Friday, April 30, 2010

The Man who puts Gold in Sacks

We interrupt the Show Trial of Goldman Sachs with this Special Announcement:

Sherman McCoy, a bond trader, heads into his office. The lobby is decorated in a faux English style with trappings so ornate “you could feel the expense in the tips of your fingers by just looking at them.” Immediately on leaving the reception area, Sherman hears “an ungodly roar, like the roar of a mob” and sees the sight of the trading floor: “The writhing silhouettes were the arms and torsos of young men, few of them older than forty. They had their suit jackets off. They were moving about in an agitated manner and sweating early in the morning and shouting, which created the roar. It was the sound of well educated young white men baying for money on the bond market.” Sherman heads for this sight “with relish.” He was, after all, one of the “Masters of the Universe.”

“Masters of the Universe! The roar filled Sherman’s soul with hope, confidence, esprit de corps, and righteousness. Yes, righteousness! Judy understood none of this, did she? None of it. Oh, he noticed her eyes glazing over when he talked about it. Moving the lever that moves the world was what he was doing—and all she wanted to know was why he never made it home for dinner. When he did make it home for dinner, what did she want to talk about? Her precious interior-decorating business and how she had gotten their apartment into Architectural Digest, which, frankly, to a true Wall Streeter was [an] embarrassment. Did she commend him for the hundreds of thousands of dollars that made her decorating and her lunches and whatever […] else she did possible? No, she did not. She took it for granted…and so forth and so on. Within ninety seconds, emboldened by the mighty roar of the bond trading room of Pierce & Pierce, Sherman managed to work up a good righteous head of resentment against this woman who had dared make him feel guilty.”

That's from Tom Wolfe's description of Wall Street in The Bonfire of the Vanities, published in 1987--yes, 1987. Here we are, a quarter-century later and we are Shocked (Shocked!) to discover there is Gambling (Gambling!) going on in Wall Street Investment Banks. Who knew?

And, by the way, The Bonfire of the Vanities may be the best book about Wall Street ever published.

Thursday, April 22, 2010

Fed Watching

A trio of book reviews, all about the Federal Reserve.

1. Axilrod, Inside the Fed
Stephen Axilrod is the Ultimate Fed insider, having been on the staff for decades, ultimately becoming the most important member of the permanent staff. He, in other words, knows where all the bodies are buried. So, this could have been an amazing kiss-and-tell memoir, but true to Fed Fashion, it is rather light on scandalous revelations. (Yeah, central bankers are boring, but even still, surely Axilrod knows a few great stories.) The book is organized around the assorted Chairmen for whom Axilrod worked and it does do a nice job conveying the sense of the Chairmens' personalities. Volcker comes off well, Miller comes off as a disaster--but everyone already knew that. The book reads like the reminisces of a retired gentleman, which, oddly enough, is exactly what it is. So, if you care about hearing someone tell tales of monetary policy debates in the the early 1970s, it is a good book. My students were less than thrilled. I liked the book a lot more than they did, which puzzled me at first, but then I realized why. This book has all sorts of details which explained why my old money and banking professor mentioned all the things he did when I took money and banking. Why did I learn about Free Reserves? Now I know--once upon a time, they were the center of a big debate.

2. Wessel, In Fed We Trust
This book was a bit of a disappointment. Wessel is an economics editor at the Wall Street Journal and the book is about the Fed during 2007-2008. So, it could have been amazing. Instead, it stuck pretty close to the narrative one read if one read the Paper during those years. It doesn't seem that Wessel spent much time at all talking to people to get the behind the scenes story--which was really quite disappointing. I did learn a few things, but not nearly as much as I expected to learn. For example, at a minimum it would have been great to learn about the change in Fed policy from Lehman Brothers to AIG--but about why that happened so quickly on that day, we learn absolutely nothing. I suppose this book would be OK for someone who had never read anything about those years, but I can't imagine this is a book anyone will actually be looking at or referring to in 2 years.

3. Ciorciari and Taylor, eds, The Road Ahead for the Fed
This is a useful set of papers mapping out the future of monetary policy and financial regulation. That being said, it is not for the general reader--there is no context for most of the papers, so you actually have to know quite a bit to make sense of the majority of the arguments. On the other side, the book is light on technical details. In short, it is the sort of book designed for students in a class like Money and Banking. It's pretty good in that respect, but I suspect most students will find it a bit dry. The best paper is Hamilton's "Concerns about the Fed's Balance Sheet" which is full of eye-popping graphs (if one is the sort whose eyes pop at seeing Fed balance sheets (which, to be honest, is probably a rather small subset of humanity)).

So, taking all three together, what do we learn? The Fed is a mess. It was a huge mess back in the 1960s, things seemed to be getting better post-Volcker, but the last few years have burst our delusion of Fed competence. Through 2007-2008, the Fed had no idea what it was doing--literally, they did not know what they were doing; they were just trying to do something, anything. And, looking forward, there is no reason to assume they have a plan to get themselves out of the mess they made.

The next few years could be rough.

But, maybe they will get lucky.

Wednesday, April 21, 2010

Miranda's Utopia

I recently reread Huxley's Brave New World--it was one of the books for my tutorial this semester. It is, in case you were wondering, still a masterpiece.

Huxley's world is often labeled a dystopia, but what interests me so very much about the book is that people call it a dystopia. Consider: What exactly is wrong with Huxley's world? Everyone is happy, very very happy. If they ever aren't happy, they take soma, a pleasant drug with no ill side effects. Everyone loves his job because he has been conditioned since birth, or actually since conception, to love his job. There is no marriage, so there is no romantic jealousy. Everyone is friends with everyone else. Sure, there are a few malcontents, but they are sent off to an island with other malcontents (Iceland, for example) and then they can enjoy their lives living with others like them. Movies have advanced to the point where you not only can see and hear, but also smell and feel the action on the screen--and the plots of these feelies are all designed to make you quite happy. So, what exactly is the problem with this world? It is, after all, exactly the sort of world the Modern Age wants to design. And, yet, everyone who reads it knows instinctively it is wrong, very very wrong.

Defending the glories of the Brave New World is a very merry experiment. It is painfully easy to do. And yet, it is nearly impossible to convince someone that the society is good. Why?

I suspect that the instinctive wrongness of the society is the instinct we all feel that there is more to life than simply being happy. We know that the purpose of life must be bigger than that. Being happy for the wrong reasons is not satisfying. The implications of that statement are rather profound--once that statement is acknowledged, simply saying that something will make people happier is no longer a sufficient rationale for doing it. And that thought leads to all sorts of interesting questions about the Chief End of Man, which are of course the very sorts of questions the Modern Age, the Brave New World in the making, wants to avoid asking.

Which brings me to the most important problem raised by this book: The cover is falling off my copy of Brave New World. So, I suspect the next time I read it, I will have to buy a new copy. Or I can just never reread it and keep my old copy. I think it is probably odd that I am already thinking about the fact that a future decision about whether to reread this book has implications for whether I have to ditch the copy of it I have had for decades. My copy, by the way, is an old paperback which once was a library book, originally checked out with a due date of January 10, 1978, then re-checked out with due dates of 5/30/78; 4/21/81; 12/8/81 and finally 10/12/82. After that, it seems that nobody checked it out, and then I bought it, probably at a library book sale. Now the cover is falling off. It's not quite dead, yet, but I am afraid that if I ever read the book again it will die, and then I will be responsible for the death of my book. I don't want to kill my book, but I also don't want to imagine never rereading it. And, I know what you are thinking--why don't I get a new copy and just keep my old copy?--that just proves you don't understand books--having a book is like having a wife--I can't get a new copy of this book because it would be like getting a second wife. So, if I get a new copy, I have to get rid of the first copy. Now I can do that for other books if the new copy is an improvement over the old copy--that seems like a software upgrade. [Don't worry, my analogy isn't breaking down with dire consequences--my current wife is perfect, so there are no conceivable software upgrades for my spouse.] But, just getting a new book to replace an old, favorite with whom I have lived for decades is simply wrong. So, if I get a new book, I have to bury this one. This is getting really depressing.

Friday, April 16, 2010

Talent, lack of

Tonight, I am going to a Talent Show--one of those amateur kinds where everyone is expected to get up at some point and demonstrate a talent to amuse and instruct one and all. I gather that such an event inflicts fear of stage fright in many, but since I spend my life standing up in front of people, that part doesn't bother me at all. But, nonetheless, this Talent Show has left me seriously worried for a few weeks now.

You see, I have no talents of the sort which are amenable to display at a talent show. It's a little odd. It is not as if I am without talents in general--I can talk really fast while pacing, for example--but nobody would want to see a display of the talents I happen to have. And, I am not alone in thinking I am talentless. I asked my family what I could do--only Lily came up with an idea. Lily suggested I could explain how to make a Martini. (I gave a talk last year in which I explained this to graduating seniors, so that is where she got the idea that I might have some talent in this regard. Rest assured, Lily has never tried one of my martinis.) Now it is true that I do know about how to make a proper martini, but since the talent show is at church, and since there is a subset of the Protestant culture which frowns on alcoholic beverages, and since I certainly don't want to give offense, I am not sure that a demonstration of the making of a proper martini is an appropriate talent to demonstrate. Nobody else in my family could think if anything else I could possibly do for the talent show.

This worries me. Tonight, when I go to the talent show, if I refuse to demonstrate a talent, I am afraid that people will think that I am simply refusing to participate in the general frivolities. I don't want to be the shy guest at the feast of talents nor do I want to be the stern old man refusing to join in the fun and games. But, I really can't think of a single thing I can do other than stand in front of the room and talk, but standing in front of the room and talking is not exactly the sort of talent which a Talent Show is meant to demonstrate. I can also read very well (yes, reading is a talent--proper reading is more than basic literacy, and it is a skill which can be learned and mastered--I am not a master reader, but I am pretty good at it), but I suspect that not many people want to watch me reading. (Though, now that I think about it, if I got up to demonstrate my talent, and just started silently reading a book, Clara and Lily would be mortified, and that would be rather amusing.) Other than talking and reading, I am not sure what else I can do. I guess I can write too, if one likes rambling sentences which have no serious content which would possibly be of interest other than to the person composing the long, rambling sentence for nothing other than the perverse pleasure of seeing how long a sentence can run without violating (a least egregiously) any of the standard rules of grammar while maintaining the semblance (the form, but not the substance) of substance. But, again, such a talent (if such a thing is a talent--Janet certainly would not consider such a thing to be a talent--she seems to view my penchant for enjoying the composition of sentences of the aforementioned type as a species of mental instability) is not Talent Show worthy.

I started this blog post hoping it would decease my worry. Now I am even more worried. I should probably go develop a talent.

Thursday, April 15, 2010

Tinker Taylor Scolds or Cries?

When is a book a book? John Taylor's Getting off Track is bound like a book (in hard cover, no less) and sells for the price of a book (a hard-cover, naturally), but the book is really just a long article, with a couple of afterwards thrown in. On the other hand, Taylor's argument is important, and well worth reading for people who want to read this sort of thing.

What sort of thing? Well, the subtitle in true 17th century fashion, says it all:
How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis.

Taylor means that, but it isn't just government in general--mostly it was the Federal Reserve. For those liking details: in the late Greenspan years, the Federal Funds Rate was kept well below the level suggested by the Taylor Rule, causing the housing boom. With no housing boom, no housing bust. With no housing bust, no recession. The recession was prolonged because the Fed thought there was a liquidity crisis when there was none. The recession was worsened because nobody had any idea what the government was doing.

It's a provocative thesis, and I think Taylor really means it and is not overstating his case for dramatic effect. It's clear that Taylor thinks the Fed made some big mistakes; what isn't clear is whether he thinks they were deliberately following bad policies or simply the victims of ignorance about the real state of things.

In the end, it's not entirely convincing. On the one hand, I think what Taylor identifies is probably entirely correct. On the other hand, though, I think there was more to the crisis than this. At a minimum, I think it is hard to dismiss other things which were contributing causes, e.g., the mortgage loan structure post-savings and loan meltdown, Fannie Mae and Freddy Mac and the Community Reinvestment Act (the impulse behind it, if not the Act itself), the tremendous leverage ratios at the investment banks, moral hazard resulting from the Long-Term Capital Management episode. Sorting out which of these things are primary and which are secondary will take some time.

Oddly, Taylor's book is both good and hard to recommend--if this is the sort of book you will enjoy, you've probably already read it or have it on your bookshelf waiting to be read.

Wednesday, April 14, 2010

A Good Deed for the Day

In contemplating how long I could live in my blog, post-demise of actually bodily self, I started thinking of posts I could write--the obvious starting place was all the books I have finished in the last few weeks, plus assorted sundry topics which have arisen in that time. I stopped when I came up with over 10 items without really thinking at all. I am seriously behind in recording the events of my life.

I finished John Dos Passos' U.S.A. trilogy. (The last volume was The Big Money.) As I may have mentioned, I wanted to read this book as a part of my tutorial this semester because it was famous and I had seen it mentioned as "The Great American Novel."
After finishing the trilogy, I feel safe in saying:
1) It is not the Great American Novel, and
2) It is not a Great Book.

It's an OK book--Dos Passos can write well when he is at the top of his form, and the book just moves along without ever becoming a painful experience. He has some talent. Sadly, he put his talent at the disposal of the Great Hope of Marxists everywhere--the coming Socialist Revolution in America. I noted after the first part of the trilogy that the book seem like a tract arguing that Socialists are good, but it was a bit ambiguous. By the end of the trilogy, the ambiguity was gone.

The closest comparison for this trilogy is Upton Sinclair's The Jungle. The Jungle is famous for it's gruesome scenes of the meat packing industry, but only about half the novel is about the meat industry, the rest is a generalized argument for the glory of the Socialist Revolution. Dos Passos' book is much, much better than Sinclair's, so if one wanted to read a tract explaining why capitalism is bad and socialists are good, Dos Passos is the one to read out of two. But, then again, Steinbeck's The Grapes of Wrath is even better if one wanted to read something in that genre. (The Grapes of Wrath is my least favorite of Steinbeck's major novels, though.)

The problem with Dos Passos' book is that it is too ham-handed. Every character in the book meets a miserable end, and since there are a lot of characters in a 1400 page trilogy, it is a lot of miserable ends. Nobody is happy. The socialists are unhappy because they are losing, but at least they are doing something noble. The non-socialists are unhappy and lousy human beings on top of that. Would it have killed Dos Passos to have had just one character marry, have kids, and lead a pleasant life? Does it really seem impossible for him to believe that anyone was actually having a decent life in early 20th century America?

One curiosity--the Library of America (my favorite publisher, by the way--I love the way Library of America volumes feel and look when I read them) has an edition of the U.S.A. trilogy, which means it will still be published in a century and it is now on a list of the Great American books. Yet, it is hard to imagine that anyone would want to read this book in a 100 years--the literary style simply isn't all that great, and the message already seems like a period piece. So, someday a poor unsuspecting reader is going to start this book, thinking it must be a Great Book, be thoroughly disappointed, and abandon the reading of Great Books. I feel very sorry for that person. And so, for the first time, I hope my blog lives on for 100 years, that said person in despair Googles the phrase "Why would anyone consider U.S.A. a Great Book?" and finds this post saying:
It isn't. Once upon a time, as hard as it is to believe, some people liked this sort of thing. But, do not despair. Read something else and renew your faith in the wonders of literature.

Now that I have done a good deed for the day, helping out some person 100 years from now, I don't feel so bad about skipping all the other work I should have been doing right now.

Tuesday, April 13, 2010

Stayin' Alive

1. Yes, I am alive.

2. The observation in Item 1 was prompted by the remark of one of my students (Hannah) that she had been wondering about my possible demise by the lack of blog posts of late. Now, this presents a bit of a curious puzzle. I knew I was alive. But, if the proof of my existence is in fact a blog post here, then is it possible for me to fake my own life in the event that my actual life were to summarily terminate? People have tried to fake their own death--there was a really interesting article about this in WIRED magazine a few months ago (I got some good tips)--but, is it possible to do the reverse, to die and fake one's own life? I think all I would need to do is write up a series of observations on life, book reviews and other such material. If I had a program that would post said musings on a semi-regular basis, for how long could I fake my own life before someone realized I was, in actual fact, dead?

3. Now that I have raised the possibility in Item 2, is there any evidence that this isn't simply my first post-mortem blog post?

4. On a less morbid note, the last couple weeks have been busy, and I am still trying to figure out when it is OK to indulge in the luxury of writing diverting ruminations and thereby avoiding work which is less diverting but probably more essential.

5. For example, one of the activities alluded to in item 4 was the Philadelphia Society meetings this last weekend in, mirabile dictu, Philadelphia. It was a pretty good conference--not great, just pretty good. Michael Barone was the most interesting speaker. Barone has been studying US elections forever, and writes the Almanac of American Politics. It is safe to say he knows as much about the 1st Iowa district and the 32nd California district and the 14th Texas district and so on, as anyone. His take on the current state: much to his surprise, the Democrats are in serious trouble, very serious trouble, this November. He thinks the Health care bill may turn out to be the biggest electoral disaster for Democrats since the Kansas-Nebraska Act of 1854. He seemed genuinely surprised by this development--the country seems to have turned on the Democrats with a vengeance. He also seemed genuinely surprised by the Tea Party folks, which is really interesting--since he studies such things all the time, it is pretty amazing that a movement that large could emerge with no evidence of its Coming to Be being apparent before it thrust itself into the National Conscience.

6. It is really hard to believe that the song in the title of this post spent 4 weeks at the top of the Billboard charts.

7. And, yes, I owned the album. I don't think I owned the single, but I did own the album.