Monday, March 5, 2012

Confidence Men

Ron Suskind writes incisive books that show his insider status, not surprising being a writer from the Wall Street Journal, his main subject a nexus of politics, business and economics, notably in his book ‘Confidence Men’, which is really about the education of a president. I can’t think of no other writer who has the knowledge of intimate detail plus great storytelling ability, perhaps the late David Halberstam, who could convincingly cover the whole narrative from all the relevant angles, in fact comparing to another book I read recently ‘Game Change’ which seem trivial by comparison, despite providing some insider details though lacking in the true relevance of the episode. But Suskind is spot on in finding the sweet spot, the true meaning of the tale in all its repercussions, in effect he sees the forest and the trees, a tribute to his journalistic experience in one of the great business papers of all time. Unfortunately, Suskind tends to rush to judgment, with a slight bias towards the right, perhaps a nod to Rupert Murdoch, his new publisher, missing the long term perspective and instead seeking the obvious incisive finding, but one never really knows, after all the passage of time is the true judge.

If one read this book earlier, especially the chapters on the financial crisis in 2008 with the collapse of Lehman Brothers, one would be more prudent in investing in banks like Citigroup and Bank of America. The events leading to the crisis, the government response, the aftermath of the response, all reveal the weakness of the financial system; coupled with the ongoing debate especially the seeming controversy of the Volcker rule which looks sensible though inexplicably blocked by the Geithner – Summers cabal, uncover the true situation that is still unresolved.  Buffet’s ‘weapons of mass destruction’, those exotic financial instruments like CDO, CDS and other derivatives, still lurk in the shadows until an open exchange is created, a task still to be done despite the passage of the financial reform act. A transparent exchange for derivatives will reduce the earnings of banks, pointing to the difficulties ahead, so investing in the financial sector may not be a good idea, then again the influx of brilliant financial engineers, with their PhDs and MBAs will think of new ways to earn money.

Financial engineering is really the sector making America great, not Apple or those other high tech companies in Silicon Valley, or even the oil companies in Texas or industrial conglomerates in New England; it’s Wall Street commanding the flow of funds circling the globe that make everything possible. In this context, the coming election and the current political intrigue is a classic battle between Washington and New York; where does true power really lie?, in the government or in Wall Street, a threat to the federal government foreseen by Jefferson in his opposition to Hamilton, but it’s a trivial argument long settled with the success of the only super power on earth. One can think of similar episodes in history, perhaps the intrigues between Florence and Rome or Tokyo and Kyoto or Shanghai and Beijing, where the seat of government is challenged by the merchant class, where other great centers are not troubled if both power centers reside in the same place, for example  London or Paris. In some cases the seat of government moves to the center of merchant power, like when the Japanese emperors moved from the ancient capital in Kyoto to the new Edo capital of Tokyo, recognition of reality, thus uniting the seat of power in one place.

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