway, it was great, and if you are like me you will find a lot of intensely relatable moments, e.g.

“The initial projections they had obtained from RJR Nabisco was a heading ‘other uses of cash.’ Beside it was a row of figures stretching out ten years, each year ranging from 300 to 500 million dollars. Was it cash flowing in or out? Should he add it? Subtract it? Ignore it?”

View all my reviews