Book Review: Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable, by Mark Gilbert

All too often books on economics justify Carlyle's pejorative characterization of the subject as the dismal science. They indulge in dry statistics and arcane formulas. They talk down to their readers often asserting that much of the subjects they are discussing are so complicated that only the experts are able to understand them, indeed one has to wonder if even these so-called experts actually do understand them. They prefer the jargon of the insider to a language more accessible to a larger audience. It is almost as if these writers are purposely obfuscating, as if they are not interested in being understood by the general reader.

Bloomberg News London bureau chief Mark Gilbert's Complicit, a study of the what went wrong with the world credit markets and led to the recession in which we find ourselves currently embroiled, tries to avoid these pitfalls. While there are times he cannot quite manage to escape the snares entirely, and there is after all some excuse for the precision of professional jargon, his prose is usually aimed at the general reader and it usually hits its mark. He is willing to explain the arcane. He is unwilling to rely on the too complicated cop out.

There may be a lot of references to M-LEC's, SIV's and CDO's. There may be discussions of hedge funds and risks and rewards of borrowing short and lending long. There may be fingers pointing at the esoteric machinations of institutions like the central banks and the securities raters. There may be the reliance on some of the economic clichés that have become part of the vocabulary of nearly everyone paying any attention to today's news coverage: moral hazard, liquidity crunches, and market bubbles. This is to be expected. These are after all the flesh and bones of the problem under discussion, and Gilbert does his level best to make all these things intelligible to the layman, without gross oversimplification.

The essential take away from his book would seem to be that there were many to be blamed for taking part in and allowing the risky speculation that became the norm for financial institutions world wide who were supposedly conservative custodians of their client's funds and their stockholder's best interests. This risky gambling with other people's money was not only tolerated, it was encouraged and rewarded. Paper profits earned huge bonuses and Cadillac perks for speculation. Conservative investing earned stones and ashes.

So long as market conditions remained propitious—easy credit, optimistic outlook, minimal regulation—the bubble grew and grew, larger and larger. The assumption was that what had risen would continue to rise. Until, an ill wind blew down what was a house of cards. Supposedly rock solid financial institutions found themselves embroiled in obligations they could not meet with funds on reserve, and unable any longer to find available credit. Trust in financial institutions gave way to panic. One company is allowed to go bankrupt. Mergers are arranged for others. Tax payers all over the world are saddled with the toxic assets of corporate behemoths deemed too big to fail. The results are catastrophic, and they have yet to be fully realized.

While there is little that is new in Gilbert's book, it does have the merit of pulling together all of the divergent strands and tying them together cogently. And he does it with style. His prose is colorful, figurative and allusive. "The alphabet soup cooked up by the derivatives chefs—boil some CDOs, toss in a dash of ABS and a soupcon of CDS, season with CPDOs, and serve with a garnish of overly optimistic ratings—was sufficiently toxic to poison the entire financial system." A little further on, "Music producers joke that the most successful heavy metal records are those in which every instrument is louder than every other instrument. A global capital market in which everything was becoming more expensive than everything else was a market that was cruising for a bruising." Here is his take on the difficulty of making judgments about employees: "Until a trader goes 'ker-ching' or 'ka-boom,' the bank has no clue whether it has hired a star or a turkey." This kind of lively prose style contrasts nicely with the inevitable academic jargon.

The book ends with some suggestions for avoiding repetition of these kinds of crises. Most seem fairly conventional: better regulation, but not to the point of stultifying business; stop speculators from profiting from temporary gains; make sure that when speculative investment goes bad, speculators take their share of the hurt. He even suggests at the very end of the book that perhaps one cause of the crisis may have been the macho character of a financial world dominated by testosterone. It may well be time, he goes on, to see if an injection of a greater female presence in high finance might not have an ameliorative effect. If this is the kind of mess men can get us into, how much worse could the ladies do?