I don’t usually read and tell, but I am going to make an exception today. I am going to write about what is wrong with Roger Lowenstein’s premature eulogy of U.S. investment banking, which is appropriately titled The End of Wall Street.
As a piece of journalism, The End of Wall Street is a triumph. This book will be among the few that will be forever referenced by historians logging what has transpired in our economy and our society over these last several years. Believe me when I tell you that I have read too many books about the financial crisis; and after reading all of those, I believe that this one is the best piece of financial journalism among the lot. Well done Mr. Lowenstein.
Unfortunately, as high as it soars in this regard, it sinks just as low as an editorial piece. Throughout the book, you sense that it is coming. There are bits of scolding, judging, admonishing and sermonizing that peek through the story from time to time. You sense the journalist/author has something he wants to get off his chest, and you sense that you’re not going to be dismissed from school without first getting a lecture. I don’t want to ruin the suspense for you if you are planning on reading the book, but the lecture begins on page 273, browbeating the reader until parole arrives after page 298. The balance of the book is darned good, so maybe it’s worth sitting through the sermon. I would liken the whole experience to be something akin to reading In Cold Blood with an extra chapter tacked-on in which Truman Capote lectures the reader about society’s role in driving Perry to kill the Clutters. I think Truman was wise to have ended it where he did.
Nonetheless, it’s not as if I haven’t received this lecture before. Heck, I worked for Citi; maybe I deserve it. I just think it demeans the accomplishment of the book. And more importantly, I think the lecture is plain wrong…and it all comes down to page 288.
Mr. Lowenstein commits his cardinal sin when he writes, “That investors could be so blind refuted the strange ideology that markets were somehow perfect (“strange” because the boast of perfection is never alleged with respect to other human institutions).
Roger, the market is perfect; it is information that is imperfect. More to the point, the market is not a “human institution.” The market is our social environment, akin in every way to our physical environment. That lemmings run off of cliffs is not an indictment on topography in the same way that people investing in subprime mortgages is not an indictment on the econosphere. We may inhabit our market economy, but it is as natural an “institution” as is the biosphere that we inhabit. We are compelled to produce, consume and trade with one another because it is our instinct to do so. By labeling the market as a “human institution” and thereafter comparing it to our political process, you are suggesting that we created the market in the same way that we created Congress or the Presidency. We did not invent the market any more than we invented gravity, oxygen or the moon. The fact that we need to trade is a fact thrust upon us by the finite nature of our resources, skills and our very lifespan. We are compelled to make the best of these resources and we are guided by the market in the distribution of these resources. That we have booms and busts is evidence that we do not have all the answers, but says nothing of the ability of the market, nor does it suggest that the market is an imperfect creation of our own. If I drown, is it the fault of the tide? Can we regulate the tide such that it never rises above our heads? And if we could, should we?
I’m sorry you didn’t care for the recession Roger, I didn’t like it either, but the answer is not to fix nature; the answer is to understand nature. We need to improve information, not improve the market. Never should anyone think that they are clever enough to improve upon nature. Even if one is smart enough to write 270 pages of great journalism, one should not assume that he can or should remake the world to his tastes in a 30 page lecture.