scholars and rogues

Unsolicited theater review: David Hare's The Power of Yes

We’re now in year three of the worst financial crisis since the great depression, and it’s a little difficult to say exactly where we are. Equity markets have just had their strongest quarterly performance in decades (and in some cases, ever). Bankers are starting to feel a little more confident about calling an end to the crisis. The financial media, being the natural cheerleaders that they are, are back to saying that everything is looking up again, and even an number of respected analysts (you know, the ones who missed the crisis in the first place) are getting a bit more optimistic. Even Nourel Roubeni is starting to sound a little more bullish. Gone are the days, apparently, of watching Maria Bartoromo have palpitations on CNBC, which was occasionally the high point of my days about a year ago.

Um, not so fast. There are several things here being conflated. First of all, the strong economic recovery that’s being seen in China and some of Asia, and certainly in much of Latin America, is not about to be replicated in Europe or the US. There’s no reason to think the consumer is going to start running up those Visa cards again. The consumer is still very squeezed, especially in the US, and the fact that economic conditions are a bit more stable now doesn’t redress the fact that real wages declined over the past two or three decades, and that the only source of wealth creation for most Americans and British–home equity–has been pulverized. Second, the sad fact is that the roots of the financial crisis–and make no mistake, it was a genuine financial crisis of unprecedented global scope–are still unaddressed. And apparently aren’t going to have addressed either. There was a time earlier this year when one could hope that there would be some meaningful regulatory reform. But then Obama, in a major disappointment (and possibly a politically disastrous error in judgment) appointed Tim Geithner Treasury Secretary and Larry Summers Chief Economic Advisor. And since neither has never met a financial regulation each didn’t think should be weakened, I knew that there wasn’t much hope for reform. So at this point, then, there has been nothing done at the level of any government, or any regulatory authority, that will prevent a replay of 2007 and 2008.

If the people involved in drafting and proposing regulatory changes are developing the same kind of memory deficits we’re seeing in banks these days, they should probably head over to the National Theatre and sit through David Hare’s The Power of Yes, his new play about the origins and causes of the financial crisis. In short, its’ a brilliant evening of theatre. Hare has followed the model of his two previous plays on controversial themes–The Permanent Way, about the disastrous state of the privatized UK railway system and the Potters Bar disaster, and Stuff Happens, about the factors leading up to the invasion of Iraq by the US and UK, along with the coalition of the clueless. In both of these outings, Hare basically combed the public record and assembled a stage full of the personages involved in each event, recounting, in their own real words, their opinions, or judgments, or (usually) their rationalizations. We never went to Stuff–it would have been too painful. But it worked brilliantly in The Permanent Way–yes, it was clear that Railtrack was incompetent and culpable for a number of unnecessary deaths. But hare also brought out the complexity of the situation–the history behind the poorly planned privatization, and the layers of government complicity, that made allocation of blame broader, but more difficult at the same time simply because it was more diffuse.

Hare follows a similar approach in The Power of Yes, but with a twist–he’s now one of the central characters, a playwright who is writing a play about the causes of the crisis, who doesn’t know anything about banking, or finance, or even the appropriate vocabulary. So much of the play is based on his interviews with various parties, and it works well–because the audience is unlikely to be any more clued in, to be honest. So we follow Hare on his search for some rationale behind the meltdown. And, not surprisingly, it’s complicated, simply because the players are more global, and they do things that no one outside of banking had much inclination about, or interest in, until the meltdown. So Hare interviews reporters from the Financial Times, and the chairman of the Bank of England and the FSA (the principal financial regulatory body in the UK), and George Soros, and a hedge fund guy, and bankers and lawyers, and whoever he can talk to that can explain this all to him. And the explanations are multiple, and overlapping, and contradictory, and sometimes wrong, or misguided, and sometimes spot on. And it eventually becomes clear that there is no single one thing, no smoking gun–there are a number of things, ranging from regulatory failure, to banking cultures, to simple greed and mendacity, to genuine incomprehension about the complexity of what banks were doing. Just like life. If I disagree with anything, I think Hare should have put a little more emphasis on the change in banking cultures in the 1980s and 1990s, when banks moved from sleepy partnerships to large global powerhouses with few constraints and, more importantly, a higher risk appetite because those risks were no longer being borne by just the banks–they were diffused throughout the global financial system. What was supposed to be riskless was just the reverse. It’s not that it’s not there in the play–I would have just given it a bit more emphasis. But that’s a quibble, really.

It’s a journey of discovery for both Hare and the audience. At the end, Hare seems to understand what happened, and he recognizes its complexity. But he’s also furious, and astonished, that there has been no reckoning. As are we all. Hare wants a reckoning, and there isn’t one. And Hare intimates out what I mentioned earlier–it’s not clear at all what is being put in place, if anything, to prevent a repeat performance. Fortunately, that’s not an issue for The Power of Yes–there will be plenty or repeat performances, since it runs through January 10. The acting is fine, and the play itself is often quite funny. And the house was packed. Book soon and go.

Categories: scholars and rogues

13 replies »

  1. As for “worst financial crisis since the great depression,” the numbers don’t bear this out. Things were far worse in the 70’s on every measurable indicator. The only difference now, is the 24/7 media telling you how bad things are by talking heads who weren’t there in the 70’s.


  2. Well, having been there in the 1970s as well, I understand what you’re saying. But the numbers don’t tell the whole story. We never had a week in the 1970s when capitalism, and markets themselves, just seized up and failed to function, as we did a year ago. And nothing that happened in the 1970s was as globalized as what has occurred the past three years–the entire risk structure of the financial was considerably simpler, and less vulnerable to shocks. And yes, talking heads are one thing–that’s the same group that’s now telling us that everything is fine. It’s not. I know lots of people like to think it wasn’t that bad, and nothing I can say will change their minds. But it was.

  3. Actually, in 1973, the market seizure was much worse in then any time since 1937. The early 70’s had the currency market seize right after they floated the dollar. The bond market seized three times in the 70’s and the t-bill market seized twice. The S&P declined 60% in the 70’s from top tick to bottom tick. There were 4 times in the 70’s where no credit was available at all at any price. At one point, overnight money went to 35% in the late 70’s. And lets not talk about the oil shocks, gas lines, and inflation. Oh yeah, we also had a crop failure in 1973. I also have problems with your statement that “a year ago the markets seized up and failed to function.” That simply did not happen. The markets functioned beautifully, just like they’re supposed to. Nobody could NOT get a trade down, bids and offers did not disappear, the clearing houses were sound, no exchange closed or stopped trading(except for a few that had hit prescribed trading limit halts and those were 15 minute closures), The seizure is an invention, part of the revisionist history that the public is swallowing up in order to blame their own losses on those evil capitalists. I suspect that you must have taken a 40% hit in your 401K, and that’s while you feel the system let you down. When they say that there was a credit crunch, that was just between banks. On the retail level, I’m sure that you had no problem using your Visa card, and there was plenty of credit for those in the market. In fact, there’s too much credit right now in the system as I can borrow as much money I want at 1% to carry a line of anything I want. It even gets better….If I want to buy T-Bonds, I can carry them at 0% until they raise the interest rate. Aa lot of people made huge money betting on the decline of the market last year…huge money, which is a good thing. The market always rewards those sagacious individuals who are right.

    Nah…things were much worse in the 70’s.

  4. “I also have problems with your statement that “a year ago the markets seized up and failed to function.” That simply did not happen. The markets functioned beautifully, just like they’re supposed to. Nobody could NOT get a trade down, bids and offers did not disappear, the clearing houses were sound, no exchange closed or stopped trading(except for a few that had hit prescribed trading limit halts and those were 15 minute closures),”

    This tells me you don’t work in credit markets. You’re an equity guy, right? Well, those markets did function the way they’re supposed to. That’s what exchanges are for. Credit markets stopped functioning. I work in credit markets (and have since he early 1980s), and your description of what happened last year may apply to equities–but it certainly does NOT describe what happened in credit markets. In the CDS market, everything stopped. Just stopped, Plernty offers, not one bid, at any price. Here in the UK, banks stopped lending. Period. There was NOT plenty of credit in the market for those who wanted it. Sorry, this sounds pretty revisionist to me. It;s certainly not he financial market i’ve been working in the past two years. Yours is clearly working better, wherever that is, and maybe I’ll come join you. And saying “there’s too much credit in the system now” is just delusional.

    As far as the 1970s go, I do remember as well. Your misunderstanding of the past two years makes me a little reluctant to accept your judgment here, so I won’t. Economically, yes, it was probably worse. As far as stresses on the financial system–not even close. Part of the problem here is that people tend to conflate the two, and that’s probably what I unintentionally implied. Economically, what we’ve seen so far the past several years isn’t particularly aberrational–we had a long economic boom, and we’re now readjusting. It’s going to take some time, but there’s noting particularly unusual about that, given the extent of the asset bubble in US real estate. But that should not be confused with the extraordinary stresses in the financial system, which were unprecedented., and which still may play out in unpredictable ways. Some people believe this, some people don’t. I happen to, but I lost interest in trying to convince people who didn’t want to be convinced a while ago.

  5. First nof all, I’m not an equity guy, I’m a commodity guy who trades whatever moves. The CDS market didn’t completely stop, as evidenced that last year I was very active in trading swaps…in fact,during those darkest days I managed to trade swaps and even had 10% of the daily volume during those dismal days. The CDS market wasn’t completely dead. I accept you’re opinion that I might be behind the curve as far as your intimate knowledge of the credit markets, but If I lose, it comes out of my own pocket. However, you work for someone and can blame outside forces and still get your check at the end of the month. I work for nobody except myself and must suffer the consequences of being wrong, as I won’t eat if I’m wrong. You get to work in a corporate environment, and blame can be passed around. I don’t have that luxury. If you’re so good, perhaps you should quit your job and go trade for yourself, then get back to me. As for extraordinary stresses, perhaps it would benefit you to look at 1873 and 1907 where there was real stress. This revaluation of assets is just part of the economic cycle. The only difference now is that we don’t have a 24/7 media telling us how the sky is falling everyday. Frankly, I don’t care what the markets do as long as they move and that I’m on the right side of the move. Just remember that you make money faster by being short than you do long.

    • Jeff: can you explain what your last argument (I’m a lone wolf trader and you’re a corporate hack) has to do with whether the present crisis is worse than the 1970s? I’m not an econ expert, but it seems like you lost sight of the point for a second there.

  6. Sam Corporate hack is another example of you putting words in my mouth. Independent traders know so much more about the markets than guys working on desks. In fact, the difference could be compared to a guy on a desk plays American Legion ball, and an independent speculator playes for the Yankees. There’s simply no comparison. And I didn’t lose sight of the point, you just didn’t get it.

    • Whatever. All I know is that one minute we’re talking about 1970 and the next we’re talking about how flying without a net somehow accords your view ex cathedra status.

      As I said, I’m not an expert on economics. I know a thing or two about rhetorical tactics, though….

  7. I have no intention of belaboring this–it seems pointless–but I do want to point out the danger of making assumptions, like the one that I “get to work in a corporate environment, where the blame gets to be passed around.” No one in the blogosphere, including you, has any idea who I work for. Or what the ownership structure is. This is by design. We were up last year by quite a lot, for what that’s worth, so I think we’re pretty much in touch with what’s going on. This year too. There’s no such thing as priveleged insight here–just good judgment and a grasp of what’s going on out there. Enough said.

  8. What were you up last year? I happened to have my best year last year also. Making money last year was easier than taking candy from a baby with all of the irrationality that washed through the system.


  9. You should have made mid double digits or better, with things like the 30 year top ticking at 140+ and t-bills offering negative yields. My friends on the credit desk at Goldman said that they earned close to 80%. However, we know that none of this is due to talent, but is the result of the appreciation of the underlying, that was booked as profit. Me, I made in a 89% return in commodities last year, all on my own hook My stocks were up a whopping 346%. Of course where you probably deal in billions, my small 8 figure portfolio is enough for me to manage by myself. .

  10. You said,”there’s too much credit in the system now” is just delusional.” I suffer from no delusions at all. Go to your banker and see how much money you can borrow if you want to buy 200mm in Treasury Bonds. You’ll have the check before the ink dries.

    Right now, I’ve been winding up a new huge carry trade, where the dollar replaces the yen. Free money.