This week, books by two of the finest business writers in the world landed on my desk. Both provide a post-mortem of the biggest market crisis in generations. And I couldn’t bring myself to crack either one of them.
The first, of course, is The Big Short: Inside the Doomsday Machine by Michael Lewis. He’s the author of some of my favourite non-fiction books, including Liar’s Poker, about his time as a Wall Street bond trader in the 1980s, and Moneyball, about the statistical methods that helped Billy Beane build the Oakland A’s baseball club into a World Series contender on a small-market budget. He always provides crystal-clear, entertaining prose and amazing anecdotes. By all accounts, his latest offering is among his best, and in this issue Jason Kirby’s interview with Lewis offers important perspective on the nature of reforms needed in our system. Still, I likely won’t be reading The Big Short anytime soon.
Same goes for The End of Wall Street by Roger Lowenstein. He wrote one of the best financial books of all time, When Genius Failed, about the collapse of the Long-Term Capital Management hedge fund. In fact, when markets were melting down in October 2008, I reread that book and found it provided a lot of detail on the causes and the nature of financial panics and how they spread. Lowenstein is a master of deep analysis wrapped in readable narrative, and I am certain that he has penetrating insights to offer.
The trouble is, for now, I have hit my limit on crisis post-mortems. I’m not advocating that we bury our heads in the sand and willfully ignore the painful lessons of the past two years. On the contrary, I have spent untold hours reading about, and discussing with various experts, what went wrong. I’ve weighed the options of how to repair the immediate damage and how to reform the system. I have examined case studies of companies that weathered the storm, and I have joined millions in sifting through the wreckage of the biggest casualties – Lehman Bros., Bear Stearns, AIG, Fannie Mae, Freddie Mac and Countrywide Financial. And now, I feel like I get it. I know more or less what went wrong. I have my own opinions on who’s to blame. And I’m not quite ready to celebrate the guys who got spectacularly rich by betting on disaster.
Believe it or not, I think a lot of people feel the same way, and rather than being evidence of irrationality or denial, I think it’s a natural part of getting past a calamity. I have reached the point where I feel like we need to move forward-not blindly, but with purpose.
When I look at the markets, I think many people in the securities business got to this point long before I did. The latest figures on Canadian GDP (now growing at an annual rate over 6%!) paint a picture of an economy that’s in far better shape than we could have hoped six months ago. Stocks have been rising for a year now, often in the face of economic data that were mixed at best, and with experts screaming warnings that a second crash was imminent.
That sort of resiliency is at the heart of the capital markets’ amazing strength. Growth and progress require faith and courage, and the ability to say “buy” when the whole world seems to be selling. Without question, the scars of 2008 are still fresh and serve as reminders of what happens when we see only opportunity, and no risk. But wallowing in risk gets us nowhere.
When I hear that banks are issuing mortgages without doing credit checks again, or if I hear the words “can’t-miss buying opportunity,” it’ll be time to pull Lewis and Lowenstein down off the shelf, and remind myself how easily it can all come undone. For now, I’m focusing on the upside and on the road ahead, without forgetting the smoking ruins in the rear-view mirror. I think that makes me an optimist, but hopefully not a blind one.