Y Kant Wall Street ReAd?

"The Panic of `89" and finding old novels in thrift shops

This weekend, Renaissance Son competed in a two-day swim meet for the Portland Porpoises Swim Club. The Middlebrow and Scholar Wife had time in between races to explore the Westbrook Community Center, which houses the pool, a gym, gardens, a dance studio and a thrift store, where Middlebrow found a hardcover novel called The Panic of `89 by Paul Erdman.

Erdman is credited as the inventor of the “financial thriller,” by accreditors of such things (maybe Standard & Poors?). Published in 1988, the cover really captures that late 80s ethos, which proved prescient, about the financializaion of everything, including culture. A former investment banker and commodities investor Erdman had been involved in a good-sized bank failure. Charged with fraud in Switzerland (and convicted in absentia), he left for the United Kingdom and then the United States, never to return. Erdman died in California in 2007. F. Scott Fitzgerald said there are no second acts in American lives. There are. For Swiss bankers.

Middlebrow didn’t buy the potboiler, but the jacket copy amuses:

“The setting: December 1988, and the long economic recovery that started six years before is over. President Reagan is leaving office; the United States is sinking into deep recession; the war between Iran and Iraq has ended, and boosting their oil production, the two nations have forced the price of oil to plummet. In the deluge, Mexico, Venezuela and Brazil are threatening to default on their U.S. loans— combined debts that have risen to a quarter of a trillion dollars.”

A fraction of a trillion dollars! In 1988, U.S. gross domestic product was $5.3 trillion — about a quarter of what it is in 2021, so the equivalent hit now would be a trillion bucks, double the loss of US GDP to COVID-19 in 2020.

The Dow plummets, the dollar collapses, gold prices soar, and the world descends into chaos. Our hero is Paul Mayer “a man with a penchant for dangerous women and the one man who might be able to diffuse the crisis…” Publisher’s Weekly says Mayer is stand-in for the author, but Middlebrow suspects an homage to André Meyer, Lazard Freres banker and mentor to Felix Rohatyn, who helped save New York City from bankruptcy in 1975.

Among the economists srategists, traders, investors and financial services executives I’ve worked with and for, I’ve met few fiction aficianados. Though Middlebrow once worked for a firm named after the Captain in The Hunt of Red October, the name had been chosen by the founder’s young son, who had liked the film version of Tom Clancy’s first novel.

Finance has become increasingly quantitative and rules-based and automated. The hope is that data-based reasoning will root out old biases harm the industry annd society. The Middlebrow suspects, though, that finance has been and will always be story-based. No matter how hard academics and professionals try to harden their soft sciences, everything they do is a question of imagination. How will a proposed regulation affect employment in California? How will the American consumer take to a product launch? What will a particular management team do in the face of a buyout offer?

Economy is central to a lot of fiction, particularly when we deal with plights of poverty in the works of writers like Charles Dickens, John Steinbeck or John dos Passos. Often, finance is part of our great stories, but deliberately obscured. In The Great Gatsby, our narrator is a junior bond salesman. Nick Carraway studies from time to time, but never see him even try to sell anybody a bond. Jay Gatsby, we learn, is mixed up with organized crime and might b selling forged bonds to people. The world of finance is there only as a bit of detail about what people in and around New York City do for a living.

Tom Wolfe’s The Bonfire of the Vanities deals with the Wall Street of the late 1980s and early 1990s. There, the “master of the univere” bond trader learns that he is not free from the larger culture of the city where he lives, and is ultimately not even master of his own life. It’s a tale of class and status, where finance is a backdrop. The novel is fun. The movie is a disaster but The Devil’s Candy, about its making is divine.

In American Psycho by Bret Easton Ellis, the young bankers at Pierce & Pierce do no work, spending their time at gyms, spas, restaurans, bars and in the company of hookers. The theme is that finance is an empty life, disconnected from reality — so much so that Patrick Bateman succumbs to the psychosis of his inner fantasies and believes himself a serial killer. For what its worth, Middlebrow enjoys American Psycho in this order: Novel, musical, film (but likes all three).

William Shakespeare’s The Merchant of Venice is a good candidate for a creative work that really turns on issues of economy, though you have to look past the anti-semitic scapegoating and Christian sermonizing to get there.

Antonio has wealth, but is largely invested, rendering him rich but cashless. Bassanio has nobility, but has squandered his fortune and has no investments. Shylock has liquidity, but low social status. Antonio has repeatedly insulted Shylock in public over the years. Bassanio wants to marry Portia, but has no money for a dowry. He asks Antonio, who is glad to stake him but lack liquidity. Antonio seeks to borrow from Shylock, who agrees to lend, but rather than accept Antonio’s collateral (shipments soon to arrve at port) he demands a pound of flesh as penalty for default. Antonio unwisely and arrogantly agrees. When Antonio’s ships don’t appear and the debt comes due, we get a drama about debt, agreements and technicalities.

Others offer to pay Antonio’s debt, but Shylock wants his terms met. Though Antonio is the sympathetic character, Shakespeare makes it clear that he’s responsible for his predicament. Absent the flesh-severing consequences, such arrangements happen throughout the modern economy. Holders of distressed debt are often ruthless with their borrowers. They hope for infractions that will allow them to seize valuable collateral like art, real estate, industrial equipment, whole companies or even public assets like utilities and toll roads.

Hedge fund manager Paul Singer bought distressed bonds for Argentina, paying pennies. When Singer bought them, other creditors had already agreed to a settlement with Argentina’s government, where they would accept less than 100 percent what was originally owed. Singer, despite buying after those negotiations, demanded full repayment and even tried to seize an Argentina naval vessel in port in Ghana. Singer didn’t get the ship but he did get 100% of what he was owed, despite the compromises made by other lenders.

The law vindicated Singer, but Shakespeare had other ideas about what private arrangements a functioning society can tolerate. Shylock is ultimately undone by his haphazard contract writing. The laws of Venice allow him to collect his pound of flesh, but he will forfeit his fortune and freedom if he spills any of Antonio’s blood in the effort.

I’d love to see Merchant contemporized, using Greece, Argentina or a small town swindled by bond underwriters from Wall Street as a backdrop. What’s tough about modernizing the tale, though, is that while Shakespeare’s characters shared physical proximity in Venice, today’s lenders and borrowers are dissociated by technology and the legal system. When Singer gamed Argentina’s debt restructuring for profit, he deprived the country’s government of money it could have spent on the welfare of its citizens, extracting pounds of flesh at scale. But he’ll never have to face anyone who suffered for his investment — a freedom from human consequences that quite intentionally removes drama from our financial system.