In The First Tycoon, T.J. Stiles notes that Cornelius Vanderbilt's great career as head of steamship and railroad corporations was an "act of the imagination": "In this age of the corporation's infancy, [Vanderbilt and his] conspiritors created a world of the mind, a world that would last into the twenty-first century. At a time when even many businessmen could not see beyond the physical, the tangible, they embraced abstractions never known before in daily life. They saw that a group of men sitting around a table could conjure 'an artificial being, invisible, intangible,' that could outlive them all. They saw how stocks could be driven up or dropped in value, how they could be played like a flute to command more capital than the incorporators could muster on their own. They saw that everything in the economy could be further abstracted into a substanceless something that might be bought or sold, that a banknote or promissory note or the right to buy a share of stock at a certain price could all be traded at prices that varied from day to day" (168-69). The Big Short: Inside the Doomsday Machine by Michael Lewis explores a similar act of the imagination, one that predicted and contributed to the economic crisis of 2008. In this humorous, character-driven narrative, Lewis introduces readers to the few farsighted if ethically questionable financial professionals who saw that the subprime mortgage industry, securities based on repackaged home loans, was poised to fall, and made their fortune betting, against the market, that the housing bubble would burst.Cornelius Vanderbilt's comments about the younger generation of stock market speculators active during the late 1800s seem also to apply to 2008's subprime mortgage crisis, to both those homebuyers who bought houses beyond their means on credit, and to those financial professionals who could not see that the speculation based on the loans would surely aggravate the coming crisis: "I'll tell you what's the matter--people undertake to do about four times as much business as they can legitimately undertake. . . . There are a great many worthless railroads started in this country without any means to carry them through. Respectable banking houses in New York, so called, make themselves agents for sale of the bonds of the railroads in question and give a kind of moral guarantee of their genuineness. The bonds soon reach Europe and the markets of their commercial centres, from the character of the endorsers, are soon flooded with them. . . . When I have some money I buy railroad stock or something else, but I don't buy on credit. I pay for what I get. People who live too much on credit generally get brought up with a round turn in the long run. The Wall street averages ruin many a man there, and is like faro" (Stiles 536-37). In The Big Short, Lewis reveals how comfortable we are today with financial abstraction as well as person, corporate, and national debt. He notes that one of the most important consequences of turning Wall Street partnerships, based on the model of real value products and responsibility to a customer base, into public corporations, in which the stock holders bear the risk, is that "[it] turned them into objects of speculation. It was no longer the social and economic relevance of a bank that rendered it too big to fail, but the number of side bets that had been made upon it" (263).
Steve Pearlstein of the Washington Post says, "If you read only one book about the cause of the recent financial crisis, let it be . . . Michael Lewis' The Big Short . . . [which] manages to give us the truest picture yet of what went wrong on Wall Street--and why." We hope you will join the discussion: Tuesday, March 1, at 7:00 p.m. at Main Library; Thursday, March 17, at 11:00 a.m. at West Ashley Branch Library; or here on the blog.
