Ordinarily, the stories of financial epochs are relatively simple affairs—the buyout craze and Michael Milken in the 1980s, the dot-com boom of the 1990s, and Enron. And for the authors who tackled the subjects, it was relatively easy to locate the key individuals and the geographical center, to organize a narrative and describe the fallout. These episodes had clear beginnings, middles, and ends. But chronicling the period we've been through—a global bubble in housing, housing-related credit, risk-taking, and commodities—is much more challenging. Instead of one big story, there are a half-dozen interlocking stories: Bear Stearns and subprime, AIG and credit-default swaps, Madoff and Stanford, sovereign wealth funds and London's rise, hedge funds and private equity firms, commercial banks and investment banks, central bankers and the Securities and Exchange Commission, the credit-rating agencies and homebuilders. It's a sprawling, contentious drama that continues to unfold in real time and whose true consequences may not be apparent for years.
Writing a book, as I've just done, is one way to try to wrap your mind around a big, gruesome problem. ( Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation has just been published as an e-book, available on the Kindle or Sony Reader, or an Audible. Readers interested in seeing a PDF of the first chapter or learning about a paper version should send an e-mail to: email@example.com.) But writing this brief book raised as many questions as it answered. The fact that this crisis moves so rapidly into new areas and phases requires continual assessment and reassessment. So I've invited several other writers who have lived through, reported on, and written smartly on the boom to work through some of these unanswered questions that remain during the bust. They are: Barry Ritholtz, a money manager, proprietor of The Big Picture blog, and author of the forthcoming Bailout Nation; Jesse Eisinger, columnist at Portfolio; Gillian Tett, an assistant editor at the Financial Times and author of the forthcoming book on how financial innovation went so wrong: Fools Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe; and Duff McDonald, a contributing editor at New York and Portfolio who is completing a biography of Jamie Dimon of JPMorgan Chase.
One of the large questions I'm still wrestling with might seem more appropriate for Philosophy 101 than for an advanced course in financial disasters. And that's the conflict between human agency and structural forces. If you watch the testimony, listen to the excuses and halfhearted apologies, there's a sense from all involved that the financial and economic forces unleashed over these last eight years were so unpredictable, capricious, and powerful that mere humans—even titans of Wall Street—were powerless to resist. It was a force majeure (Donald Trump), a "perfect storm" (Robert Rubin), a "once-in-a-century credit tsunami" (Alan Greenspan). Of course, that's bollocks. There was nothing predetermined or predestined about the failure of Lehman Bros., the implosion of AIG, or the subprime housing debacle. History unfolded over the last seven years as it has always has, in a contingent matter. At every point, the future outcome was in doubt. And so my first question is something of a counterfactual one. What were the moments in which an individual (or individuals), or an institution (or institutions), or a policymaker taking discrete and definable actions might have averted some of the problems we're now facing?
Barry, why don't you start us off?