No wonder Odysseus had so much trouble finding his way home. It turns out that there is some dispute as to the actual historical location of Ithaca, where Penelope waited for her hero husband to return. As noted in a recent article in The Economist, in The Odyssey, “Homer’s Ithaca ‘lies low,’ but its modern namesake is hilly. And though Odysseus’s island is ‘farthest to sea towards dusk,’ today’s Ithaca is close to the mainland in the east.” This disparity hasn’t gone unnoticed by historians and geographers over the years, but now, for the first time, investigations may provide clues as to the true location of Homer’s Ithaca, as geologists using a subterranean scan determine if Kefalonia, to the west of present-day Ithaca, was once actually two islands, the westernmost of which would fit Homer’s description. Locals are taking sides as Odysseus’ home brings with it a lucrative tourist trade.
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.
The boy wizard isn't gay, but apparently his beloved professor is. J.K. Rowling "outed" Dumbledore at a Carnegie Hall reading, inspiring "gasps and applause" as well as wire stories. Over the years, Rowling hasn't been particularly aggressive about being a self-promoter; she hasn't had to as the Harry Potter books have made her rich and famous without her having to occupy too much of the spotlight. Still, this seems like an all too easy way to gin up a little controversy and keep Harry Potter in the headlines now that the series is over.Now I won't deny that it makes plenty of sense for writers to flesh out the lives of their characters in their minds. Many writers take this a step further and put these fictional biographies on paper. And it's quite probable that in writing Dumbledore over the years, Rowling decided that he was gay.As the creator of perhaps the most beloved set of characters in literary history, Rowling has a tremendous amount of power. This sort of power can be easily abused. Knowing they will get no more books from Rowling, fans will take each new tidbit about Harry and the gang like the starving might savor a crumb. Meanwhile, each of these out-of-thin-air details will be folded neatly into the growing pantheon of Potter companion literature.To me, though, there's something terribly spare and arbitrary about these post-publication revelations. What are we as readers supposed to do with these out of context details? Can we ignore them? Should we?As a side note, have there been other examples of similar, post-publication, extra-textual revelations related to famous books? I tried to think of some, but came up empty.
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Mark Kurlansky is one of the primary practitioners of an interesting type of history book in which he takes a specific type of object or group of people and uses it as a lens through which he views history. Kurlansky has recently gained notoriety with three books that followed this sort of historical exploration: Cod: A Biography of the Fish That Changed the World, Salt: A World History, and The Basque History of the World, all of which are clever and very readable and which, with their success, have spawned a sort of cottage industry (see: The Potato: How the Humble Spud Rescued the Western World by Larry Zuckerman, Tobacco: A Cultural History of How an Exotic Plant Seduced Civilization by Iain Gately, How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World & Everything in It by Arthur Herman, and many, many others.) Kurlansky, meanwhile, has a new book coming out that is a new twist on the one subject history book. It's called 1968: The Year That Rocked the World, and it's thesis is that 1968 was the year when the world grew up, so to speak. A book like this will probably be pretty fun for a couple of reasons: Kurlansky is a skilled writer and historian, who is sure to produce the sort of engaging history that is always a thrill to read; at the same time, it is always fun to take sides along the way when a writer decides to choose a such a specific thesis, one that will undoubtedly prove difficult to defend against claims of selective inclusion and omission of events in order to prove the point. I'm curious to see if he is able to pull it off.
Art Spiegelman has a new book out about 9/11, and it appears to be generating some controversy. USA Today and most other papers are praising the new book, which is short on pages but big on production value. Others, like the customer reviews at Amazon, are very disappointed. Meanwhile, controversial cartoonist Ted Rall has written a scathing indictment of Spiegelman in the Village Voice.