If the first week of January is any indication, 2009 will be the Year of the Financial Journalist. Last year, everyone was scrambling just to keep up with the events of the last hour, but now, the big guns have had time to report, to ponder, and to spew out umpteen thousand words explaining it all. Get used to it. There's undoubtedly much more to come, and I personally can't wait to build a new addition to my house just for all the books that will soon be on their way.
So, in the February Vanity Fair, we have the excellent Bethany McLean on the saga of Fannie and Freddie Mac. In Sunday's New York Times we get Michael Lewis and hedge fund manager David Einhorn's co-authored, two-part series, "The End of the Financial World as We Know It" and "How to Repair a Broken Financial World." And to cap it off, the Sunday New York Times Magazine gives us Joe Nocera's explanation of how the the math wizards of Wall Street screwed everything up, in "Risk Mismanagement."
Michael Lewis and David Einhorn get credit for the best single sentence in this mini-library of financial catastrophe: "Americans enter the New Year in a strange new role: financial lunatics." They also get credit for delivering the most heaping doses of withering scorn -- Hank Paulson, the credit rating agencies, and the SEC all take turns in the stockade. Joe Nocera employs 8,000 words to tell a pretty simple story -- all the mathematical models in the world assuring you that your investments are 99 percent safe aren't worth anything if the great huge calamity that has only a 1 percent chance of happening shows up and smacks you in the face. But Bethany McLean's piece on Fannie and Freddie is probably the most interesting, because there's something for everyone in her epic of out-of-control lobbyists, arrogant CEOs, grandstanding ideologues, and unrestrained avarice.
McLean calls the right-wing contention that Fannie and Freddie, with their government mandate to increase homeownership, were the primary culprits in inciting the financial crisis "absurd," but she also makes it clear that their quasi-governmental status was a huge headache for regulators, politicians and competitors. It is also fascinating to see how some Democrats and Republicans went to bat for the two "government sponsored entities" and other Democrats and Republicans wanted them more tightly regulated. If you hate lobbyists, CEOs, Wall Street, and politicians, "Fannie Mae's Last Stand" is grist for your mill.
The money quote:
Another thing that's clear is that the critics were both right and very wrong about Fannie and Freddie. Yes, their executives and shareholders made fortunes in the glory years, and, yes, taxpayers are now bearing the brunt of whatever losses there are. Just as critics always warned, it's "the privatization of profits and the socialization of risks." But what the critics missed is that that wasn't unique to Fannie and Freddie. It turns out our entire financial sector was operating under that same premise -- and to a far greater degree than Fannie and Freddie.
Taken in toto, the amazing thing about Nocera, McLean, Lewis and Einhorn's pieces is that no matter what part of the financial system you investigate, the more you know, the more incredulous you become at the awesome spectacle of how incompetently grown-ups in the 21st century operate. The great financial crisis of 2008 did not happen by accident -- it took the willful efforts of thousands of politicians, business executives, Wall Street financial geniuses, lobbyists and economists to make this big a mess. As we sift through the wreckage, we cannot help wondering how we could have been so stupid. But maybe the answer is: We're just not that smart.