The Trillion Dollar Meltdown by Charles R. Morris

The Trillion Dollar Meltdown has been making the rounds at the mutual fund company where I work. It’s not surprising — this is a timely, hard-hitting, and opinionated look at the global financial crisis we find ourselves in. If you want a deeper understanding of what’s going on, but without reading a massive tome, this is the book for you.

That doesn’t mean it makes easy reading, though. Morris has followed Einstein’s advice by making his explanation as simple as possible — but not simpler. He is evenhanded but not wishy-washy. The Republican cult of deregulation comes in for severe criticism, but so does what he sees as the failure of liberal Keynesianism that preceded it. Morris shows in painful detail how much havoc the exotic derivatives created in recent years have caused, but he also believes that some of these were useful and ingenious inventions.

Contrary to those who maintain that the “free market” will magically correct all excesses, Morris thinks that each financial innovation will almost inevitably be pushed to its limit until it crashes. Only then will we know its limitations, and how to regulate it. But in a globalized, computerized world, dangerous financial innovations can spread faster and wider than ever before. Dodgy credit becomes marbled through our institutions like fat in a steak, to use his colorful analogy.

Colorful analogies are, in fact, one of Morris’s strengths. Here’s another:

According to the Financial Times, in October 2007 several big banks were negotiating discounted lending terms to vulture funds, firms that specialize in distressed debt, on the condition that they use the money to buy the banks’ deal-related leveraged loans. This is a snake fighting starvation by eating its tail.

The credit crisis isn’t just about bad mortgages, this books makes plain. It’s not about any single type of asset, and that is what makes it harder to cope with than the bubbles of the past.

Overpriced assets are like poison mushrooms. You eat them, you get sick, you learn to avoid them.

A credit bubble is different. Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.

Like Paul Krugman and other critics, Morris names former Fed chairman Alan Greenspan as one of the key culprits. It’s ironic that Greenspan is so well known for his warning of “irrational exuberance,” because Morris cites many examples to show that Greenspan was better at inflating bubbles than letting the air out of them. I was pleased to see that Morris singles out an example that struck me at the time. “I’m sure Mr. Greenspan is a very smart guy,” I remember thinking then, “but this makes no sense to me.”

In 2004, when families had a historic chance to lock in long-term fixed-rate mortgages at only 5.5 percent, Greenspan said they were losing “tens of thousands of dollars” by not grabbing one-year ARMs, then at teaser rates of only 3.25 percent. In any scrapbook of bad advice from economic gurus, that should be near the top of the list.

Keith Olbermann in 60 seconds

Whether you agree with his politics or not, the blistering “special comments” that Keith Olbermann delivers on his Countdown show have rare entertainment value. The folks at 23/6 have boiled them down into 60 seconds.

Not the New York Times

On my walk to work yesterday I picked up one of the free copies of the New York Times that were being handed out by clean-cut young men around the city.

It didn’t take long to realize that this wasn’t the real thing — too thin and too slippery — but it obviously took considerable effort, creativity, and expense. I hear that over a million copies were handed out. Happily it’s available online as well.

The faux Times was the creation of the Yes Men, along the lines of John Lennon’s billboard “War Is Over (If You Want It). You help create the world you want by imagining it’s already here.

Happy birthday, Keith!

Greetings from Brooklyn to Boulder! Jenn and I hope you have a great birthday and many happy returns!

Payback by Margaret Atwood

Some writers lose their sense of humor with age. V.S. Naipaul, for instance, seems to have lost his after publishing A House for Mr. Biswas in 1961.

Other writers, on the other hand, find their sense of humor. Margaret Atwood’s gray, earnest early novels Surfacing and Life Before Man put me off her work for some time. But The Handmaid’s Tale had flashes of wit, and some dark satire for those who know Cambridge, Massachusetts. And Oryx and Crake is hilarious in a postapocalyptic kind of way.

Payback is a highly original work of nonfiction, a look at the many aspects and mechanisms of debt. The breezy style cannot disguise the rigorous thinking in this book, and some of the darker corners Atwood explores would be hard to face without her light touch.

The chapter “Debt as Plot” looks at how money and debt drive the action of novels like Vanity Fair and The Mill on the Floss. 

When I was young and simple, I thought the nineteenth-century novel was driven by love; but now, in my more complicated riper years, I see that it’s also driven by money, which indeed holds a more central place in it than love does, no matter how much the virtues of love may be waved idealistically aloft. Heathcliff of Wuthering Heights loves Cathy passionately and hates his rival, Linton, but the weapon with which he is able to act out his love and his hate is money, and the screw he twists is debt: he becomes the owner of the estate called Wuthering Heights by putting its owner in debt to him. And so it goes, through novel after novel. The best nineteenth-century revenge is not seeing your enemy’s red blood all over the floor but seeing the red ink all over his balance sheet.