Millions contributor Emily’s award-winning review of The Suspicions of Mr. Whicher: A Shocking Murder and the Undoing of a Great Victorian Detective by Kate Summerscale has been posted by VQR. Check it out.
A few months back there was some fuss about Penguin selling, for close to $8,000, the Complete Collection: More than 1000 of the Greatest Classics. Recently, used bookstore owner Jeff Sharman went through his inventory and found “a handful of forgotten Penguin Classics” – ones that didn’t make the cut. He raises an interesting point that not all classics stand the test of time.
Amar Bakshi was about five years behind me at my high school in Washington DC, but he has my dream job, traveling the world to author a blog for the Washington Post, taking on the charged topic, “How the World Sees America.” I started reading it because of the high school connection (Amar is a friend of my little brother’s), but I’ve become an avid reader of it over time as Amar follows in the footsteps of some of my favorite traveling journalists: Jon Lee Anderson, Paul Theroux, and, of course, Ryszard Kapuscinski. Unlike those masters of the form, Amar also carries a video camera with him to further chronicle his experiences. Since starting in May, he’s been to England and India, and now he’s back in the States hashing out plans to travel farther afield. It’s an interesting experiment from a young writer. Worth a read if you’re looking for another blog to follow.
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.
A few posts back I touched upon the idea of the “style guide.” As a newly minted journalism student, I have been taught that these guides are essential for creating the “clean copy” that my editors will want to see. They are fascinating books in a way. In my AP Stylebook some entries are brief, just one word: tiptop says one, instructing me not hyphenate. Other entries go on for a few pages like the one for possessives, which explains how to deal with “nouns the same in singular and plural,” “special expressions,” and “quasi possessives.” I know, exciting. One of the undercurrents of journalism school seems to be that writing is a lot more than just putting words on paper. There are rules to be followed and facts to be vetted. The rules are covered by the Stylebook, but vetting the facts can often be done with The World Almanac and Book of Facts, where one might discover a daily astronomy calendar, a list of popes, and the name of every town in Alabama with more than 5,000 people. Armed with these two books, I ought to have much of the guidance I need, but I have also been known to refer to a couple of my favorite writing reference books when necessary. The Elements of Style is a thin, little book that is so elegant and efficient in teaching proper usage it supersedes many of the fatter, drier grammar books you may have encountered in your studies. I also love my The Synonym Finder, which I bought when I worked at the book store after a customer became misty when describing her devotion to it. I’m glad I bought it. Every time I go looking for a synonym, I find one so good that it feels like I’m cheating somehow. My reference library is by no means complete, however. I’m still looking for that perfect dictionary (any recommendations?). And though I’m always dropping hints that I’d love to get a nice hefty atlas for a gift, I still haven’t received one.
For someone who’s not writing any more books about Harry Potter, J.K. Rowling sure is doing a lot of dabbling. She sold The Tales of Beedle the Bard a “book of five wizarding fairy tales, referenced in the last book of the Harry Potter series” to Amazon for close to $4 million in a charity auction. And now she’s sold an 800-word Potter prequel at another charity auction for $48,858 (that’s $59 a word, as USA Today notes).If two makes a trend, then I wonder, will Rowling spend her post-Potter career gamely agreeing produce bits of Potter ephemera for various auctions, thus filling out the Potter world in a seemingly unplanned way? Does it matter if the average Potter fan never gets to see them?Perhaps more importantly, will all this dabbling eventually convince Rowling to pick up the pen and write another Potter book? It certainly won’t quiet the speculation. Rowling professes to have no plans to write another full-length Potter, but if she does it certainly won’t be the first time a pop-culture phenomenon reappeared after a long hiatus. Indiana Jones and Star Wars come to mind and we all know how those turned out.