A Must Read About the Ecomony

An most interesting discussion of the lead up to the financial situation, perhaps with implications (or at least food for thought) for the future. From the New Yorker May 18, 2009 "The Death of Kings)

Here is the abstract, I will try to post the entire article, but if you are a subscriber you can get it online. Or send me your email and I will send you a copy (from here, if you know how, or twiiter dm me).


THE DEATH OF KINGS
Notes from a meltdown.
Nick Paumgarten, Annals of Finance, “The Death of Kings,” The New Yorker, May 18, 2009, p. 40

ABSTRACT: ANNALS OF FINANCE about the financial meltdown as seen from the offices of
bankers, hedge-fund managers, analysts, and others in the financial sector. Most people may now recall a moment of clarity, an inkling of doom. A private-equity executive the writer talked to said that he sensed the jig was up when his cleaning woman took out a subprime loan to buy a house in Virginia. A big-wheel hedge-fund manager had his epiphany at a Goldman Sachs hedge-fund conference during which he found himself questioning the rapid accumulation of dynastic wealth by the people in the room. The final sign, the big wheel felt, was the opening ceremony of the Beijing Olympics, which cost an estimated three hundred million dollars. A month later, Lehman Brothers collapsed. Some who foresaw the implosion underestimated its power and duration. Writer notes that the event does not yet have a name. It is variously called the global financial meltdown, the financial crisis, the credit crisis, the recession, the great recession, the disaster, the panic, or the bust. This thing is all-pervading, evolving and ongoing, history-altering yet in many respects banal. Considers several analogies for the crisis, including a war, a natural disaster, and radiation. The potential for catastrophe was clear to see, for all who had eyes to see it. For financial-industry executives to claim ignorance or helplessness is to admit negligence or to tell a lie. What’s most vexing is that those who saw trouble didn’t do more to stop it. The crisis is the culmination of events and trends reaching back, depending on your perspective, four, seven, seventeen, twentytwo, twenty-seven, thirty-eight, sixty-five, or a hundred and two years. The causes are technological, mathematical, cultural, demographic, financial, behavioral, legal and political. Writer interviews Colin Negrych, an adviser who has some of the most venerated investors in the world among his clients. Tells about Negrych’s career path and his opinions on the current crisis. Negrych believes that there is a commercial-financial complex, analogous to the military-industrial complex, which promotes borrowing and spending, and spins indebtedness into fool’s gold. Discusses the consolidation and transformation of the financial industry over the last four decades: the growth of investment banking, the development of derivatives, the increasing use of leverage, and the securitization of debt. Writer interviews Simon Mikhailovich, an investment-fund manager. Discusses the role of ratings agencies and collateralized debt obligations (C.D.O.s) in the collapse. A debate has roughly formed between those who blame the meltdown on the system, rigged up over the years and decades, and those who vilify the people who most egregiously exploited the flaws in that system. Both sides may be in agreement that, in the end, human nature is to blame. Mentions Margaret Atwood’s book “Payback: Debt and the Shadow Side of Wealth.” Writer interviews economist Bruce Greenwald. Discusses the 1944 Bretton Woods conference and its influence on the world’s economic system. Describes how those who once worked on Wall Street are coping with loss of income and unemployment.