One of the casualties of modern technology has been the disappearance of the mixtape. These custom-made cassettes featuring a carefully crafted playlist used to be the pastime of romantically inclined teenagers everywhere. Today, a playlist can be haphazardly thrown together in a matter minutes on iTunes. It used to be that getting songs recorded off the radio onto a single blank tape required several evenings of work, not to mention the sufficient digit dexterity necessary to press the appropriate buttons simultaneously on both the tape player and the radio.
If you were going to spend the requisite time recording the songs onto a tape, it made it a lot more likely that you would also invest the time into thinking seriously about what songs you were going to include, the order of the songs, and what message you wanted to convey with the tape. Admittedly, as a teenager you were likely to overdo the message and scare any sane female; my older brother made the mistake of including Firehouse’s “When I Look into Your Eyes” on every tape. Regardless, when mixtapes were done with care, they could be a work of pure art.
Michael Lewis’ new book, Panic: The Story of Modern Financial Insanity, is essentially a financial-journalism mixtape par excellence. The book examines each of the four financial panics of the last 20 years (the stock market crash of ’87, the Asian Financial Crisis, the burst of the Internet Bubble and the current sub-prime mortgage collapse) by using a collection of over 50 newspaper stories, journal articles and even government reports to recreate the spectacular booms and busts. The variety of selections includes plenty of samplings of both dark humor and perspicacious reporting. The downside of the structure is that you will be yearning for more of Lewis’s own unrivaled insights on the events (he does include several of his own pieces in addition to an introduction to each of the four panics).
In some ways, it’s reassuring to read Panic and realize that our current situation isn’t particularly different from the previous calamities. The usual suspects are all here: highly leveraged positions, understatement of risk, herd-like behavior. In fact, by the time Lewis gets to Part IV it will seem almost comical that more analysts didn’t see the bubble coming. Lewis includes a piece from John Cassidy in The New Yorker all the way back in 2002 that predicted the housing bubble with almost perfect precision.
On the other hand, the sheer number of individuals and percentage of the economy tied to the sub-prime crisis means it could be a significantly more painful affair. Lewis calls the current crisis the “people’s panic,” because both Wall Street and the broader public uniquely fueled it. It was the combination of sub-prime mortgages and the proliferation of complex financial instruments tied to those mortgages that led the country to the brink of collapse.
If anything, the last few articles of the book have yet to be written. No one knows for sure what the resolution to the story is — though an article from Paul Krugman in the book argues that unlike previous panics, the possibility of a quick recovery is unlikely. Even without the benefit of a few more years and some critical distance, there is plenty here to enjoy. In compiling these articles with such deftness, Lewis has created something greater than the sum of its parts. Who knows — it might even make you sentimental about the days of mixtapes.