The Litblog Co-op’s second selection has arrived! What is it? How will it be received? Will the Co-op be praised or reviled? You’ll have to go to the blog to find out.
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.
Eagle-eyed readers looking at the cover of the soon-to-be-released paperback edition of David Foster Wallace's The Pale King may have noticed the words "With Four Previously Unpublished Scenes." While we haven't seen all of the new scenes, from the example below, which we obtained from publisher Little, Brown, it appears that this extra material did not neatly correspond with the finished book but nonetheless may offer some additional context. The scenes will apparently be packaged as part of a "Reading Guide" in the new edition of the book. The first paragraph below is an explanation provided by the publisher, followed by one of the four new scenes, in full. This scene with Claude Sylvanshine and Charles Lehrl together as roommates does not align with details of the character Merrill Errol Lehrl elsewhere in the book. But its evocation of a childhood in semirural Peoria adds to the picture of that place assembled elsewhere. Charles Lehrl grew up not in Peoria but in nearby Decatur, home of Archer Dentists Midland and Lehrl said a city of such relentless uninteresting squalor and poverty that Peorians point with genuine pride at their city’s failure to be as bad as Decatur, whose air stank either of hog processing or burnt corn depending on the wind, whose patrician class distinguished itself by chewing gum with their front teeth. Lehrl’s narrative was that he had grown up in a mobile home the color of rotten fruit across a drainage culvert from Self-Storage Parkway, an interstate spur once built for an A. E. Staley subsidiary that had closed down when the bottom had fallen out of the pork belly market and now home to mosquitoes, conferva, shattercane, and an abundance of volunteer weeds gone hypertrophic in the outwash of nitrogen fertilizers that summertime pets disappeared in. What had kept his father from being an actual alcoholic was that being an actual alcoholic would have taken too much effort. Mr. and Mrs. Lehrl had not just allowed but encouraged the children to play in the road. The neighborhood’s only going concerns were 3.4 acres of U-Lock It self-storage units and a small rendering-plant owned by a large family of albinos that seemed constantly to grow without any sort of non-albino genetic refreshment and between all eighty-seven of them could not handle more than one animal at a time. Mr. Lehrl spent the bulk of Charles’s childhood lying on the couch with his arm over his eyes. Lehrl spoke of Decatur in the summer as if he’d grown up aloft: the flannel plains and alphabets of irrigation pipes laid down in the bean fields — Peoria and Lake James and Pekin were corn, Decatur and Springfield soybeans for the Japanese — fields simmering shrilly, blind and creamy blue skies untouched by the ADM stacks whose output was invisible but redolent and, according to rumor, flammable, mosquitoes rising as one body from the system of ditches at dusk — and detailed the highlight of those summer days, which consisted of Lehrl, his brother, and his tiny sister negotiating the ditches and fences and crossing Self-Storage Parkway to climb a Big Boy restaurant’s billboard’s support and peer through the hole that was the Big Boy icon’s (a big smiling boy in a fast food cup bearing a tray’s) left incisor to watch the rendering plant’s lone cow or swine, standing chained in the crabgrass as four or more demented albino children threw rocks and broken glass at it until whatever systems inside were in place and the animal was led into a chutelike pen at whose sides several older albinos stood on cinder blocks with hammers and small-caliber rifles, at which time Lehrl and his brother and sister would climb down and try to get back across the expressway to play in the road outside their mobile home. Often Lehrl, who had grown up not in Decatur but in Chadwick, a comfortable bedroom community outside Springfield where his father had been a finance officer in the Highway and Transit Commission and his mother a five-term Recorder of Deeds, liked to reminisce about his childhood as he and Sylvanshine relaxed with one Dorfmurderer Onion lager each during Lehrl’s half-hour unwinding period (10:40–11:10) before making his preparation to go to sleep, and Sylvanshine liked to listen, interrupting only to ask small questions or express alarm at appropriate places, if only because it aroused a kind of tenderness in him that the something manifest but inexpressible in the hydraulics of Lehrl’s smile made it so paternally clear when what he was saying was not literally true. There were an enormous number of little variables and compensations that evened out their dynamics, a kind of complex mortise-and-tenon congruity to their assets and liabilities as men and ages, and though Sylvanshine had never consciously realized it, this was one reason they had become such great friends and so preferred each other’s company to anyone else’s that they had taken the step in Philadelphia of living together, despite the appearance and consequences of this appearance to which this move subjected them. It was because Lehrl was ambitious but not in a conventional way that he had suggested the arrangement, and Sylvanshine would be forced to admit that the unconventionality of Lehrl’s ambition, and the odd self-destructive quality to many of his career decisions — despite extraordinary administrative talents and uniformly high ratings from DDs in every place he’d been posted, Charles Lehrl was still a G-2 and actually subordinate in grade to many of the people he supervised — was a big leveling — and tenderness — mechanism, since Sylvanshine’s career itself wasn’t exactly on the fast track, though once he passed the CPA exam as he surely would, he would himself be promoted to G-2 and able at least to pay exactly half of their communal expenses, an equity about which Sylvanshine fantasized as he sat alone in his leather slippers and plaid robe waiting for the inevitable third piss that every one lager equaled to assemble itself and be passed so he could go to sleep without worrying that he was just going to have to get up again just as his thoughts got pictorial and loosely associated and often toned with sepia or even a kind of salmon/yellowy visual filter, which was usually a sign that he was genuinely falling asleep and not merely kidding himself out of a fear of insomnia and the terrible fear of what sleep-deprivation often did to his alertness and concentration the next day. There is very little room in any branch of accounting for fuzziness, sluggishness, or any sort of abstraction in one’s faculties or approach to the problems at hand. It is a pursuit of exacting care and metal-minded clarity and precision. This much Sylvanshine knew for sure.
The creative writing class is a beautiful thing. The longest journeys begin with a single step, and (I’m sure) just like countless colleges and writers’ centers throughout the world, the classes I attended at The Irish Writers’ Centre were safe, exciting places to put one figurative foot in front of the other. Though clearly my metaphors need a little work… The established rules are pretty clear to anyone who’s attended school: do your assignments, listen to the other students, respect your teacher. But of course, society is also filled with unwritten rules, observed by most and flouted by others. Don’t sip your drink too loudly at the movies; don’t answer your phone during a gig; and, if you’re attending a writing class, don’t do any of the things described below. 1. "I didn't know we could do that!" Lesson number one begins with a writing exercise that I love. Students are asked to turn to their nearest classmate and ask three questions about their life, then take 10 minutes writing the opening paragraph of a story using some of these details. For example, if someone mentions that they travel a lot, tan easily, and like the ocean, you could (if you're a genius) use it as the opening to a story like John Steinbeck's The Pearl. It's a great warm up if there's a big enough group, and a chance for people to express themselves to a new class in a safe way. That is until people show resentment for classmate's use of imagination. To illustrate: One student was told of a classmate's insomnia, love for travelling, and fondness of Latin America. This gave birth to a Latin variation on The Hulk (or Jekyll and Hyde, if you're feeling even more generous). It was a lively, pulpy little piece and the closing line "when he slept, he became Rodrigo, and Rodrigo was not a nice person to know" evoked gasps and a few knowing chuckles: This young man had taken some bare facts and built the foundations of a fun -- if slightly derivative short story. There were backslaps all round, at first. "I didn't know you could do that!" one student spluttered, so outraged she could barely get the words out fast enough. "He...he used supernatural elements. That's not allowed! Is it?" What was the real issue? That he didn't follow her imagined parameters of the assignment? Or that her story was a literal shopping list of what she'd just been told? She had broken the first unwritten rule of creative writing classes: Don't get sore if someone else has a better idea. 2. "Oh, I haven't read it." Early in one beginner's class, we were assigned to bring in a book we wished we'd written. I resisted the urge to bring in something classy like Ulysses, or indeed Slash’s autobiography, and instead opted for High Fidelity by Nick Hornby. Another classmate brought in A Man in Full by Tom Wolfe. She praised it eloquently, saying how the fall of a tycoon was relevant, how Wolfe writes with the authority of a gifted investigative journalist, and how it echoes Wolfe's idol, Charles Dickens. "What do you like most about it?" asked the teacher. "Oh I haven't read it," she breezed, without a hint of embarrassment or contrition. She later went on to correct other people’s assertions and interpretation of Wolfe’s opus, utterly oblivious to the inconvenient fact that they had read it and she had not. You would think it doesn't need clarification, but apparently it does: When told to talk about a book you admire, it's best to choose one you've already at least opened. 3. "I thought it was sentimental." Outside of medicine and pharmaceuticals, which profession do you imagine is most affected by the existence of incurable diseases? I imagine it's creative writing teachers. In the first class I attended, the writing-about-terminal-illness cases were approaching 50 percent. Terminal illness is obviously a serious subject, but even the most powerful subject’s impact can be dulled with repetition, or when it’s used as a narrative short cut. You’ll be surprised how callous you become when numerous consecutive students read aloud their story about the elderly neighbor (kindly or cranky), known only for one hobby (gardening or withholding children's Frisbees) who succumbs to a disease that reveals their true colors (humor and/or courage). Making someone cry is as hard as making someone laugh, and, in both comedy and tragedy, it's painful to endure a piece of fiction that tries and fails. This brings us to a student we'll call “Anna” and rule number 3: Appreciate it when classmates are being polite. Her short story was about a precocious and grating young child who didn't like her aunt. The twist is (you're way ahead of me) that it turns out the aunt is fighting a serious disease. It was a mawkish, deadly serious piece of work, and the 4the illness-themed piece in one class. After she read it aloud, everyone gave polite, vague, and very gentle criticisms. Many tongues seemed to be held and bitten. Then it came time to read my debut opus, in which a boy realizes he's getting too old for stunts on his BMX. It was a little rough around the edges, but not the bike-crash I thought it was before Anna piped up. "I thought it was sentimental," she snipped, oblivious to the fact that she had just read out a piece that Nicholas Sparks would have deleted and re-drafted. "Yeah, it was mawkish," she continued, louder this time, "I didn't get it". “Hey listen, lady!” I didn't say. "The only reason you're taking such liberties is because you wrongly think your story is nuanced and insightful.” “And if we weren't so polite during this fragile and important learning phase, you'd know how leaden and syrupy your misery mope fest really was,” I didn't continue. “Thanks, Anna, that's really helpful,” I actually said, meekly and sadly combing over my every word to look for manipulative or sentimental passages I could re-write. Image Credit: Flickr/Elvert Barnes
The sexy repartee of Darcy delivered straight to my ears? The transatlantic, resounding voice of Sylvia Plath reading her poetry? An entire playlist of Shakespeare’s sonnets is there to delight, along with biographies of classical composers and Anton Chekhov short stories.
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Next, I turned to my second William Boyd novel Stars and Bars. This modern day comedy is the story of Henderson Dores, an English specialist on Impressionism who moves from London to New York in an effort to switch from academia to the lucrative business of art auctioning and to re-establish his relationship with an ex-girlfriend, who recently divorced her husband and has a teenager daughter. In Stars and Bars, Boyd exploits the differences between the English and American cultures to relate the South through the shocked eyes of Henderson. The protagonist faces a lot of challenges and his efforts to conform his lifestyle to certain English ideas do not necessarily pay-off in the good ol' U.S. of A. Henderson defines unlucky in his exploits and his misfortunes make for a grand laugh. Need I mention that Stars and Bars is also an amazing page turner?I wanted to go on reading Boyd, but decided to take a rather unfortunate break and read Vladimir Nabokov's Look at the Harlequins!. This is the first novel I read by Nabokov, and I realized what a bad choice it was halfway into it, but finished it nevertheless. Look at the Harlequins is an autobiographical piece and has a ton of references to other works by Nabokov, none of which I understood. So, if youre not well versed in Nabokov, do not look at the harlequins.To cheer up after my terrible defeat to Nabokov, I picked up Joseph Hellers Catch As Catch Can, a collection of his pre and post Catch-22 short stories, some published in magazines, others not. I really enjoyed the collection and left the book with my dad when I was visiting Turkey over the summer (he lobbied for 6 tireless years for me to read Catch-22, the day he bought me the book and saw me start reading it must have been one of his happier days. Actually he was so inspired by Major Major Major Major, that he wanted to name me judge in Turkish, thinking that it would prevent future jeopardy when I began drunk driving. E.g. when the cop pulls me over I tell him I am "Judge Peker," and he would be intimidated into letting me go.) Regardless, Catch As Catch Can reveals an interesting and rather dark side of Heller before he wrote Catch-22. His subjects are all very interesting people. Among them are: old men, poor working class Brooklyners, junkies, and seamen, all in the wonderful city of New York. Catch As Catch Can also includes some stories that tell of Yossarian and Milo in their later days, which are written in the same manner and tone of Catch-22 and maintain the same level of hilarity. As in Milo sells non-existent fighter jet to the U.S. Air force to fight communists. Yes, it is great. My dad approved of the follow up Yossarian and Milo stories too.Previously: Part 1, 2, 3, 4, 5, 6
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