Eight Days ~ James B. Stewart
Rational Irrationality ~ John Cassidy
The Pay Problem ~ David Owen
I have a friend who subscribes to the New Yorker, but refuses to read “Talk of the Town” because it’s too liberal. It’s a reasonable position. No one is ever going to accuse Hendrik Hertzberg of unbiased analysis. As for me, I like a little liberal logic in my politics. The danger with most publications is that the editorial bias bleeds into the rest of it. Or worse, opinions on the publication as a whole are biased based solely on the editorial content. Regular readers of such publications probably know otherwise, but it’s still nice to be reassured. Which is why, if you’ve been reading the other stuff in the New Yorker over the past month, you’ve been getting a lesson in an all too rare, idealized form or reporting.
“The most important week in American financial history since the Great Depression began at 8 A.M. on a Friday in the middle of September last year.”
Such is the introduction to “Eight Days,” written by James B. Stewart, who then commences with an account of the fall of Lehman Brothers and the restructuring of the American financial industry. By now the story has been hashed, rehashed, reheated, and tossed out. Certain financial instruments were used which caused the companies that bought and sold them to be unprecedentedly leveraged. The music stopped. The piper had his hand out. He didn’t take IOUs. “Eight Days” is the first of three articles that appeared over the next month that illuminated not only what happened to bring on the crisis, but who the people where that tried to mitigate it, which decisions were made when, and how the mysterious world of finance works. And doesn’t quite.
In its uniquely-scented New Yorker style with all those wafted, high brow East-Coast intellectual presuppositions, its oblique, allegorical lead-ins, and sly, intricate pacing, the reader is educated on a historical moment in American history. “Rational Irrationality” begins with the story of the Millennium Bridge, which upon opening, had to be immediately shut and re-engineered due to a wobble caused by pedestrians walking in step. The article goes on to illuminate how a single rational move by a single, rational entity (a bank), if repeated over and over by other entities, can create an unstable situation. And “The Pay Problem,” as you might have guessed, focuses on the question of regulating executive pay. When brought together, a case is being made. And though it’s not quite as simple as this, I’m going to try and outline that case (very briefly).
- Executive success is measured in terms of stock price and company profit.
- Executive pay, however, is often guaranteed or, at worst, tied to stock price at the time of their exit.
- Executive interest, therefore, in most cases, is focused on immediate financial gain.
- When certain tools that should be considered risky work out and make money for the company, that success breeds more of the same.
- Successes like that in the financial industry are imitated by competitors.
- Gains are spread throughout all levels of the industry, even involving regulatory bodies themselves.
- Risk across the entire industry increases.
- A single failure at any one point along the line creates a rippling effect that can bring down the whole industry.
- Logical corrective mechanisms by one institution are, just as before, imitated across the industry.
- Industry wide constriction only exacerbates the problem
What the New Yorker does best, I think, is provide the context, the biographies and backgrounds, the proper lighting and set design, with which the reader may better observe the theater of world politics, business, and art. But the uniqueness of most New Yorker articles, and these three in particular, is in their intense focus on the people involved. After all, financial markets do not occur organically in nature. Only human, after all. And humans are, as we’ve seen, all to prone to mistaking emotion for reason and immediate gains for solid, long-term ethical practice. Rarely in a daily, where the business cycle is usually too short to provide anything but the story in medias res, do you get the satisfaction of feeling–after a single article–that you’ve been given a good, clear picture of what is going on or what happened. This is what the New Yorker does. It is the foundation of minutiae upon which informed opinions might be made.
These articles explained not corruption–because corruption implies a breach in legality–but instead developed layers of a motif too difficult to get at directly: the subtle power of greed in a market economy and its effects on an entire industry. It’s important to remember however, that the articles and the brief outline above are not an indictment of financial executives. The stories present a case against unbridled greed. “Greed,” after all, “is good.” Who doesn’t like Gordon Gecko? But what the New Yorker articles beg is the question of ethics. How best aught the ethics of an industry be set and monitored so as not to wreck an economy?