Book Review: The Fear Index by Robert Harris, Hutchinson, 323pp
A handful of political thrillers transcend the genre, going beyond telling a rollicking good tale to say something more profound about the state of the world. The Fear Index is one such book, and while it might be going a bit too far to say that it has the resonance and insights of George Orwell’s 1984, it has some important observations to make about the mad, mad, mad world of hedge funds and high finance.
Robert Harris’s specialty is historic thrillers, some going back to the Roman Empire (Imperium and Lustrum) to more recent excursions into British history such as his war-time thriller Enigma, in addition to his rather cruel take on Tony Blair’s prime ministership in The Ghost.
The Fear Index has all the elements of a Harris thriller, with the main protagonist as the CEO of a very successful hedge fund. Alan Hoffman has moved out of subatomic physics research, having once worked at CERN, into the world of high finance, where he is able to profitably employ his mathematical genius predicting the vagaries of the share market. Hoffman is everything you would expect in a successful CEO, putting his personal fortune somewhere between one and two billion dollars. He is arrogant, totally confident in his own abilities and does not tolerate fools easily. Think Gordon Gekko without suspenders.
Hoffman has just developed a remarkable financial software package called VIXAL-4, which, using artificial intelligence to trade, bases its predictions of movements in the market on fear. The computer scans the Internet to pick up trends of disasters and the like which are generating fear within the community. Panic generates volatility within the market, and there is a lot of money to be made out of predicting the direction of that volatility.
At this point Harris shows why is he is so good at his trade, launching into a fast-paced thriller in which financial markets and hedge funds provide an exotic backdrop. To the author’s credit, he makes the operations of hedge funds understandable, but his real interest is in creating a story that keeps his readers on the edge of their seats. And he succeeds admirably.
While Harris describes his book as “Gothic flights of fantasy” (sic), I believe he has tapped into a profound truth about the operation of financial markets in the 21st century.
One clue in Harris’s thriller is Charles Darwin’s Expression of the Emotions in Man and Animals. The first edition of this book is mysteriously left behind during a burglary of Hoffman’s house. Not only is it a clue in the mystery that Harris weaves, but it is also a clever allusion to the role of emotions in financial markets.
It was John Maynard Keynes who spoke about “animal spirits” governing the markets. Optimism, not to mention greed feeding booms and fear, drives markets down. Currently, with a second financial crisis looming, markets are reacting to gloomy news stories, and so Harris’s apologia that his fiction is merely a flight of “fancy” is much too modest. Below its surface is an all-too-real story of our times, where emotions rather than logic decide whether markets go up or down. And, if the fear index is sufficiently high, markets will crash, as they had done before and could do so again in the all-too-near future.