Category: Books

How Times Change

By James Kwak

For those waiting, the paperback edition of 13 Bankers went on sale on Tuesday to little fanfare. That’s not surprising; all of the crisis books have been dribbling out in paperback, about 8-10 months after the hardcover editions, to little fanfare. It’s a commentary on how quickly times have changed, and also on the fickle nature of the publishing market. While there is still a lot of residual anger and bitterness over the financial crisis — specifically, over the fact that the big banks played a central role in triggering the crisis, then got massive amounts of bailout money, and now have returned to “health” more quickly than the economy as a whole or the typical household — most people seem resigned to a continuation of the pre-crisis status quo, and what energy remains has perversely gone into railing against the national debt.

The whole story also highlights the importance of timing in publishing. Looking back, we couldn’t have gotten any luckier, with the book going on sale during the Senate debate over financial reform and just two weeks before the SEC sued Goldman, which also happened the day that our Bill Moyers appearance aired, which drove our Amazon ranking up to #6. Today we’d be lucky to crack #600.

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The More Things Change …

By James Kwak

As a holiday gift to myself, I’ve actually been reading a real book, on paper — The Worldly Philosophers, by Robert Heilbroner. The book itself was not a gift to myself; I have my sister’s old copy, which is the 1980 edition. The book is a traditional intellectual history of some of the main figures in economics. As the original was written in 1953, it focuses less on the mathematical line of economics, from Walras and Marshall through Arrow-Debreu to the present, and more on what used to be called political economy: Smith, Ricardo, Mill, Marx, Keynes, etc. It’s not a way to learn economics, but a way to learn something about the historical conditions that helped give rise to some important economic ideas.

But some passages seem oddly relevant today. Discussing the conventional economic wisdom of the early nineteenth century (pp. 121-22):

“They lived in a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. . . . It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.”

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13 Bankers in Paperback

By James Kwak

Yes, that’s a new book photo in the sidebar to the right. The paperback edition will be available on January 11, 2011. It has a new epilogue taking the story from January 2010 (when we finished the hardcover) to September 2010, covering the financial reform debate in the Senate and the final Dodd-Frank Act.


The Importance of the 1970s

By James Kwak

It isn’t often that I read two books in a row that both cite Alexis de Tocqueville, probably my favorite Social Studies 10 author (although he was far from my favorite at the time). In Third World America, Arianna Huffington cited Tocqueville’s observation that democracy should promote the interests of “the greatest possible number”; as I pointed out, this is clearly no longer true in America (if it ever was). In Winner-Take-All Politics,* Jacob Hacker and Paul Pierson explain why.

In 13 Bankers, Simon and I argue that the key forces behind the transformation of the financial sector and the resulting financial crisis were political, not simply economic. To this argument, at least two good questions spring to mind: Why finance? And why then? Hacker and Pierson have good answers to both of these questions. Their answer to the latter question is better than (though not inconsistent with) the answer we gave in our book.

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Why the Education Gap?

By James Kwak

Probably the most important and intractable economic problem we face is not restarting the economy after the financial crisis, but the decades-old problem of stagnant wages for the lower and middle classes and the consequent massive increase in income inequality. This is something that Raghuram Rajan brings up in the first chapter of Fault Lines, and, like many people, he points the finger at education. Citing (like everyone else) Claudia Goldin and Lawrence Katz, he writes (pp. 22-23),

“As agriculture gave way to manufacturing in the mid-1800s, the elementary school movement in the United States created the most highly educated population in the world. . . . The high school movement took off in the early part of the twentieth century and provided the flexible, trained workers who would staff America’s factories and offices. . . .

“Recent technological advances now require many workers to have a college degree to carry out their tasks. But the supply of college-educated workers has not kept pace with demand–indeed, the fraction of high school graduates in every age cohort has stopped rising, having fallen slightly since the 1970s.”

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Democracy in America

It appears that Simon beat me to commenting on Third World America, Arianna Huffington’s bleak portrait of many of the things that are wrong with America (crumbling infrastructure, failing schools, extreme inequality, low social mobility, political system captured by special interests, etc.), so I’ll confine myself to a couple of thoughts I had while reading it.*

First, there are these great quotations from Alexis de Tocqueville’s Democracy in America (p. 45 of Huffington’s book):

“Amongst the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people. . . .

“Democratic laws generally tend to promote the welfare of the greatest possible number; for they emanate from the majority of the citizens, who are subject to error, but who cannot have an interest opposed to their own advantage.”

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Pack of Fools

By James Kwak

“I thought that I was writing a period piece about the 1980s in America, when a great nation lost its financial mind. I expected readers of the future would be appalled that, back in 1986, the CEO of Salomon Brothers, John Gutfreund, was paid $3.1 million as he ran the business into the ground. . . . I expected them to be shocked that, once upon a time on Wall Street, the CEOs had only the vaguest idea of the complicated risks their bond traders were running.

“And that’s pretty much how I imagined it; what I never imagined is that the future reader might look back on any of this, or on my own peculiar experience, and say, ‘How quaint.'”

That’s Michael Lewis in The Big Short (p. xiv), looking back on Liar’s Poker.

“Looking back, however, Salomon seems so . . . small. When the Business Week story was written, it had $68 billion in assets and $2.8 billion in shareholders’ equity. It expected to earn $1.1 billion in operating profits for all of 1985. The next year, Gutfreund earned $3.2 million. At the time, those numbers seemed extravagant. Today? Not so much.”

That’s the third paragraph of Chapter 3 of 13 Bankers. (This was a complete coincidence; I didn’t see The Big Short until it came out, and I have no reason to think that Lewis saw a draft of our book.)

I actually did not rush out to buy The Big Short, even though Michael Lewis is a great storyteller. I figured I knew the story already; Gregory Zuckerman’s The Greatest Trade Ever covered some of the same ground and some of the same characters, and I already knew plenty about CDOs, credit default swaps, and synthetic CDOs. But I’m very glad I read it, and not just because it’s a fun read.

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Thank You

By James Kwak

13 Bankers is #11 on the New York Times hardcover nonfiction bestseller list.* I’m certain that could not have happened without the readers of this blog. (Actually, the book would not have existed in the first place without this blog, and the blog wouldn’t exist without readers.) It’s also #4 on the Wall Street Journal hardcover business list and #14 on the Indiebound hardcover nonfiction list.

In other major news, the book is Arianna Huffington’s pick for April, which means that there will be a month of blog posts by us and by other bloggers at the Huffington Post. Our first post in the series, arguing against the “banana peel” theory of the financial crisis, is already up. We’ve lined up a wide range of commentators, several of whom we expect to disagree with us rather strongly.

We also have some full-length video of presentations by Simon. Over the next week, I’ll be in Providence and Simon will be in Chicago and Los Angeles (schedule here). Simon has a bunch of interviews; I’ll be on Sense on Cents tomorrow evening.

* The list is for the week ending April 3. It goes on the Web on April 9 but doesn’t go into the print edition until April 18, by which point it is two weeks out of date. (One friend thinks the lag is to give bookstores enough time to stock their shelves.)

Book News

By James Kwak

(This is an occasional update on this blog. For more frequent news and reviews, see the 13 Bankers site.)

Since the last update here, we’ve gotten several more reviews: The Daily Beast, Fortune, The Aleph Blog, and Rortybomb, to name a few. Links to many reviews are here. (If you wrote a review and want us to link to it, send me an email at baselinescenario at gmail dot com.)

I’ve also updated the list of past media appearances that you can view online, so you can see Simon’s suit from many different angles. In particular, I’d like to flag the Firedoglake Book Salon from this past weekend, where Bill Black hosted an in-depth, online discussion with Simon. I’ve also updated the list of upcoming events (in-person and media). For those in Rhode Island, there’s a last-minute addition: I’ll be talking at Brown this Sunday.

Some people have asked how the book is selling. I know little about the publishing industry, but I believe the accurate answer is always, “I don’t know.” Our Amazon book ranking is in the 40s, which we are grateful for. (Michael Lewis was #1 for a couple of weeks until he was completely blown out of the water by Stephenie Meyer’s next vampire novel, which isn’t even shipping until June.) But as for bookstore sales (which are still several times Amazon sales), you really don’t know, because bookstores can return unsold copies. So it’s too early to tell.

Update: Simon’s entire event (over one hour) at the World Affairs Council of Washington is available on C-SPAN.

One Day to Go . . .

By James Kwak

Well, officially at least. There have been a bunch of copies on eBay for a while now, and apparently some bookstores have put them on the shelf already. You can now read excerpts from the introduction and the last chapter, courtesy of NPR and the WSJ, respectively. Besides the reviews that Simon has featured on this blog, there’s a new one from the Daily Kos. The events page now has some media highlights (Colbert!) in addition to in-person appearances.

And we have a page explaining what the title means.

A Little Book News

By James Kwak

So, we have a book that goes on sale a week from Tuesday (although you can pre-order it now). We created another blog for book-specific news, in order to avoid cluttering this blog with too much book stuff. But we are going to provide occasional updates (like this one) here with a few highlights.

In the last week, we got a friendly review by Arnold Kling, we learned that the books do actually exist, and we put up a page with some in-person events in case you’re wondering if we look like our photos. We also put up our first factual correction, having to do with the 10 percent cap on deposits. Note that we are interested in correcting errors of fact — we put a lot of effort into getting the facts right, including hiring our own professional fact-checkers (that’s another blog post for another time). If you think we made an error of interpretation (or an error of theory) . . . well, we’re happy to think about it, but don’t expect a correction.


By James Kwak

I only recently finished reading Freefall,* Joseph Stiglitz’s book, so this review comes about two months late. It took me a while partly because I was busy, but partly because I didn’t feel a lot of dramatic tension . . . since I agreed with almost everything he said.

Unlike most crisis books, Freefall is relatively short on what caused the financial crisis. The historical background is mainly laid out in Chapter 1, “The Making of a Crisis,” although there is discussion of specific problems in later chapters, such as Chapter 4, “The Mortgage Scam.” Mainly this book is about the response to the crisis, what was wrong with it, and what needs to change in the future.

Reading the book gave me a familiar feeling. You see, our book (13 Bankers) is largely about historical and political background–our Chapter 1 begins with Thomas Jefferson and Alexander Hamilton, although most of the book is about the period since 1980–so there is relatively little topical overlap between the two. But where they do overlap, particularly in the discussion of government responses to the crisis, I had the sensation that we were saying much the same thing.

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Toxic Finance

By James Kwak

The first generation of financial crisis books was largely blow-by-blow, behind-the-scenes accounts, like David Wessel’s In Fed We Trust and Andrew Ross Sorkin’s Too Big to Fail — long on characters, events, and dramatic suspense (or at least as much dramatic suspense as you can have when writing about something that unfolded on the front pages of the newspaper), but relatively short on analysis. There were also more analytical books, like Justin Fox’s The Myth of the Rational Market and John Cassidy’s How Markets Fail, which seem like books about free market economics that later turned out to be about the crisis. But one thing this crop had in common is that, for the most part, they ended with the near-collapse of the financial system.

The current generation of books is not just about the crisis and what caused it, but also about the response to the crisis, and what went wrong — that is, why the large banks are bigger, more powerful, and more concentrated than ever before and why the unemployment rate is still languishing around 10%. Joseph Stiglitz’s Freefall (which I haven’t finished reading) falls into this category, focusing more on the governmental responses of 2008-2009 than on the causes of the crisis. So does Yves Smith’s ECONned, which just came out this week. (I have the early version that the publisher sent to Simon a while back.)

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The Wasted Opportunity

I thoroughly enjoyed reading The End of Influence by Stephen Cohen and Brad DeLong.* For one thing, it’s not specifically about the financial crisis (although that does play a role), so you don’t have to read the nineteenth explanation of how a CDO works or what a NINJA loan is. For another, it’s short–only 150 pages, and small pages at that–and easy to read, so it will probably jump your queue of books to read and you can cross it off your list in just a couple of hours.

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