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A few spare memories on Memorial Day

by Robert Teitelman | Published May 27, 2011 at 12:33 PM

Memorial Day, 2011. The flags are unfurled; the lawnmowers started to a chorus of grunts and expletives. It's springtime in America! As we speak, New York is emptying out. It's a weekend, of course, to remember the war dead. And given that we're still involved in two-and-a-half wars that we know of, there are a lot of unfortunately fresh memories to recall. And how is our world this Memorial Day? Well, the rain has stopped -- at least in New York. But tornadoes are still inflicting the broad belly of America like the shingles. There's another volcano in Iceland. The Mississippi is still high, Fukushima is still hot, and Dominique Strauss-Kahn is still locked up in his Tribeca townhouse transmitting his location to unknown authorities, perhaps at Apple. The good news: Semi-retired mass killers are falling like flies. Osama is dead, and Serbia has turned over Ratko (who names these people?) in order to join a European Union that has more problems than Strauss-Kahn. Various apocalypses hang over us, some of them rescheduled: the end of days, the debt ceiling and the fiery implosion of the dollar and the banks.

But, hey, we're still here. At least most of us. Wasn't that the question we all wondered just a few years back? What were we thinking back then, on the edge of summer 2007? What I can remember was: I hope things don't crap out before I get a vacation. In retrospect, the year in which you got really scared was a kind of litmus test for how close you were to that great Beezlebubbian complex known as Wall Street. If you saw it coming in 2006, you were a fricking genius -- and probably lying. If you were following things with reasonable closeness, you knew the world was beginning to wobble around spring or early summer of 2007; by August, when European banks had to be aided -- we didn't use the term "bailouts" as freely yet -- by the European Central Bank, alarms started going off (this occurred while I was unfortunately on vacation). That said, most of the nation viewed this as the usual apocalypses-not-involving-them, until September 2008, when even John McCain and any number of politicians woke up with a bad case of the heebie-jeebies.

There are, of course, some people who missed it all and will thus find "Too Big to Fail," the movie, baffling.

Not to get all sloppily self-referential here, but what was I really thinking on those Memorial Days, a traditional American weekend to take stock, kick back and reflect over alcohol? Well, let's look. The Transactions column for The Deal magazine in early June 2007 looked at two former colleagues of the online site Slate, Daniel Gross and Michael Kinsley, who were offering diametrically opposed views of finance. In a New York Times op-ed, Kinsley, who viewed finance as "mystifying," picked up on the fact that Avis had been sold and resold multiple times by Wall Street and thought that was ominous. Finance was too big, too murky, too rich. Gross had just published a book, "Pop: Why Bubbles Are Great for the Economy," which argued that for all their negative aspects, some bubbles did drive technology and leave a platform for further growth. It seemed at the time that each of them was taking an extreme position, ignoring the other point of view.

It's easy to chuckle at these ideas today; Gross' timing was particularly unfortunate. But it does tell us a few things. By May of 2007, there was a renewed interest in bubbles and what came to be called "over-mighty finance." Gross was touching on an issue that still has currency: There are very different kinds of what's popularly known as bubbles, and some have more productive consequences than others. While Gross doesn't go there, more current work examines whether the notion of a bubble, which is prone to such promiscuous overuse, obscures what's really going on beneath the surface -- and whether investors are as wildly irrational as they're often portrayed. Gross at least was trying to provide some discrimination to a phenomenon that was -- and is -- often portrayed as a black box of boiling manias. For his part, Kinsley touched on an issue that would emerge with great force once the crisis hit, the Wall Street-Main Street split and excessive Wall Street compensation. True, he got details wrong. Private equity, for all the froth, did not bring the economy to its knees. But Kinsley was adopting an attitude that would become a widespread populist mantra: I don't understand it, and I don't like it! In fact, opacity and complexity were chronic problems as the crisis unfolded. But tossing your hands up is like saying -- as many would, including some world-famous economists -- it's better if we just go back to a world I can understand: 1880, 1935, 1950, 1968, the Flintstones. Recently, semi-retired Alan Greenspan offered his own gloss on complexity: Nobody understands what's going on, and that's good.

A year later, early June 2008, the world had grown significantly darker. Bear Stearns Cos. had collapsed in March and been carted off by J.P. Morgan Chase & Co., and the cancer of subprime was now spreading throughout the securitization bloodstream of the big banks. The intervention into the Bear collapse by the Federal Reserve, with Hank Paulson's big-stick Treasury hovering, suggested the rising level of anxiety and gave a hint of regulatory disarray. In his book on the Dodd-Frank reforms, David Skeel argues that part of the problem with the congressional reform process was too great a focus on Lehman Brothers as the key event to be avoided at all costs; the die, he argues, was cast much earlier, with the Fed's intervention in Bear. Our issue that early June, however, looked at something much more positive: the revision of Delaware's corporate law that proved to be capable of adjudicating the most turbulent period in U.S. corporate finance.

The early-summer column spoke to that story, by our own David Marcus, world's greatest Delaware reporter. By summer 2007, it was already apparent that Washington would be off on another spasm of regulatory reform -- the kind of activism (see Sarbanes-Oxley) that, in the past threatened Delaware, as the pre-eminent state venue for corporate law. By spring it was apparent federal regulation was a mess. "The markets have decisively outflanked existing regulatory structures. The foundations of the '30s system, with its emphasis on disclosure and transparency, has eroded in a globalized world of abstract instruments in constant motion. But then so has the absolute belief in untrammeled markets that rose to orthodoxy in the '80s. There is no agreement on fundamentals." That was me, sounding way too certain and gloomy.
Yowzer, close the damn book. What's the point of stirring up dust and dead prose again? Perhaps it's that we're still all a little crazy because it really did feel -- and it may well be true -- that we skittered awfully close to the edge in 2007 and 2008. It's easy to forget -- or repress. But it's also easy to dismiss how far we have come since then. True, economies remain fragile, slow-growing, with too-few new jobs; America has fiscal woes; Europe has the euro zone. Declinism and apocalypse hang in the air -- far more imaginable as possibilities than before 2007, which means they'll probably not happen. But we are intact, and the sun is shining. To all our readers and confederates: Enjoy the weekend. And pray nothing happens before Tuesday. It's a mini-vacation. With cocktails. - Robert Teitelman

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