Reading Note:
Laugh or Cry?


Very late last night, I was seized by a fit of giggles. I’d finally gotten round to Michael Lewis’s Vanity Fair piece on Iceland.

The investigators produced a chart detailing a byzantine web of interlinked entities that boiled down to this: A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets—the banks, soccer teams, etc. Since the entire world’s assets were rising—thanks in part to people like these Icelandic lunatics paying crazy prices for them—they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.

What’s amazing is that so much of the piece could have been written last year, or even earlier. Tony Shearer resigned his post at a venerable City firm in 2005, when it was acquired by one of the Icelandic banks. He quit “out of fear of what might happen to his reputation if he stayed.” Last October, Kaupthing Singer and Friedlander (Mr Shearer’s old firm) collapsed — just as Mr Shearer feared, three years earlier.

Is it possible that kids are growing up so fast today that even they don’t see what the emperor’s new clothes are made of?

One Response to “Reading Note:
Laugh or Cry?”