This Time is Different (2009), by Carmen Reinhart and Kenneth Rogoff; The Sellout (2009), by Charles Gasparino

Opinion. Holder of no degrees in Economics.

Decades ago, in ever-obscure literary criticism, the idea arose that the surest way to an honest insight into a novel or play or poem is to read it without knowing the identity of its author. “Surest way” means many things, including the idea that authorial anonymity might force the reader to independence instead of bowing to received “wisdom”; that name-reputation is often inflated; that the art should be judged on its own because neither Freud nor anyone else has understood the psychology of creators. (Dostoevsky was an epileptic but no other epileptic wrote such prophetic novels.) There are ironies, e.g., it would be difficult not to recognize some authors outright by their writing styles.

But you’d be right to say that today the opposite critical (so-called) approach reigns.

Given our anonymous thinker’s need to be crisp in giving an interview that will later inform a printed article widely circulated, and being assured I’ll identify the speaker and the article below, consider the following grand explanation of the Great Recession (AKA in wonkdom “The Great Contraction”) by an Influential:

“‘I think crises like this get made by multiple cascading misjudgments,’ (our speaker) explains, and then catalogs them: too much government spending, not enough private-sector saving, too much dependence on foreign debt, too much demand for ‘riskless’ financial instruments that weren’t in fact riskless…

“By the time (our speaker) is finished, (that speaker) is barely breathing, the words are tumbling from (the speaker’s) mouth so quickly. But then (our speaker) sums it all up in (that person’s) trademark way of making the complexities of economics and finance comprehensible to mere mortals: ‘The classic stories about markets are where, if the market for wheat goes down, people plant a little wheat. People demand to eat a little more bread, and the thing self-stabilizes. But it was (economist John Maynard) Keynes’s central insight that it’s not always that way. And it’s not always that way in particular because leverage (i.e., borrowing) can create situations where, when prices fall, then people have to sell, and so they fall faster. When asset prices fall, capital values fall, and, therefore, other people are forced to sell. And there’s a whole set of these vicious cycles. You can also have a change in gestalt where people who had perceived things as safe all of a sudden move things from the concept of being safe to the concept of being risky, and if they’re risky, they don’t want to hold them. And so you see a large scale of abandonment. And I think in one way or another the leverage, the vicious cycle, the change in gestalt, the unwinding–that’s the financial crisis.'”

We’ll return here when we stop for the day.

Meanwhile: The much-praised This Time Is Different, by noted economists Reinhart and Rogoff, which, like A Brief History of Time, has become a book to position on your coffee table for titular notice and ensuing cooing by approaching guests, is, since it seems actually to have comforted some by its mere presence, a sign of our frighteningly ill-sleuthed economic times. Well, I actually read it. Well, OK, at least my eyes passed over most of the text. There was a good oxygen-support system awaiting me in the Reader Emergency Room though none of the physicians believed I’d actually read the book all the way through; they did tell me I needed stabilization (though my wife had already told me that more than once).

Typically, as prominent academic economists, Reinhart and Rogoff make serious and ponderous but strenuously timid and modest claims that their book, which provides an exhaustive number-crunching historical survey of “varieties of economic crises”–the subtitle is “Eight Centuries of Financial Folly”–might possibly, maybe, hopefully provide a “starting point” for possibly, maybe, hopefully “drawing lessons” that possibly, maybe, hopefully will “inform” good policy decisions.

How many times must one experience dawn to know that scenes become brighter then? This book isn’t any more actionable after page 100 than it is Way, Way Before on page xxxv. By page 291, the end of the narrative text but merely a prelude to a frightening tangle of statistical tables which generally resemble the many already encountered, the real message of Reinhart and Rogoff is that Homo sapiens, royalty to captains of industry through practically everyone else in enterprise, will, in nearly every historical setting and most certainly when not much constrained, create Buffett’s “financial weapons of mass destruction.” Old Reliable. Never fails.

There is, of course, nothing wrong with amassing a lot of data about this obvious, famous, all-too-painful and near-universal corruption, from sovereign serial default through banking crises; the authors are doing what they do–collecting a lot of information and making statistics of it–and that is wonderful for other economists to ponder and perhaps extend (and even feel envious about though, hopefully, they won’t be inspired by it though probably they will, so that Bill Gates ought to finance treks through Idaho and Wyoming in good weather to get the poor souls outside where there is sunlight and birdsong). The dust cover hype says that the “important lessons” in all these numbers “show us how much–or how little–we have learned.” I think it’s simply more and more about less and less. It brings no News. I can’t say I believe this career-enhancing tome will save careening Rome.


The Sellout. By Charles. Tough Guy. Gasparino. CNBC screamer and relentless gotcha financial reporter. (Lock Charlie and Jim Cramer together alone in a green room and Charlie’s the one comes out alive.)

The Sellout is pretty readable; there are some steep hills, but…. It’s what it is, Vinnie, and we don’t got to look back over eight centuries, ’cause it’s just deja vu all over again.

Charlie opens with: I was having dinner with Jimmy Cayne in Manhattan at his favorite Chinese restaurant when all this stuff on the Street really hit the fan and he says, Hey, Charlie, you’re killing me with the pot-smoking stories, I mean, the wife and kids I gotta look out for and OK maybe we haven’t been on top of everything at Bear Stearns but have a heart, willya, ’cause we’re takin’ care of business an’ it’s all gonna be all right, ya know? Hey, waiter, put it on my tab ’cause I gotta bolt to the helicopter for the bridge tournament in Palm Beach, sorry to rush away on you, Charlie, take care of yourself and do me a favor here so I’ll owe you one!

But Charlie’s not having it. You kidding me? Integrity, the soul of a reporter. The truth will out. That’s the idea in the rest of The Sellout: How Three Decades of Wall Street Greed and Government Destroyed the Global Financial System. It’s a little like John Grisham or Stephen King trying to write Absalom, Absalom!  But it’s a far more valuable book than This Time is Different. Gasparino gives us the most valuable post mortem yet of the Great Recession of 2008 (known in the world of Reinhart and Rogoff as “The Great Contraction”).

Charlie dishes on them all–the CEOs, the traders, the geeks, the “regulators,” and all the rest. It’s awful, really. Very dispiriting even to the most callous readers. But he does tell the story well, which means: analytically. There’s an America’s Most Wanted flavor. Robert Rubin, Phil Gramm, G.W. Bush, Christopher Cox, Hank “the Snake” Paulson and the rest of the Dread Orchestra. Along with the dishing, Gasparino explains well complex financial instruments, most notably those involving subprime mortgages, designed by human beings–CDOs, CMOs, CDSs, SIVs, etc.–and dramatizes that the Recession is far from explicable merely as “irrational exuberance” or “social contagion” but, rather, is what we’ve always known it, and its ilk, to be: Old Human is stage center as the culprit: he and she are most “rational” if they think (a) they can get theirs and get out before the diaster and/or (b) they can get theirs and, don’t worry/be happy, Big Daddy will bail everybody out.

It’s very human that Jimmy Cayne and Stan O’Neal go into mid-life coasting: out to the golf course and to the bridge tournament, so that you don’t see them for weeks on end and, really, they don’t seem to care about the CDS’s from AIG and, when AIG finally woke up and left the dance, those little bitty insurance companies (the ones that for sure would never be able to pay-off and make those “hedges” become real). The Sellout is something of a human comedy of the economy. There’s an Inferno in it, too, but nothing remotely divine.

The notable thing in Gasparino’s depiction of our most recent financial nightmare is the alarming new scale of that Great Recession–the appearance of Buffett’s “financial weapons of mass detruction”–as seen, for example, in the leap in the disaster scale-up in the few years between the Long-Term Capital Management fiasco and the Great Recession (er Contraction). Gasparino shows time and again that Twain might have had a premonition of The Street in the Greenspan-Rubin-Bush years when apparently he disgustedly said, “People are no damned good.” They certainly aren’t admirable around a lot of money, at least enough of them aren’t. And haven’t been. Even long before eight centuries ago.

Gasparino says he is a fiscal libertarian, but that maybe we need to include in a new, desperately needed Regulatory Approach (“the Regs)” some new probitive fervor in the Justice Department. He talks about the FBI, too. I wouldn’t call it “populist” rage. I’d call it common sense.

The Sellout certainly brings to mind the saving wisdom of the political principle of Separation of Powers.

Senator Dodd, head of the Senate Banking Committee, and Barney Frank, head of the House equivalent, and both prominent in any new regulatory legislation, hopefully will bring some reform of the Financial Sector. The idea of diminishing the Fed as to the Regs and setting up some sort of big tribunal, raising capital requirements, enacting some version of the Volcker Rule, making derivitaves more transparent in the dynamic, and that kind of critically needed legislation…well, maybe we can hope that somehow we’ll muddle on here after all, young Senator Tester and other young lawmakers unawed by Bernanke and other Holy People.

Anyway, let’s pull over here for the night. It’s not the Bates Motel. It does look rundown, though.
Oh, yes. The speaker is Larry Summers, quoted by William D. Cohan in a Vanity Fair article, December, 2009. Scary, eh?