Illustration: James Joyce by Constantin Brancusi
Part 1: Flight to Safety
IN THE EARLY DAYS OF THE CRISIS everything was written on the waters, shifting moment to moment. Most eloquent was the mercurial renaming of 2008's investor panic. Toward what did we flee? The word "safety" was swiftly deemed too suggestive of danger; the subsequent "liquidity" sounded a bit technical; by general agreement, we settled on the lullaby of "quality." Flight to safety, flight to liquidity, flight to quality: If you spot in this something of the epic, you are not mistaken. Indeed, this sequence is a fine thumbnail of The Aeneid, as our hero flees the burning city of Troy, scuds across the seas, and eventually arrives at Rome. Option-ARMs and the man I sing.
As summer turned and Lehman fell, it was hard to see the scale of things. It seemed astonishing that a sudden glitch in the market could tilt a presidential election overnight; as the global and historical consequences have cascaded through the following three years, such wonders now seem provincial at best. It grows daily more apparent that there will be no "double-dip recession," in so far as there has been no recovery, and no serious indication of one. We need to reconceive the scope and timeline of what has happened, by way of thinking what might happen in the future toward which we stumble. But in order to undertake this predictive task, we are compelled to revisit the category of prediction itself.
For a brief period, our various ministers (official and not) insisted that no one had seen the crisis coming, and indeed that no one could have seen it coming. Like so many stories of the moment, this one would not last. The reputed unforeseeability of the bust was a kind of alibi, of course, by virtue of which the bubble-inflators could claim to have had the best intentions. Alan Greenspan was foremost among these bubblistas, with Robert Rubin close behind. Had anyone known, of course we would have done things differently.
But this alibi was itself a bubble. As with the economy itself, once the alibi bubble burst, and the wishful thinking and corruption leaked out, the underlying facts began to present themselves. A couple, or several, okay really quite a few folks had called it. Robert Shiller of the Case-Shiller Home Price Index rose to the fore among them; he had called the dotcom bust as well. Nouriel Roubini, business prof and head of the consulting outfit Roubini Global Economics, achieved media ubiquity — his dire forecasts and dour demeanor would earn him the title of "Dr. Doom." Dean Baker, founder of the Center for Economic and Policy Research, had not only issued warnings, but in 2004 sold his home in a recently gentrified quarter of Washington, DC — the gentleman's way of betting against the market. Then there are the less gentlemanly sorts found in Michael Lewis's The Big Short, who made millions and billions by seeing it coming.
The ranks of Cassandras, it must be said, were not much swelled by one faction we might expect to have nailed it: "real business cycle" proponents, the children of Walter Bagehot. These dismal scientists traffic in a medium-term rhythm of rises and falls, and are expected to be professionally attentive to boom and bust. Despite their rese...