Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager

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A Year in Reading: Keith Gessen

At the beginning of 2010 I was in Ukraine, and trying to understand what was going on there. Two contemporary historians, both dissidents, helped explain. Georgiy Kasianov writes in Ukrainian, Russian, and English; his history of post-independence Ukraine (in Russian) is a great and funny book that bravely resists the nationalist narrative pushed forward by the Ukraine-for-Ukrainians lobby. In English his edited volume, A Laboratory of Transnational History, is recommended. It includes an essay by John-Paul Himka, a Canadian historian of Ukrainian origin who has for a number of years kept up a lonely moral crusade against the nationalist elements of the Ukrainian diaspora in North America. You would think the margin for historical error in a territory and period as finite as Western Ukraine during the Second World War would be pretty thin; you’d be wrong.

I tend to read books in spurts. After Ukraine, I read a number of dystopian novels for an article I was writing. The best were Ishiguro’s Never Let Me Go and Houellebecq’s The Possibility of an Island. I preferred the Houellebecq. In fact, though Elementary Particles is still his best book, this one is his funniest. “In order to pass the time I told him the story of the German who ate the other German whom he’d met on the internet.” Very funny.

At this point, having settled again on American soil, I decided to figure out what was going on with our foreign wars. I read Rory Stewart’s amazing and funny book about walking through Afghanistan in the wake of the American defeat of the Taliban in late 2001 (The Places In Between), and then Megan Stack’s Every Man in This Village Is a Liar, which begins with her entering Afghanistan a bit earlier, right on the heels of the American invasion, tagging along with an Afghan warlord who will eventually try to sneak into bed with her. Stack’s book was so good that I could hardly believe it, so I read Dexter Filkins’ Forever War just to check. It was also very good. Forever War has more bombs exploding; Every Man has more of a comparative sweep.

At this point, almost without intending to (I was waiting for someone to give me their copy of Freedom), I read Ian Frazier’s funny, epic, surprising Travels in Siberia. Then I read Freedom, which is as good as everyone says it is. Reading Frazier and Franzen back to back underscored, first, that they have quite similar names, and, second, the deeply Midwestern quality of Freedom. There’s a great passage at the end of the Siberia book in which Frazier talks about how his father used to berate him, back in his Ohio childhood, for living such a sheltered existence and knowing nothing about the rest of the world. This is a uniquely American, perhaps American-suburban, prejudice–the idea that Ohio couldn’t possibly be further away from, say, Siberia. What Frazier points out, in his quiet, uninsistent way, is that the center of the most economically powerful nation on earth can’t pretend that it’s far away from anywhere, much less one of the world’s largest oil-producing regions, which is what Siberia is. It seems that a deep awareness of the truth of this–of the interconnection of the American suburbs and the rest of the world–is one of Franzen’s important contributions to American fiction and American self-understanding over the past ten years.

In June, my book of interviews about the financial crisis with a hedge fund manager was coming out, and I realized I still knew nothing about the financial crisis. I read as fast as I could to avoid humiliation. Many of the books were bad. Their authors had the difficulty of writing from another country–like the Ukrainian historian Kasianov, who writes partly for Russians–but in a language that the people in that other country (that is to say, us) didn’t know. So they could either pretend that we knew it already, or treat us like idiots. They did a bit of both. The Michael Lewis books–his newest, The Big Short, and his oldest, Liar’s Poker–stood out among all these for their clarity and wit, although I should add that I haven’t yet read John Lanchester’s I.O.U. or Yves Smith’s ECONned, both of which are supposed to be good.

When the HFM book came out, I did mostly manage to aovid humiliation–for example, by sleeping through a scheduled radio interview. But non-humiliation was not enough. I decided to get to the bottom of things by reading Capital. But I couldn’t understand it. I began to read around Capital–David Harvey’s Limits to Capital; Peter Singer’s Marx; Immanuel Wallerstein’s Historical Capitalism; Michael Harrington’s The Twilight of Capitalism; Edmund Wilson’s To the Finland Station. The only one I really got through (aside from the Wallerstein book, which is like 100 pages long because he uses no examples) is To the Finland Station. I’d inherited the notion somewhere or other that Wilson’s book wasn’t first-rate as intellectual or political history. This is untrue. Of all the secondary sources on Marx, it has been the most valuable to me. It will certainly always be the most entertaining. It gives a different kind of genealogy of Marx, through the French historians rather than the German idealists, and also it has a beautiful and sympathetic account of the relationship between Marx and Engels. Just a lovely book, almost as good as Parallel Lives.

At around this time, about a month ago–and still stuck about a third of the way through the first volume of Capital–I concluded that I would never understand Marx’s obsession with the concept of “price” until I went back to Adam Smith and the original formulation of the theory of price that Marx is taking issue with. So that is where you find me today, about a fifth of the way through the first volume of The Wealth of Nations. Maybe a quarter of the way.

Other great books I happened to read that came out in 2010 were Elif Batuman’s The Possessed; Sam Lipsyte’s The Ask; and Zachary Mason’s The Lost Books of the Odyssey. I recommend all three without reservation; they are instant classics. Another book I think everyone ought to read is Thomas Chatterton Williams’s Losing My Cool. It’s a complex, very honest, very entertaining memoir about a young man’s education that has not received anything like the serious consideration and discussion it deserves. And a final book I recommend from 2010 is And the Heart Says Whatever, by my very witty girlfriend, Emily Gould.

More from a Year in Reading 2010

Don’t miss: A Year in Reading 2009, 2008, 2007, 2006, 2005

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Stockholm Syndrome: Two Books on High Finance

From the far side of the Great Financial Meltdown, 1994’s Speed, ostensibly just another popcorn flick, starts to look instead like a brilliant allegory. Pop quiz, hot shot:
Dennis Hopper: “The airport. Gunman with one hostage. He’s using her for cover. He’s almost to a plane. You’re a hundred feet away.”

Keanu Reeves: “Shoot the hostage.”
Don’t see it yet? Consider: Keanu is the government, Hopper is the neoliberal consensus, the crazy person waving the Glock around is the financial industry, the bullet is two trillion dollars in losses, and the poor schmo being jerked hither and yon is you and me.

Readers concerned to further understand the dynamics of our own particular hostage crisis would do well to look at a couple of more recent documents: The Big Short and Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. Their charms are complementary. In the former, Michael Lewis, a Salomon Brothers alum, brings an insider’s savvy to the subprime crisis. In the latter, N+1 (in the person of Keith Gessen) lends an outsider’s ear to the brilliant disquisitions of a guy caught in the middle of it all. And read side-by-side these books do something even more valuable. They suggest that our captivity is at least partly in the mind – that even the most astute critics of what Lewis calls “The Doomsday Machine” have internalized some of the premises that made it possible.

In the case of The Big Short, that suggestion feels accidental. Lewis (also the author of The Blind Side, among other bestsellers) knows that every good story needs someone to root for, and so, against the big New York investment banks, he fields a kind of Magnificent Seven of scrappy smaller investors. (Smaller is a relative term, of course; most of these guys have tens of millions of dollars of assets under management.) Most compelling is his central character, Mike Burry, a California-based hedge-fund principal with a glass eye and Asperger’s syndrome. Burry, as Lewis tells it, was one of the only people in America with the acumen – and, thanks to the Asperger’s, the patience – to evaluate the actual mortgage tranches underlying those now infamous “toxic assets.” And, with our American admiration for an underdog, we cheer Burry on as he tries to find a way to monetize his discoveries before the subprime market collapses.

Lewis explains with great lucidity how, via the esoteric financial instruments Burry engineers (or rather, has Goldman Sachs engineer) theoretically endless profits can be manufactured from a single piece of subprime paper, like Xeroxes from an original. What he never quite spells out, though, is that the huge profits Burry amasses shorting the subprime market also represent huge losses for his counterparties – and thus (by way of bailouts and layoffs) to taxpayers all over the world. Perhaps this is why the The Big Short, in the end, lacks a sense of moral payoff. It’s as if the Wall Street Journal narrative of enterprise as an end in itself has gained traction not only with Burry, but with Lewis. At the very least, it says something that he takes as his hero of the financial crisis…a hedge-fund guy.

Gessen is more explicit about the amorality of postmodern finance. In an introductory note about the anonymous hedge fund manager who is his subject (henceforth, and in the book, HFM), he laments “that a mind so excellent, so generous, so curious, should spend all its time on relative trading in foreign jurisdictions and yelling at people who refuse to pay him back. . . .” But in this note, as in the interviews that follow, we can feel him being seduced, as we are, by HFM’s formidable intellect. Indeed, Gessen wants us to feel that seduction. HFM’s mind is “excellent” – and makes for excellent reading. Listening to him discourse on capital flows, currency speculation, real estate, literature, and hedge-fund folkways is like taking a terrific college elective, minus the final exam:
There’s some people who think the problem is so bad that if you actually recognize the losses, that it’s akin to smashing the equipment in the factory. Because these institutions can’t exist anymore, right? That for a bank, if you say, “Look, you can’t exist anymore. You’re so deeply insolvent that everybody’s fired and everybody’s got to leave,” at that point financial intermediation won’t work anymore. It doesn’t matter that you’ve marked everything down to the level that makes sense – you don’t have a financial system anymore. And a lot of people think that’s one of the reasons the Great Depression was so difficult to get out of, that the financial machinery was smashed. So I think which camp you fall into depends a little on how bad you think the damage is.
Still, like Burry’s, and perhaps even Lewis’, HFM’s is a captive mind. For all his candor about the causes of the financial crisis, he speaks from within a framework of essentially Friedmanite, free-market fundamentalism. As he’s speculating about martial law and breadlines, his biggest worry remains not widespread unemployment, but…the possibility of inflation and its effect on currency values. (His concessions to Keynesianism seem to evaporate as the immediate crisis of the Lehman Brothers collapse recedes.) Nor does HFM appear to see the shenanigans of the financial sector as systemic, rather than as tokens of personal fraudulence on the part of unsavory “dirtbags.” Gessen’s interviewing strategy – to present himself as a novice in search of instruction – succeeds brilliantly, in that it gets HFM to open up in all kinds of compelling and admirable ways. On the other hand, it means that his macroeconomic premises tend to go unchallenged.

Narratives about the horrors of stimulative deficit spending, in particular, have lately become a viral element in the body politic. As with New York’s fiscal crisis of the 1970s, or the various currency collapses of the 1990s, the public is being set up to choose between punishment at the hand of “bond vigilantes” or draconian “austerity measures” designed to ward off default. Notice, though, that those bond vigilantes are the very people who got us into this mess in the first place. Notice that the rate of inflation reported a few days ago was essentially 0%. And notice that, if we accept the choice as it is being framed for us, the hostage is screwed either way. I invite you to think back to Speed. One of the first questions we’re trained to ask about any narrative is whether the narrator is reliable. And if history has taught us anything, people, it’s that Dennis Hopper is f-ing crazy.

Bonus links:
An excerpt from The Big Short
A collection of HFM interviews from nplusonemag.com

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