Moral Hazard: A Novel by Kate Jennings Fourth Estate, 2002. 175 pages. $21.95.
All I Could Get: A Novel by Scott Lasser Knopf, 2002. 244 pages. $24.
Moral hazard means not taking enough care to avoid losses because someone else is guaranteed to bail you out, as in certain forms of insurance. Applied to these two timely Wall Street novels, the term also suggests the corrosion of moral values despite the protagonists’ valiant, if self-deceiving, efforts at resistance. The recent explosive revelations of fraud in American finance are prefigured in these books, based on the real experiences of two writers who worked on Wall Street during the boom years. The alert reader will draw radical conclusions about the pervasiveness of Wall Street deception, which only occasionally bursts into the open to shock the supposed beneficiaries on the outside.
Jennings’s is the slighter book, barely reaching the girth of a novel; her abbreviated narrative leads to over-reliance on the Alzheimer’s metaphor, and on the protagonist Cath’s informal mentor Mike, rather than herself, as the true center of intelligent awareness about the reality of Wall Street. Jennings’s detachment, perhaps stemming from revulsion toward her Wall Street experience, disallows the full emotional development of her characters. Tracking Jennings’s own biography, Cath takes a job as speechwriter at the investment banking firm of Niedecker Benecke to help pay for the exorbitant medical expenses of her much older husband, Bailey, suffering from Alzheimer’s.
Mike, the head of the firm’s risk-management unit, serves as both Cath’s conscience and temptation. He encourages Cath to maintain an anthropologist’s attitude in this cutthroat culture. Mike is not all “quant.” His irony penetrates to the dark side of Wall Street: derivatives are like atoms, with the same potential for mischief. Mike is always waiting for the inevitable blow-up from trillions of dollars of unregulated “gaming contracts.” “Self-policing,” Mike knows, will never work to restrain the stupidity of bankers: ” . . .in good times, we get greedy. We get lax.” Mike detests hedge funds, based on the gambling concept of martingales, “which are banned in casinos because of the ease with which gamblers can get clobbered, but not in finance.” If only more bankers could express what they know deep down: “Surely, in their heart of hearts, they had to admit to the real nature of the global financial markets: perilous, jerry-built, mortared with spit and cupidity, a coat of self-serving verbiage slapped on to tart up the surface and hide the cracks.”
Alzheimer’s is a metaphor for the necessary amnesia under which the financial system operates. The larger American correspondence with Bailey’s condition is valid, but not followed through to the end. When Bailey’s pain becomes too great, Cath minimizes intervention to let him die. The unspoken implication about capitalism would be, Why not let this patient die too, instead of always stepping in to the rescue? The party’s never really over for Wall Street, despite occasional hangovers. Cath is awakened enough by the late nineties scandals to revert to her liberalism–she claims. But in public policy terms, there is “no follow-up” to the hedge fund collapse (based on the 1998 Long-Term Capital Management failure and bailout) described in the book: “As if afflicted with Alzheimer’s, the Fed remains adamant that banks can police themselves.” Even after LTCM, Alan Greenspan kept touting the virtues of self-policing. What if the plug had been pulled on the market in 1998, instead of letting the delusion continue? The principals of LTCM are back in business, with barely a slap on their wrists. Their pretense of predicting and controlling reality through mathematics has simply taken higher flight. Wall Street must always pretend that the latest scandal is only a “blip” and that the “markets are efficient.” Is Alzheimer’s a virtuous necessity, to carry on business as usual despite dark foreshadowings? The stench of disease and degradation that takes down Bailey is supposed to evoke similar emotions about Wall Street; yet the reader cannot but be enthralled by the immensity of the stakes on Wall Street.
Scott Lasser also seems irreparably infected by Wall Street’s energy; his empathy comes across in the lovingly described details of high-stakes trading. Paralleling his own experience as government-bond trader at Lehman Brothers, Lasser’s Barry Schwartz leaves an idyllic but debt-ridden life in the mountains of Colorado to study for an M.B.A. at Wharton and work on Wall Street for a few years to secure the financial future for his wife Rachel and two kids.
Barry makes the phenomenal rise to desk head from his lowly position as bill trader in just one year. But while doing so, he systematically betrays all his friends and benefactors, and probably irrevocably ruins his marriage. Cozying up to Isaac Hunt, a top executive, Barry promotes himself at the expense of his high school friend and desk head Court Harvey, to whom he owes his job, as well as his college friend Gretchen Barnes, the most beautiful woman at the firm. Barry had never consummated his relationship with Gretchen at Dartmouth, but now he not only sleeps with her but when Court starts stalking Gretchen he figures that that’s the way to push him out of the firm. Against Gretchen’s wishes, he squeals on Court’s obsession with Gretchen, pointing out to Hunt the firm’s exposure to a sexual harassment lawsuit. Gretchen is afraid that this revelation will mean her ruin in the firm, which is exactly what happens.
To take over Court’s position, Barry betrays veteran traders Chip McCarty, Stevie Vollmer, and Tom Carlson. He gets the coveted job of desk head, but by then his wife Rachel is put off by his callousness. Barry’s target of financial security before the family returns to Colorado is an ever-shifting goalpost. When Barry’s older brother Ben, a vagrant low-achiever, starts calling him after a gap of five years to ask for money–no more than a few hundred bucks at a time–Barry lowballs him, just as his own boss Court would at bonus, or “numbers,” time. Barry refuses to believe that Ben has cancer. In the middle of his intrigue to destroy Court’s career, Barry leaves it to his mother to tend to Ben’s funeral. The course of all his risk-taking is predictable: Rachel leaves him to move back to Colorado, and Barry lasts barely a year as desk head, in the end finding himself as bereft of security as when he got to Wall Street.
Barry resorts to natural human envy as the too easy explanation for his and fellow Wall Streeters’ constant raising of the bar to measure success. He is fully tainted by Wall Street’s smudge; but he pretends that he is in it only for the money, and can pull out at any time to get back to normal human compassion. Barry sees through Wall Street’s euphemisms–“high yield” rather than junk bonds, “emerging markets” rather than debt-burdened third world nations. He too perceives willful forgetfulness as essential to Wall Street’s perpetual high–“Lucky for junk-bond companies and third-world debtors that memories in the markets are short. No one talks about the peso crisis of ’94, let alone the great Mexican bond default back in the twenties” – but there is no sense of repugnance at this deceit.
Where, then, is the real locus of risk? There is always a convenient scapegoat, while the system as a whole escapes blame. They always tell us that bailing out the bad apples is for the good of all of us. Even those who cost their firms large amounts of money don’t really pay; they may simply not get paid as much as they had dreamed of. When a guy like Mike gets fired–Cath doesn’t hesitate to snitch on him to Horace, head of Investment Banking, telling him that Mike is withholding his skepticism about the hedge-fund’s weakness – there’s another, probably better, job waiting around the corner. The traders betrayed by Barry end up landing more glamorous jobs on Wall Street.
As long as money is the measure of happiness, those who cause the most pain are the least likely to suffer. Why should Bailey’s medical care under catastrophic conditions have to be paid for by private effort? Why should a small family like Barry’s find it so difficult, despite honest work, to survive? What would happen if moral hazard were to be broadly invoked and the carpet lifted to see what’s under all of capitalism, rather than bits and pieces of it from time to time?
Curiously, it is difficult not to be sympathetic to Jennings’s and Lasser’s high-energy Wall Street types–Hanny, Cath’s manager and Reaganite free-market nut, and Horace, the cultured Englishman, in Jennings’s book; and Chip McCarty, Colin Dancer and others in Lasser’s. Their own delusion of free-wheeling independence and the popular perception that these are lone rangers taking risks for themselves are going to be hardest parts of the mythology to overcome on the way to a sensible economy.
ANIS SHIVANI studied economics at Harvard, and is the author of two novels, The Age of Critics and Memoirs of a Terrorist. He welcomes comments at: Anis_Shivani_ab92@post.harvard.edu