My writer-hero of the moment is Michael Lewis, whose current Wall Street critique, Flash Boys, exposes just how rigged the system really is. I’m reading it now, and it amazes me how blind we are to the whole concept of conflicts of interest in this country. We appoint bankers and high-speed traders to the SEC and expect them to investigate themselves. The story from end to end could only be believed as nonfiction. If a fiction writer put this stuff into a novel, she’d be criticized for her over-active imagination, as well as her underestimation of our collective intelligence.
Yet, fiction writers do put Wall Street into their novels. Sometimes these fictional representations turn out to present greater truths about human nature than the true stories told by Lewis can achieve. For although Lewis presents the facts in an accessible and startling way through narrative focused on a few key characters, he cannot present what actual people experience inside themselves because a journalist cannot claim to know exactly what a person, other than himself, actually thinks and feels; at best, as a nonfiction writer you can only interpret others’ thoughts and feelings based on what is said and how it is said. That’s why Lewis’s own shock, outrage, and humour really bring his book to life.
In fiction, the writer can present her characters thoughts and feelings through the magic of indirect narration via the characters’ points of view. In fiction, we are allowed to read minds. This helps us to understand motivation and human nature in a way that reportage cannot. If you find the facts, details, and twists in Flash Boys mind blowing and at times even a little dry, consider reading novels about past financial crises. The two I’m recommending are Moral Hazard (2002) by Kate Jennings and Good Faith (2003) by Jane Smiley. I assure you, both remain relevant today.
Both novels take their titles from contract law. The phrase “moral hazard” is an insurance industry term that refers to the possibility that the insured will have an incentive to take greater risks when they are no longer solely responsible for the consequences. The concept can be applied to any contract where one party has an incentive to behave in a way that is contrary to the interests of the other party. In other words, banks have little incentive to temper their risk-taking behavior knowing that the government will save them if their losses reach a certain magnitude.
The term “good faith” refers to the presumption that the parties to a contract will act fairly, without impeding the other party’s right to obtain the expected benefit from the contract. It can also be thought of in religious terms and applied to sacramental contracts, such as marriage. In either case, like “moral hazard,” the term has moral implications. If corporations are people, I wonder, do they have the capacity to act morally? Can they live up to the terms of a contract with us, the people, without violating good faith or invoking moral hazard?
Moral Hazard by Kate Jennings is a work of autobiographical fiction about a woman named Cath whose husband, Bailey, a man twenty-five years her senior, is diagnosed with Alzheimer’s disease. In order to pay for his care, Cath takes a job as a speechwriter at a Wall Street investment bank during the financial services boom experienced throughout the 1990s. The novel, more a novella at approximately thirty-five thousand words, uses the metaphor of Alzheimer’s disease to chronicle Bailey’s decline in parallel with the institutional dementia Cath witnesses on Wall Street, where hubris and greed lead to a hedge fund failure on a massive scale.
Although not named in the novel, the hedge fund in question is Long Term Capital Management, whose $4.8 billion in assets plunged to $1.8 billion during the Russian currency crisis of 1998; unable to repay its debts, the fund was subsequently rescued by the Federal Reserve Bank (Greenspan 12). This incident foreshadowed the 2008 financial crisis, but, as Cath recognized, no one seemed to care enough to do anything about it.
Jennings herself took a job at JP Morgan as a speechwriter to support her real-life husband, who developed early on-set Alzheimer’s. She spent seven years working at the bank, enough time to get to know the culture and understand the tribal nature of Wall Street.
She writes beautifully, too. Here’s a taste of Cath’s voice as she writes that she was
… an unlikely candidate, too, to be working for a firm whose culture had been shaped by the kind of drive required to shave dimes off dollars without actually making something useful or entertaining, something that could be touched or enjoyed. A firm whose ethic was borrowed in equal parts from the Marines, the CIA, and Las Vegas. A firm where women were about as welcome as fleas in a sleeping bag. (11)
That pretty much sums up what we’ve learned about Wall Street post-GFC, and it was written five years before Lehmann Brothers and Bear Stearns melted down.
Jane Smiley’s Good Faith is the story of Joe Stafford, small town real estate agent. Set during the 1980s in the context of Reaganomics, financial deregulation, the savings and loan crisis, and the rise of consumer culture, it hinges on a real estate development scheme gone wrong. Joe Stafford is a regular everyman. He runs a business and helps out his friends in the building trades by sending work their way. Still mourning his divorce, he’s pleasantly surprised when Felicity, the married younger sister of his high school sweetheart and the daughter of one of his business partners, initiates an affair. Life’s pretty good. He’s making money, getting laid, and has good friends. Then he meets Marcus, a former IRS agent, who tells Joe, “I hate paying taxes” (150). He shows Joe how to live on borrowed money in order avoid paying taxes. Once he has Joe’s trust, he exploits Joe’s good nature. It’s human nature to be optimistic, and it’s typical for nice guys like Joe to prefer to trust the people in their social circle than to doubt them. It’s also human nature to not want to be left behind in an age of speculative exuberance.
Smiley’s novel shows how human nature causes financial bubbles for the simple reason that we are very good at rationalizing risk away. Yet despite our denials, bubbles always burst. Smiley is less interested in government policy than she is in monitoring what her neighbors are up to and placing their behavior in a wider social context. Good Faith is a novel about the conflict between the common good and unbridled selfishness rather than a polemic about neo-conservative policies.
Smiley writes masterfully in the character of Joe, drawing the reader into his heart and mind with sensuous details. Here’s a taste:
Those moments, when we were parking our cars and getting out and fumbling with keys and I was directing her to the door of my condo at one in the morning, were maybe the time in my life when I felt the most purely young. There was none of that grinding sense of getting through the various stages of an acquisition project that I often felt when I was flirting. No strategy, no trying to figure anything out. I didn’t even touch her or take her elbow—no first moves that would lead to a goal. Rather, the air was damp and fresh-smelling, the grass was growing a few feet away in the darkness, trees rustled their new leaves all around us. (19)
If you read fiction to not only immerse yourself into a make-believe world but to understand deeper truths about life, the people around you, and yourself, then pick up Moral Hazard and Good Faith. You won’t be disappointed.
Elizabeth Warren’s autobiography, A Fighting Chance, will be released in three days time. Quoting from Jill Lepore’s review in this week’s The New Yorker, Warren makes the argument that “Big corporations hire armies of lobbyists to get billion-dollar loopholes into the tax system and persuade their friends in Congress to support laws that keep the playing field tilted in their favor. Meanwhile, hard working families are told that they’ll just have to live with smaller dreams for their children ” Lepore goes on to compare Warren’s position to that of Justice Brandeis who, long before serving on the supreme court, published Other People’s Money in 1914, where he argued that America was run by plutocrats, not the people.
Where Brandeis influenced both Wilson’s and FDR’s administrations to create financial industry regulations that built the American middle class, Warren points out that dismantling these regulations beginning in the 1980s destroyed the middle class and re-created the same wealth inequality that Brandeis reacted against in his criticism of the gilded age. According to Lepore, Warren’s central argument is that legislatures and courts “who have allowed the nation’s social and economic policies to be made by corporations and bankers,” abandoned the country’s children and mortgaged its future.
I look forward to reading the book myself. I like a good rabble-rouser, and Warren has done the peer-reviewed academic research that determined her positions, not the other way around. She didn’t begin with a position and then build a study to prove it, as most lobbyists and partisan think tanks do.
Greenspan, Alan. “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management: Report of the President’s Working Group on Financial Markets.” Ed. Department of the Treasury. Washington, D.C.: U.S. Congress, 1999. Print.
Jennings, Kate. Moral Hazard. New York: Fourth Estate, 2002. Print.
Lepore, Jill. “The Warren Brief: Reading Elizabeth Warren.” The New Yorker April 21 2014: 96-101. Print.
Smiley, Jane. Good Faith. 1st ed. New York: Alfred A. Knopf, 2003. Print.