Wednesday, February 01, 2012

Confidence Man: The View from Chapter 8

So far, Süßkind is a heck of a storyteller. The story of the great crash and Obama's campaign are both told as a series of mainly personal vignettes - clearly the remembrances of major and some less major players. These are personal stories, but the central narrative is always in the background, and the parts of the story we get are those experienced by the players we hear about.

So far this has been mostly the story of how the looming catastrophe was gradually apprehended by a few bankers and economists close to the industry. These Cassandras suffered the usual fate of their clan - they were ignored, or mocked, or fired, but a few managed to keep thier heads above water and even save a bank or two.

Obama had friends and advisors among this group, and was probably the first prominent politician to have even a murky picture of the impending crash. At first, though, both he and his advisors saw it as something fairly far ahead - something that might happen in the middle of his second year if he was elected.

At this point, the Bush economic team - Treasury Secretary Paulson, Fed Chairman Bernanke, and New York Fed honcho Tim Geithner were still in almost total denial. As business conditions tightened in 2007, the portents of doom became more obvious, but Paulson's Treasury thrashed fecklessly. By the time disaster was at hand in late summer 2008, Paulson had frittered away a full year.

A very interesting aspect of the story that of the egos that led to annihilation (Fuld at Lehmann) or to it's very brink (Thain at Merrill Lynch).

Candidate Obama is portrayed as quick, cool, well-informed, and masterful, but with the Candidate now the President-elect we already see hints of a more uncertain touch. Brilliance can't quite substitute for lack of experience. His most fateful decisions, it appears, will be his choice of Chief of Staff and economic advisors.

It's pretty clear that Larry Summers is destined for a key role in the developing play. Initially an outsider, Summers' dominating personality, brilliance, and oratorical mastery have brought him near the center of power. We also see hints of trouble ahead. Summers, while Bob Rubin's deputy in the Clinton administration, was a key player in the bank deregulation which allowed the banks to stuff their portfolios with the risky financial instruments of mass destruction at the center of the 2008 crash. Moreover, at least in Süßkind's version of events, he seems to have consistently underestimated how bad things were going to get.