Pulitzer Prize winner Rick Atkinson stopped by yesterday to sign copies of An Army at Dawn. This book is intended to be the first installment of a trilogy that will describe the liberation of Europe in World War II. This first book is about the liberation of North Africa, and the next two will cover Italy and France. Naturally, I asked him how the books were coming along, and he told me that he had put them on hold while he was embedded with the 101st Airborne in Iraq, and now he is writing a book about that experience. It will be exciting to see the many quality books that are being written by journalists and writers who spent time over there. We also discussed John Keegan, who seems to be the authority when it comes to popular histories of war. Atkinson professed to loving both The Mask of Command, which studies generals and commanders in wars from Ancient Greece to the present, and The Face of Battle, which gives similar treatment to the common soldier. Later on, while I was reading about those two Keegan books, I was pleased to discover that he has a new book that is a mere two weeks from hitting the shelves. It is enticingly titled, Intelligence in Warfare: From Nelson to Hitler.
Author Sighting
Turnips, Quarterbacks, and Strawberry Pickers: Credit Default Swaps Made Simple
Last week, Max directed our attention to a major new piece of reporting on the financial crisis: a Portfolio article by Millions favorite Michael Lewis. The author of Liar's Poker, among other books, Lewis is a gifted explainer of an industry badly in need of explanations. In the Portfolio piece, for example, he immerses us in the world of short-sellers who saw the subprime meltdown coming. However, the key paragraph - wherein trader Steve Eisman has an epiphany about how investment banks are leveraging subprime bonds - resorts to a sports metaphor, and thus fails to demystify an elusive instrument at the center of the financial crisis: the credit default swap (CDS)."When a fantasy player drafts Peyton Manning, he doesn't create a second Peyton Manning to inflate the league's stats," Lewis writes.But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. 'They weren't satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn't afford,' Eisman says. 'They were creating them out of whole cloth. One hundred times over! That's why the losses are so much greater than the loans.'I've heard financial insiders inveigh against peons who "don't know a credit-default swap from a turnip," but how are we to wise up, if explanations only come in the form of metaphors (athletic or agricultural)? Grabbing a fig leaf from the N+1 playbook, as it were, I decided to ask a friend in finance to explain the Peyton Manning analogy, as simply as possible. Here's what he had to say (wait for "the rub"):Assume the following: Eisman buys a crappy mortgage security (say, a $1,000 bond from a mortgage given to a strawberry picker who makes $14,000 dollars per year). Say the mortgage rate the strawberry picker pays is 15%. This means he's agreed to pay $150 a year to Eisman. But Eisman is worried that the strawberry picker will default because the guy's house value has collapsed and his income is drying up. Thus, Eisman wants to buy insurance on the $1,000 he's loaned. The way he does this is via a credit default swap.A CDS is essentially an insurance policy on a loan, and here's how it works. Eisman finds a counterparty willing to sell him insurance on his loan (a big investment bank like Lehman Brothers). Eisman agrees to pay the bank a fixed rate every year for protection of the mortgage security he owns (the crappier the loan, the higher the rate). Let's say for the $1,000 loan to the strawberry picker, his rate will be 10%. The bank pays him nothing on a regular basis, BUT, if the borrower defaults, they pay him the full $1,000.So: if times are good and everyone makes payments on time, the payments are structured as follows: The strawberry picker pays $150 per year to Eisman; Eisman pays $100 per year to Lehman (which then uses some of the cash to provision for losses, and uses the rest to make more loans). The strawberry picker gets to keep his house, Eisman keeps $50 per year (loan payment from strawberry picker minus the insurance premium he pays to Lehman), and Lehman gets $100.Got the structure? Now here's the rub.Imagine Eisman never actually had exposure to the loan in the first place. Being the brilliant skeptic he is, Eisman would never lend $1,000 to a strawberry picker with little income. He thinks that strawberry man is doomed to default on that loan, and he actually wants to bet AGAINST him. So instead of giving the loan and buying insurance, he just buys the insurance (hence the often used and rarely understood term "side bet"). To do this, Eisman still has to pay the "premium" for the insurance he's bought, and since it's a risky loan, the rate is high (e.g. $100 per year in the example above). [Though he stands to win $1,000 if the loan defaults.] In effect, Eisman is paying a "subprime-like" interest rate to Lehman every year! That's what Lewis was getting at.I would have used a different metaphor. I would have said it's like a New Yorker buying a bunch of home insurance policies in New Orleans because you are expecting that there will be a massive hurricane coming to wreck them. Now lets say that the insurance company took the money you were giving it, didn't provision for the coming doom, and instead, used that money to lend to more people building and buying houses in New Orleans.That's leverage upon leverage upon leverage. And that's the mess that is unraveling before us.
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Spring Training
As the baseball season gets underway, it looks like this summer's big off-the-field story will be steroid use. (More serious allegations are beginning to surface as the San Francisco Chronicle reports that federal investigators were told Barry Bonds, Jason Giambi, and Gary Sheffield all received performance enhancing drugs from a lab that is currently under investigation.) But last year's story, the fallout from Michael Lewis' book Moneyball: The Art of Winning an Unfair Game, still has legs. The March 1st issue of Sports Illustrated (on newsstands last week) contains a vociferous epilogue to Moneyball in which Lewis catalogs some of the more outrageous responses that his book received from baseball insiders. He takes to task particularly egregious offenders, like Joe Morgan, for continuing to dismiss the book out of hand. It's a must read for anyone who was swept up in last summer's Moneyball furor.
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A Presidential Appearance
In the back office of my bookstore, folks are already abuzz about this year's Book Expo in Chicago. Book Expo is probably the largest publishing convention in the world, but if you talk to booksellers, they typically bemoan the crowds and the hectic atmosphere of the Expo weekend. However, this year's keynote speaker happens to be former prez Bill Clinton who will be pushing his new -- and as of this writing, not yet completed -- memoir, My Life ("The president came up with the title," says attorney Robert Barnett, who handles Clinton's literary endeavors.) Also from this Washington Post article about the Clinton book: a first printing of 1.5 million copies and the first of what will likely be legions of sales comparisons with Hillary's blockbuster. Hillel Italie of the AP hopes that Clinton will depart from all previous presidential memoirs by providing readers and historians with some actual insights (LINK). I would rate the chances of this as extremely slim. And David D. Kirkpatrick of the New York Times believes that the timing of the book's release is purely political (LINK). Meanwhile, back in bookseller land, Book Expo attendees are bracing themselves for the media furor that is sure to accompany the book's unveiling.
Frank Wilson, An Editor Who Tried Something New
Tomorrow is Frank Wilson's final day as book editor of the Philadelphia Inquirer. This is notable not just because fragile book sections can ill afford to lose advocates like Wilson and not just because of the boisterous and popular link blog, Books, Inq, that Wilson ran on the side (and has hinted he will continue.) It is notable because as much as anyone in the literary world, Wilson embodies the positive changes that have gone on among both the media and the masses in the discourse surrounding books.About a year ago, in taking stock of book blogs' place in the world, I noted that "though there has sometimes been an unhealthy 'us against them' mentality between bloggers and professional critics, in many ways this friction has melted away as critics have become bloggers themselves and as a number of talented bloggers have begun to invade the book pages, providing a pool of talent and a new voice to book review sections that were shrinking and stultified."In this last regard, Wilson was key. While some of his colleagues looked upon bloggers warily, concerned that these "enthusiasts" would squeeze them out by doing their work for free, Wilson was prescient enough to recognize the enthusiasm and talent of quite a few bloggers. Though he was not the first to look to the blogs, he was perhaps the most fervent in tapping this new pool of talent, giving people like Ed, Scott, and Levi the wider audiences that they deserved.All of this is also important in the context of what's going on in the newspaper industry. Wilson has not announced the particulars of his departure - which to this observer seemed sudden - but the Inquirer is as embattled as any newspaper out there. Late last month, Jim Romenesko reported, "Philadelphia Inquirer and Daily News chief Brian Tierney told his unions... that there will be 'a dire situation' by summer or fall if the company can't find ways to cut costs by 10%." However, while many of Wilson's colleagues across the country rail against the fate of the industry, Wilson tried something new, both with his blog and by reaching outside of the normal circles for writers.Finally, as a fairly recent transplant to Philadelphia (one who has quickly come to love the city), I will feel Wilson's departure more personally. In a once great newspaper town, Wilson was something to hold onto, even amid the "dire" warnings of the Inquirer and the Daily News. Luckily not everything is so dire. Though Wilson will leave behind his book section, he will continue to be part of a literary conversation that it is as vibrant as it has ever been. Fueled by readers, this conversation has migrated from book club meetings and bookstore aisles out into the open, amongst all the blogs, newspapers, and magazines that choose to take part.
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Full Disclosure
Well, folks, it's happened. The mainstream media has finally discovered the Internet's sordid underbelly. According to an article in last Monday's New York Times, a growing number of online outlets have begun reviewing products for reasons other than the simple joy of content production. Advertisers in search of buzz are plying them with freebies, and sometimes even (gasp!) paying for advertising. Naturally, such cosy relationships raise eyebrows. Writes the Times:Some in the online world deride the actions as kickbacks. Others also question the legitimacy of bloggers' opinions, even when the commercial relationships are clearly outlined to readers.Regular readers of this site are probably aware that a portion of our small operating budget comes from an association with Amazon.com. Click through The Millions and buy any product, regardless of whether or how we have covered it, and we get a small cut of the purchase price. You're also no doubt aware that we run advertisements. Still, the Times has inspired me, as it so often does, to look inward. And so, in the interest of fuller disclosure, here is a comprehensive list of the other potential conflicts of interest we've encountered here at The Millions:John McPhee shares an opthalmologist with Millions founder C. Max Magee.Gerald Durrell once recorded an outgoing voicemail message for Lydia Kiesling, who writes our Modern Library Revue column.David Simon, creator of The Wire, smuggled our contributor Noah Deutsch into the exclusive 2007 HBO Christmas party in a scheme involving an oversized trenchcoat.The trenchcoat had arrived in a holiday "swag bag" from NYRB Classics, embossed with the likeness of Edwin Frank.FSG, not to be outdone, included a diamond-encrusted coke spoon in its press kit for Clancy Martin's How to Sell.Our contributor Anne K. Yoder was married, briefly, to Philip Roth.Prior to our defense of the "Mom Book," Olive Kitteridge author Elizabeth Strout personally courted Millions contributor Edan Lepucki with a relentless muffin-basket campaign. Guess we know how she got that Pulitzer.Nam Le, author of The Boat, won his "Year in Reading" spot in a poker game with Richard Ford.All posts attributed to Andrew Saikali are actually written by Ben Dooley.All posts attributed to Ben Dooley are actually written by Haruki Murakami.A complimentary Junot Díaz beer coosy is currently keeping my Brief, Wondrous Lager of Oscar Wao a smooth, drinkable 52 degrees.As you can see, the world of lit-blogging is a seductive and glamorous one; temptation lurks at every turn. Nonetheless, I am pleased to report that none of of these potential conflicts has affected our coverage. I am also pleased to report that Oscar Wao is the greatest novel of all time.[Image Credit: stopnlook]
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