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History of the Financial Crisis: First Itemization. Interpretation T.B.A.

May 27, 2009 • Bruce Weindruch

I didn’t think anyone could top Michael Lewis’s The End” in the December 2008 issue of Portfolio for dramatic coverage of the financial crisis, until I read Nick Paumgarten’s “The Death of Kings—Notes From a Meltdown in the May 18, 2009 issue of The New Yorker. It’s the difference between reportage and history. Paumgarten’s effort is, by far, the most thought-provoking and wide-ranging treatise on the subject that I have come across thus far. For example, in a single paragraph stretching across three columns, Paumgarten offers a laundry list of decades of “events and trends” that got us into this mess.

“The Death of Kings” struck me personally because of its timeliness. For the past month or so, I’ve been grappling with my own connection to many of Paumgarten’s culprits:

  • Early in my career, I conducted oral histories with the first generation of commercial bankers to grow up, and eventually lead, under the constraints of Glass-Steagall.
  • I’ve worked with the law firm that not only took a number of the legendary investment banks public in the 1950s and 60s, but was also responsible for the legal underpinnings of the securitization of a wide range of financial instruments, including mortgages.
  • For many years, I was the historian for the accounting firm most closely associated with failed risk models.
  • I’ve been associated with the former investment-bank-turned-bank-holding-company whose leaders seem as comfortable in Washington, D.C. as they do on Wall Street.
  • A few years back, I produced a documentary in which I interviewed the pioneers of the derivatives industry, including the folks behind interest rate swaps and the now infamous credit default swaps.

I could go on and on with the sordid details of my resume. However, my quandary is not with the fact that I’ve been a first-hand witness to many of the actors and pivotal events in the legal, financial, cultural, and institutional history of the economic crisis. Instead, it lies with a very real concern that, if we as a civilization are to move ahead with confidence and creativity, we need to derive the lessons-learned from this chapter in the history experience faster than ever before. Before the legislators overzealously re-regulate the financial markets. Before financial alchemists find clever ways to engineer new financial instruments. And before everyone forgets that there’s no single scapegoat for the mess we find ourselves in. We got in it together, and we’ll need a unifying force to get us out.

We need to find an organizing principle to rapidly make some sense of it all. A chronological recitation of the events leading up to—and including—the meltdown doesn’t capture the dynamics of the times. A topical orientation doesn’t approximate the complexity of the interrelationships. And a biographical approach merely highlights individuals—or groups of individuals—who will most likely be blips on the radar screen of history. My guess is that it’s going to be a combination of all these approaches . . . and perhaps more.

As impatient as I am, I’m resigned to the fact that it will take time for historians to be able to digest and interpret the events of the past two years and, more importantly, put them within the context of the past 100 years of history. “To tell the story of them all in proper context and detail,” Paumgarten rightly observes, “Will require an Edward Gibbon. The fall of Rome, by comparison, was a local event.”

It took 12 years for Gibbon to publish just the first of volume of his six-volume The History of the Decline and Fall of the Roman Empire (the final three volumes appeared seven years after that). Unfortunately, we don’t have the luxury of the 18th century pace of change. I think Nick Paumgarten has made an immeasurable contribution to the future study of the subject by rounding up a list of the most likely suspects while memories of the misdeeds are still fresh. It is now up to the historical community to work swiftly, deliberately, and creatively to help understand the meaning of what we’ve been through.


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