22 Dec All the Devils are Here – Indeed
I was skeptical when I heard that Bethany McLean had a book coming out about the financial crisis. McLean made a name for herself with her cartoonish book and film documentary about Enron, The Smartest Guys in the Room. And while society seems to get a kick out of people becoming rich and famous by “exposing” other people’s mis-deeds, I have never found it quite so impressive. The Enron piece was well-done, but was utterly perposterous at points. That piece on her resume, combined with the fact that she now works with Vanity Fair, along with the realization that her book was yet another of over 100 books to be written on this crisis, didn’t leave me excited.
Until I read it.
My own project will end up covering over 50 books when all is said and done. I am at roughly half that number already. I can confidently say that this book belongs in the top 5, if not higher. Warning to readers: McLean is not swimming in the shallow end here with her discussion of collateralized debt obligations (CDO’s), credit derivatives, and credit default swaps. The vast majority of those who have written on the crisis so far either had absolutely no idea what these terms and products and concepts really meant (Thomas Woods’ silly book, Meltdown comes to mind), or best case, they haven’t felt it necessary to bring readers into a full understanding. McLean’s book is far more intelligent than you would expect from a writer at Vanity Fair. She deserves kudos for that.
But overall, the book is just really well-done. She is, of course, guilty of the same mistakes that almost every single writer on the financial crisis is guilty of (the bland assumption that, of course, there was just a blind faith in markets out there from all the major players, and if only the government had been much more involved, all would have been okay). That singular assumption is why I am doing my own project here: Because it risks becoming a new orthodoxy just as the idea that FDR’s New Deal saved us from the Depression became an orthodoxy decades ago. Both “orthodoxies” share this in common: They are so utterly absurd, it is unfathomable how so many intelligent people can fall for it. But McLean certainly can not be blamed for saying what everyone else is saying, so if she wants to herald Alan Greenspan as a failed champion of laissez-faire economics, so be it; she is wrong, but she just copied it from all the other folks running with it. McLean does not make a huge ideological point in this book which is one of the reasons it is easy to forgive her for that mistake. She approaches the crisis from a plethora of angles, providing a unique sequence to her narrative that is both dramatic and historically fair. Her book takes an approach that is similar to what mine will be (with one massive omission): She believes the crisis is the fault of a whole bunch of parties, each of which were necessary for this perfect storm debacle to take place. For McLean, it is not about Wall Street securitization vs. the mortgage brokers vs. Fannie/Freddie vs. Government housing policy vs. the rating agencies; it is “all of the above”. She is certainly correct, though I would prefer to see a lot more focus on the monetary policy of the Fed (again, just one, but a crucial one, of the necessary ingredients for this crisis). Incidentally, the one cause that is omitted by every single writer of the financial crisis is the one I will be most focused on in my final analysis – the identity of which I will leave you in suspense. I have written for two years of the absurdity of trying to explain this crisis without exposing Fannie and Freddie and the very structure of the GSE’s (government-sponsored enterprises) for what they were. I believe it is fair to say that her background treatment of Fannie from pp. 9-60 of this book is perhaps the best I have ever seen. Even as the book evolves into more of a biography of the failures at AIG and the rating agencies and Countrywide and Merrill Lynch, she never lets up on the role Fannie and Freddie played both systemically and specifically in this crisis.
The book doesn’t necessarily go through a play-by-play of the events of September 2008 the way some of the others have, but she does a tremendous job at covering the sins of 2002-2006, and most troubling of all, the utter cluelessness of major actors in this drama throughout 2007. I thoroughly enjoyed the book, and agree that so much of this (on the back end) was a by-product of very smart people simply having no comprehension of the risk they were taking on. I would not say that the book necessarily answers the tension of whether or not the folks at AIG and Goldman and Merrill were evil geniuses like some make them out to me or simply overpaid idiots. I think McLean reveals the truth to be somewhere in between, and actually different depending on which character at which firm we are talking about (another welcome change from many attempts to paint this whole crisis as a sort of monolithic affair where everyone involved suffered from the same intellectual or moral deficiencies).
If McLean’s jump from her Enron piece to this work is any indication of what her next piece will be, I can not wait for it!