Archive for the ‘On the Long Side’ Category

The Great Read-cession, Part XI

It’s the final post of The Great Read-cession! Just shut up and read!

The End...

The End…

What should the government have done differently?

 

This is a very loaded question. When I first started reading about the issue, while it was going on in 2008-09, I got the sense that this was really a rare case where the government was not at fault. This wasn’t like Watergate or Iraq, where people in power abused that power—it was just a case of private companies going wrong. But it becomes a lot trickier when you look closely at how intermeshed the government and the financial world actually are.

A lot of the conversation about the government’s role in the collapse has surrounded the issue of deregulation, specifically the issue of Glass-Steagall. On the other end of the political spectrum, Republicans have focused on the GSEs as responsible for the decline in lending standards. But both of these issues seem more like scapegoats than real sources of the problem.

As most of the data makes clear, the Community Reinvestment Act of 1992, which directed Fannie and Freddie to purchase more mortgages from certain minority groups, had very little to do with the subprime boom and decreased lending standards. Fannie and Freddie bonds defaulted at a lower rate than those sold to wholly private firms, and there was clear market demand for housing securities absent any government pressure.

The repeal of Glass-Steagall, on the other hand, at least bears some of the blame for allowing companies like Citigroup and Bank of America to get so big. While the law had, since 1933, separated the activities of commercial and investment banks, its repeal allowed the biggest commercial banks in the country to expand their proprietary trading.

With that said, the repeal of Glass-Steagall was mostly symbolic—banking regulators had been allowing more trading at commercial banks for decades before its official repeal in 1999. And the most notable failures of the financial crisis—Lehman, Bear, AIG, Fannie, Freddie—would not have been affected at all by the law. Continue reading

The Great Read-cession, Part X

We’re done with the book reviews, but John S isn’t done breaking down the books of the financial crisis. We still have a few things left to cover, most importantly….

The Whole Truth...

The Whole Truth…

Rankings!

Obviously I wasn’t going to read 16 books and NOT rank them.

It was a little hard to determine the criteria. Some of the books were well-written, but not especially good at delving into the causes; others were thorough but boring; some were great but a little off-topic. If someone asked me to recommend one of these books, I wouldn’t answer until I got more information about what exactly she was looking for. If, however, she were somehow unable to clarify, I would recommend them in this order:

16) A Colossal Failure of Common Sense

15) Reckless Endangerment

14) The Quants

13) The Greatest Trade Ever

12) Crash of the Titans

11) On the Brink

10) Bailout Nation

9) Financial Crisis Inquiry Report

8) Confidence Men           

7) House of Cards

6) Griftopia

5) More Money Than God

4) Too Big To Fail

3) The Big Short

2) Bailout

1) All the Devils Are Here

Some Questions, Answered

 So, um, whose fault was it? 

Continue reading

The Great Read-cession, Part IX

Confidence MenWe’re wrapping up the financial crisis book reviews with today’s look at two books on the reform efforts that followed the crash of 2008.

Confidence Men: Wall Street, Washington, and the Education of a President

by Ron Suskind, 2011

 

The last two books I read focused mainly on the government’s response to the crisis, as opposed to the crisis itself. Confidence Men, which got a lot of attention when it came out for its revelations of in-fighting in the Obama Administration, showcases Obama’s response to the financial crisis, both as a candidate and as a new president.

As a candidate, of course, the financial crisis and the housing bubble were a boon to Obama. The sluggish economy of President Bush’s last few years helped Obama’s message of change resonate with the electorate, and John McCain’s incoherent response to the crisis—including his assertion that “the fundamentals of our economy are strong” on the day Lehman failed—helped doom his campaign.

But once Obama was elected, the crisis became a tremendous albatross. One problem was that while many within the campaign anticipated a crisis of some kind, nobody really expected it to come so fast and be so severe. Suskind details a scene from early in Obama’s campaign—August of 2007—in which Obama’s economic advisers warn him that, as president, he will need to respond to a housing crisis. But they estimated that the crisis would hit in “year two” of an Obama presidency, and it would cost about two million jobs. In reality, of course, it came before Election Day, and ultimately cost about eight million jobs. Continue reading

The Great Read-cession, Part V

House of CardsThe Great Read-cession is back! Today John S looks at two books that focus on banks that are no longer with us. Pour one out for Bear Stearns and Lehman Brothers, then read this…

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

by William D. Cohan, 2010

 

William D. Cohan* is a banker-turned-writer who has by now written three histories of different Wall Street firms: His first book was about Lazard Freres, his former employer, and his latest is about Goldman Sachs. House of Cards, though, is the tale of Bear Stearns, the first investment bank that was taken down by the crisis.

*Duke alum!

Bears Stearns’s collapse occupies an odd place in the narrative of the 2008 crash, having occurred in March, six months before the fall of Lehman Brothers, the subsequent panic, and the passage of TARP. At that time, nobody quite knew the enormity of the problem facing Wall Street, and there was hope that Bear Stearns’s collapse would be the nadir of the problem. The firm was the smallest of the major Wall Street investment banks—if there was going to be a casualty, it would make sense for it to be Bear Stearns.

So how does a Wall Street bank go bankrupt? Well, the same way Mike Campbell did: Gradually, then suddenly. The seeds of Bear Stearns’s collapse go back several years—and possibly, Cohan implies, several decades—but the proximate cause was the sudden grip of panic that seized the firm in March of 2008.

Continue reading

The Great Read-cession, Part IV

On the BrinkWelcome to Part IV of our eleven-part breakdown of the books of the financial crisis. Having trouble keeping up? Then check out this page for all previous and future posts in the series.

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

by Henry Paulson 2010

 

The unifying element of the first four books was pessimism: Whether it was Ritholtz’s scorn for those in power, Morgenson’s search for someone to blame, Lewis’s tragic tale, or Sorkin’s narrative of disaster, all four books had decidedly bleak outlooks on the events. Since there is only so much despair one person can read about, I wanted to read the account of someone who would be sympathetic to the policy-makers and CEOs who everyone else blamed.

Henry Paulson was perfect. If the financial panic of 2008 has a face, it’s Paulson’s. As Treasury Secretary during the collapse, he was the one who told Congress of the dangers of Fannie and Freddie (in his infamous squirt gun analogy), who proposed TARP, and who ultimately dispensed the bailouts. And unlike the other figures prominently involved—Geithner, Bernanke—he faded from public view almost immediately after the disaster passed.

Reading Paulson’s book, though, it is hard to dislike him. His prose is straightforward and he comes across as an upstanding, diligent worker with integrity. He’s honest, but polite and gracious to a fault—despite presiding over what many would describe as a complete disaster, he has nothing but kind words for almost everyone involved.* He worked for Presidents Nixon and Bush—two of the least popular Presidents of the last 50 years, if not ever—but says nothing negative about either. He clashed with another prominent public figure, Jon Corzine, for the top spot at Goldman Sachs, but all he says about that is “frankly, the pairing was never right.” Continue reading

The Great Read-cession, Part III

Reckless Endangerment

We’re up to Part III of John’s breakdown of the books of the financial crisis. Click here for Part I, and here for Part II.

Reckless Endangerment: How Outsized Ambition, Greed, And Corruption Led to Economic Armageddon

by Gretchen Morgenson and Joshua Rosner, 2010

 

Reckless Endangerment is one of a specific subgenre of financial crisis literature, which might be called the “Blame X” genre. Human nature being what it is, there is a lot of demand for books that find someone or something to blame for the whole ordeal.

Reckless Endangerment’s targets are Fannie Mae and Freddie Mac, the government-sponsored entities (GSEs hereafter) designed to aid the housing market, and specifically Jim A. Johnson, the CEO who brought Fannie Mae to new heights (or depths, depending on your perspective). Morgenson and Rosner lay almost all the blame for the financial crisis on Johnson’s reckless efforts to expand Fannie’s market share: “A Pied Piper of the financial sector, Johnson led both the private and public sectors down a path that led directly to the eventual crisis of 2008.”

The GSEs are frequent targets of this kind of criticism, and for good reason: The bailouts of Fannie Mae and Freddie Mac created by far the biggest losses of all the government bailouts of 2008-09: The costs have already exceeded $180 billion and could reach $363 billion (conversely, Treasury claims to have actually profited on TARP*). And they were terribly run companies before that: In 2004, they were charged with massive accounting irregularities that led to the resignation of their CEO, and several executives were implicated in the “Friends of Angelo” bribery scandal.

*Though those claims should be taken with a grain of salt, as we’ll see later.

Morgenson’s book does a thorough job of portraying the extent and nature of corruption that was almost inherent to the GSEs. Particularly appalling is the incestuous relationship between the companies and the government. The entire concept of a “government-sponsored enterprise” sounds almost Orwellian: The institutions were created as government agencies* during the New Deal, but Lyndon Johnson partially privatized them, in what was essentially an accounting gimmick, when costs related to the Vietnam War made government expenditures look bad. Continue reading

The Great Read-cession, Part II

Too Big To FailIt’s Part II of John’s attempt to read every single book on the financial crisis of 2008. Check out Part I here if you missed yesterday’s introduction. Today we talk about the two most famous books the crisis produced.

Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save The Financial System—And Themselves*

by Andrew Ross Sorkin, 2009

 

*See? I warned you about those subtitles…

The first book I read was probably the most famous book on the subject of the financial disaster. Sorkin’s book was an award-winning best seller, and it was adapted into an HBO film. It also has the most iconic name.

It’s easy to understand why TBTF was such a hit: The book is essentially a thriller, depicting the days and months of greatest turmoil. It’s not so much about the causes of the crisis as it is about the disastrous results.

Sorkin embraces the thriller-quality of his narrative, and he does it very well. The book is excellent at setting scenes and introducing a myriad of characters. His scenes are short—rarely more than two pages long—and colorful, with lots of detail and dialogue. Although there are over 150 people introduced (there is a helpful eight-page Cast List in the front of the book), Sorkin does an excellent job of making them all seem unique—a difficult task, since almost all are rich, middle-aged white guys. He includes just enough backstory to provide context and make them seem like real people, without weighing down his narrative.

The narrative begins in March 2008, with the bailout of Bear Stearns. Sorkin doesn’t spend much time on the specifics of that deal—in which the Fed guaranteed $30 billion of assets in exchange for JP Morgan buying the firm for $2 a share*—but instead focuses on the ripple effect of the deal. There is some irony, of course, in this ripple effect: The main reason the Fed intervened in the Bear Stearns failure was to prevent the failure from infecting other firms. Instead, all the Fed did was replace one ripple effect with another. Continue reading

The Great Read-cession: Books of the Financial Crisis

It's been five years since Lehman's demise

Introduction

 

Sometime during 2011, essentially on a whim, I decided that I wanted to read every book written on the subject of the financial crisis of 2007-08.

What would motivate someone to undertake such a project? Eh, who knows why people do the things they do? As far as I can remember, I had two main motives: one general and one specific.

Generally, I’ve always had a vague desire to pick one subject and just read everything I could about it. Whenever I read a work of nonfiction, no matter how good or thorough it is, I have this feeling that I’m only getting some of the story. I’m only seeing reality as filtered through the author. The stories told are the ones the author found interesting; the opinions featured are the ones of this writer’s sources; the quotes are the ones he happened to write down. Even the most evenhanded and objective writer retains some biases, if only due to the natural limitations on research and reporting. When I read nonfiction, I always feel keenly aware of this. As a result, a book that’s supposed to inform me often ends up highlighting what I still don’t know.

This problem doesn’t really have a solution—nobody can be a firsthand witness to everything—but reading the same story multiple times is at least a better approximation of reality than reading it just once. After all, the police don’t stop the investigation after interviewing one witness. Of course, there’s a reason most people don’t read this way: It is, by design, very, very repetitive. You’d end up reading slightly different versions of the same story over and over again, intentionally making a leisure activity less fun.

Nevertheless, the cumulative nagging of years of nonfiction motivated me to at least try this method once. No matter the subject, I felt like the experiment would at least give me a better sense of the systemic biases of nonfiction.

Which brings me to the specific reason of why this subject. Continue reading

“Now the story…”: Brief Reviews of Arrested Development

The original plan — like four years ago — was for John S and Tim to barrel through the 53 original episodes of Arrested Development and cooperatively rank them best to worst, with an in-depth review of each. Circumstances intervened with the thoroughness of that project, and egos intervened with the idea of two people “cooperatively” ranking all 53 episodes. (Ranking Game isn’t as effective with just two people.)

So here’s the result of all that labor: Shorter reviews of all 53 original episodes, presented in chronological fashion (albeit with a good deal of ranking going on within them).

Arrested Development is our favorite show, and this, in 53 different ways, shows why.

(Extended) Pilot

John once made a point — I think it was in here — about how dramas are most perfectly conceived in their first seasons. (He’s taken a step back, btw.) Comedies have always been driven differently. It takes time for the characters to evolve and develop the right way, for the proper interactions to take hold.

Which makes watching Arrested Development’s extended pilot so remarkable. The characters are properly and almost comprehensively established right away. “This is Michael Bluth. He’s a good man” is the first line of the series, and it foregrounds everything that is to come after it.* Lucille is overdramatic and quick-witted, Lindsay is hypocritical, Tobias is oblivious, Gob is creepy, Buster is incompetent, George Sr. is going through one of his phases (a cowboy one to be exact). None of these characterizations ring untrue.

*The “He’s a good man” is actually cut from the pilot that aired. Seems like it shouldn’t have been.

This isn’t the funniest episode of the series by any stretch of the imagination, but it’s one of the funnier pilots you’ll ever see, especially considering the amount of expository work that has to be done. The series lays its extensive deck of cards on the table right away, complete with the eccentricities of its characters and absurd plot developments (i.e. incest in the first episode). It’s a nearly flawless pilot. —Tim

Continue reading

The War for Late Night: Smiling Politely Towards Disaster

Anyone who picks up Bill Carter’s new book about last January’s late night TV debacle—The War for Late Night: When Leno Went Early and Television Went Crazy—looking for a villain is destined to be disappointed. This is not for lack of effort. The book is impressively comprehensive about NBC’s decision to move Jay Leno from The Tonight Show to primetime and back again and the disaster that followed. Carter gives detailed histories of and various perspectives on all the major players involved—Leno, Conan, Jeff Zucker, David Letterman, Jeff Gaspin, etc.—but in the end nobody comes off as an evil monster responsible for the train wreck. Instead, we get a fascinating example of how a bunch of people all acting with the best intentions can lead to the worst possible outcome.

“If they’d come in and shot everybody—I mean, it would have been people murdered. But at least it would have been a two-day story. I mean, yes, NBC could not have handled it worse, from 2004 onward.” —Jay Leno Continue reading