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Arbitraging Japan: Dreams of Capitalism at the End of Finance

Hirokazu Miyazaki
Copyright Date: 2013
Edition: 1
Pages: 216
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  • Book Info
    Arbitraging Japan
    Book Description:

    For many financial market professionals worldwide, the era of high finance is over. The times in which bankers and financiers were the primary movers and shakers of both economy and society have come to an abrupt halt. What has this shift meant for the future of capitalism? What has it meant for the future of the financial industry? What about the lives and careers of financial operators who were once driven by utopian visions of economic, social, and personal transformation? And what does it mean for critics of capitalism who have long predicted the end of financial institutions? Hirokazu Miyazaki answers these questions through a close examination of the careers and intellectual trajectories of a group of pioneering derivatives traders in Japan during the 1990s and 2000s.

    eISBN: 978-0-520-95395-6
    Subjects: Anthropology

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. Introduction
    (pp. 1-23)

    “The subprime crisis revealed a simple fact, that is, that finance is nothing but a fraud [inchiki],” Tada, a former derivatives trader at a major Japanese securities firm, told me at a small Roppongi, Tokyo, bar in July 2009. He went on to frame the notion of fraud in terms of arbitrage, a trading strategy seeking to profit from a difference in the prices of an asset in two different markets: “As it has turned out, finance was the arbitrage of knowledge gaps between those who know [those in the financial industry] and those who don’t [the public], not arbitrage...

  5. CHAPTER 1 Shakespearean Arbitrage
    (pp. 24-42)

    In June 2005, at an Irish pub in Marunouchi, Tokyo’s financial district, Sasaki, the head of a financial derivatives research and development unit at a Japanese megabank, showed me a document stored in his PDA. He had drafted this document for use in training the younger members of his unit. At the beginning of the document, Sasaki asserts, “The source of profit in capitalism is difference [sai].” He citesVenisu no shonin no shihonron(A theory of capital according toThe Merchant of Venice), a 1985 book by Katsuhito Iwai (Iwai [1985] 1992), an MIT-trained University of Tokyo economics professor...

  6. CHAPTER 2 Between Arbitrage and Speculation
    (pp. 43-69)

    In May 1990, Aoki and Sasaki published a paper on the economic function of stock index arbitrage in a securities industry journal. The goal of the paper was to defend the practice of arbitrage using the Nikkei 225 stock index futures contracts, in other words, arbitrage between a futures contract on the Nikkei 225 and the underlying “basket” of 225 stocks that were used to compute the value of the index. This form of arbitrage became popular among proprietary trading teams of Euro-American investment banks and major Japanese securities firms beginning in the late 1980s. In these traders’ view, the...

  7. CHAPTER 3 Trading on the Limits of Learning
    (pp. 70-88)

    Discipline is a universally popular subject in the financial trading profession.¹ For Sekai Securities traders trained under Aoki, the topic of discipline was tightly linked with the Wall Street securities analyst Jack D. Schwager’s popular bookMarket Wizards: Interviews with Top Traders.Market Wizardsassembles Schwager’s interviews with seventeen U.S.-based traders. Schwager’s book occupied a particularly important place on the Sekai proprietary trading team’s reading list. Among many other lessons for novice traders, Schwager draws particular attention to the importance of discipline, the “word most frequently mentioned” in the interviews he conducted: “Each trader had found a methodology that worked...

  8. CHAPTER 4 Economy of Dreams
    (pp. 89-111)

    During the 1999 New Year’s holidays, Tada was busy comparing his options for his future. Disillusioned by Sekai Securities’ abandonment of derivatives trading, Tada decided to leave the firm. He had two options: he could move to another Japanese securities firm, or he could leave the world of large Japanese corporations altogether.

    As he considered his options, Tada turned to his spreadsheet program. The Excel spreadsheet had long been an essential tool for traders like Tada, but this time, Tada ran the program for a new purpose—to determine his own worth. Using the program, Tada calculated the total amount...

  9. CHAPTER 5 The Last Dream
    (pp. 112-132)

    In 2001, Aoki drafted a “business plan” for a hypnotherapy clinic. Entitled “A Holistic Psychotherapy Clinic,” Aoki’s business plan proposed a clinic that would incorporate Karma treatment, or past-life regression therapy, into the psychiatric treatment of the so-called borderline personality disorder that was widely reported among Japanese youth. Borderline personality disorder usually manifests itself as impulsive behavior out of fear of rejection (see, e.g., Skodol et al. 2002: 936), and it has been widely identified as a cause of suicidal behavior among Japanese youth.¹ The clinic Aoki proposed would be established next to a preexisting hypnotherapy clinic that had been...

  10. CHAPTER 6 From Arbitrage to the Gift
    (pp. 133-152)

    In his 2000 book,Nijuisseiki no shihonshugiron(A theory of capitalism for the twenty-first century), Katsuhito Iwai, the economist and public intellectual whose analysis ofThe Merchant of Veniceserved as an important source of inspiration for Sekai Securities arbitrageurs, situated speculation and its destabilizing force at the heart of capitalism. Writing in response to the global financial crises that shook the world in the late 1990s, Iwai first examined consequential shifts in the debate about East Asian capitalism between 1997 and 1998. He argued that the failure of the Long-Term Capital Management hedge fund in September 1998 had changed...

  11. Notes
    (pp. 153-168)
  12. References
    (pp. 169-190)
  13. Index
    (pp. 191-199)