Let me begin this week’s sermon by quoting from myself, from a piece I wrote for Forbes.com last October:
“Most halfway educated people know about idiots savants, people who are dyslexic, autistic or otherwise gravely impaired by ‘normal’ cognitive and psychological metrics, but who can reel off complex algorithms and theorems or intuit great scientific truths. I submit that there is a corollary genus, the savant idiot: festooned with credentials, diplomas, laurels and prizes professional and academic, who pontificates and expounds impressive-sounding ‘truths’ and explanations—what a friend of mine used to call ‘chinstrokers’—that in the fullness of time and markets prove to be utter b-lls—t. The idiot savant produces substance out of apparent ignorance; the savant idiot produces ignorance from apparent substance.”
When I wrote that, I had in mind, as I do in most instances of punditical spleen, Alan Greenspan. Later, however, there also popped up in recollection the stupidest thing I ever heard emerge from the lips of a certified genius. It was uttered over dinner some 20 years ago in a swank Manhattan restaurant by a famed econometrician, the Nobel-winning co-author of a valuation algorithm that is basic to the mathematics—the deeply flawed, it turns out, mathematics—of modern high finance.
“This morning,” he said to me (I’m reconstructing these remarks from memory, so the wording may be off, but I have the sense right), “I had to really give my kid a blast. He wants to major in history. What a waste of time!” And (he did not have to add): tuition.
As it turns out, the exotic arithmetic that underpinned the alphabet soup of modern derivatives and structured investments seems, like the great man quoted above, to have been inadequately informed by the one element of history that towers above all others: that it is made by human beings. By people who, as they struggle along the road to dusty death, persist in making the same mistakes over and over again, mistakes that flow from something innate in mankind’s DNA, mistakes better elucidated by poets and writers than the devisers of algorithms.
Here’s what I mean. I’ve recently been rereading, for what must be the fourth time, Anthony Powell’s A Dance to the Music of Time, the novel in 12 volumes that to my way of thinking stands fully up to Proust and Balzac (although, being in French, the latter have much greater cachet with Anglophone readers). In the third installment, The Acceptance World, mainly set in the early 1930s, Kenneth Widmerpool, Powell’s great monster, rises uninvited to speak at an Eton old boys’ dinner. It is an uncomfortable, unnerving moment, made no less so for the 21st-century reader by Widmerpool’s assertion: “… I put it to you that certain persons, who should perhaps have known better, have been responsible for unhappy, indeed catastrophic capital movements through a reckless and inadmissible lending policy.”
The Acceptance World was published in 1955; the dinner addressed by Widmerpool is assumed by Powellians of standing to have taken place in 1933—which is, as it happens, a date of some significance in financial circles today, since that was the last year the stock market sustained a monthlong upward move equivalent to what we have seen in the past 30-odd days.
To many, the recent rally is a deeply moving validation of what history may well come to call “the Great Geithner Giveaway”: the program for cleaning up “toxic assets” that to my eyes represents the ultimate in socializing risk and privatizing profit, since the latter will be maximized by six-to-one leverage underwritten by the taxpayer. Already the Internet is chockablock with ways to “game” the Geithner plan, all based on taxpayer exposure to nothing approaching a fair or reasonable ratio of risk to reward.
Validation or not, this is a rally that your humble correspondent missed. The market is reflecting the belief of investors of every size (apparently, a lot of small money has shared in this historic upsurge) that the worst is over for the forces that presumably drive equities, notwithstanding that General Motors is still on the verge, Chrysler’s probably toast and the fundamental question remains lit up like neon: What kind of work, what kinds of job-creation programs, incentives or market developments, will reverse a rising unemployment rate (8.52 percent, according to Uncle Sam)? How are we going to evacuate the average American consumer from the credit equivalent of Dunkirk?
What no one understands is that none of this matters to the people who make the call and their masters who dwell at the intersection of K Street and Wall Street. As is usual in this country, the fix is once again in (The Washington Post’s coverage of the bailout, available online, has been memorable) and the usurers rule.
To have missed out on the biggest sustained uptick in 70 years is discouraging, although I take some small comfort in my consort’s response to my despair: “A fat lot of good it did in 1933, I might point out.” She has a point. Somehow I doubt that the profits from this rally are going to find their way to Wal-Mart or the housing market. This worm is likely to turn, and when it does, it will assume the dimensions and rapacity of a python. But that’s a tale for another day.
So what is one left with? More gloomy fantasies of retribution à la worm into python. Much as I’d like to see someone march into Moody’s and Standard & Poor’s and make a citizen’s arrest for Enterprise Corruption, that’s not going to happen. Much as I’d like to see distributions to corporate executives tied to distributions to corporate stockholders (the best argument going for making dividends tax-deductible at the point of origin, and fully taxable at the point of receipt), that’s not going to happen. Much as I’d like to see the sellers and buyers of “naked” credit protection and other securities left to fight it out among themselves, that’s not going to happen. Much as I’d like to see the banks forced to disgorge their toxic assets 100 percent by category (all CDOs, all SIVs, all CDSs) in exchange for Federal Reserve Notes that count as statutory capital but are repaid out of realizations over time, that’s not going to happen. And the M.B.A. degree isn’t going to require course credits in “Finance in Fiction,” because who needs truth when you’ve got algorithms?
To put it simply, the recent stock market rally, as I see it, is more a validation of a point of view than of economic fundamentals. A point of view that grasps the truth that Wall Street stands in relationship to “Main Street” like the opposed lanes of an expressway: They share a landscape, but run in opposite directions, toward different destinations. As they used to say during my time on the Street, happiness can’t buy money. And so it goes.