Saturday, October 18, 2008

Financial Crises and Novels

I'm not much of a financial maven. I have a suspicious nature, and tend to prefer assets I can touch. We have a lot of money in CDs, but they are the kind of CDs that have music recorded on them. Over the years I have known, and listened to, too many people who lived through the Great Depression. I don't trust boom times.

I suppose this has cost me a good deal of money. The modest sum I have in my retirement account was in a mutual fund until 1997, when the Dow first topped 8,000. I moved my holdings into money-market funds because I thought stocks were overvalued relative to any rational measure, such as the P-E Ratio. And they were, in my opinion, and still are, but that didn't prevent them from soaring to unprecedented levels, as this instructive P-E graph from a New York Times article on Bubblenomics shows:



I'm still waiting for the Dow to hit 8,000 again (it almost got there). Then I might buy back in. (At which point the idiot herd would no doubt keep the market down for the next ten years in spite of any actual signals from the economy.)

I'm sitting in a house we bought in August of 2001. We thought long and hard before buying it; it's a lovely place, and perfectly suited to us, but we were sure we were buying at the top of the market. [Time out for prolonged laughter.] We decided we could deal with the 25% drop we anticipated, sucked in our bellies, stuck out our chests, and put down our money.

Of course, over the next few years the house more than doubled in market value, and even now, after the real estate bubble has supposedly popped, it is still valued at 50% above what we paid for it. Do I expect it to go down further? You betcha. Houses have been valued at prices that make no sense relative to people's incomes, and now that people are losing their jobs, and a gazillion houses are in foreclosure, I don't see how things can't slump further.

In other words, I think we are still in bubble-land, in both stocks and real estate, and the fact they are desperately being pumped up to get back to "normal" makes me fear this is going to drag on for a while.

And how does this relate to novels? I'm not sure. But after 9/11, if you recall, we had that disturbing "non-fiction" moment, where it appeared no one wanted to read fiction ever again.

Over on his blog, David Thayer makes the argument that bad times for the economy means good times for crime fiction, and he may be right. After all, insider-trading scandals and misstatement of profits haven't made for a very exciting crime-fiction environment--

OUR DETECTIVE: ...but then you, Olsen, passed those losses on to the two offshore subsidiaries to prevent them showing in the current account. But that dame in accounting got wise to you, didn't she? The minute she saw you'd switched from straight-line depreciation to sum-of-the- years-digits, she started checking, and then she realized there were all those other assets that had been expensed rather than depreciated, and--

OLSEN: She was like a madwoman! I tried to reason with her, tried to pay her off. But even backdating her stock options wasn't enough--she just wanted more, and more--!

OUR DETECTIVE: And so you decided you had to get rid of her, right, Olsen? Get rid of her permanently...

OLSEN: Yes! Yes, it's all true! I--I called in some shady venture-capital people I'd heard about, and we spun off her whole division in an overpriced IPO. Not just her. Her whole division...

OUR DETECTIVE: Even though your corporate mission statement clearly stated your primary goal was to preserve and promote shareholder value...?

OLSEN: Oh my god...what have I done?

Even though mergers and acquisitions people call their published statement a "tombstone," it really isn't the stuff of gritty crime fiction. I'm hopeful that Mr Thayer is correct, and this economic downturn will get us back in the gutter where we belong.

If we're in for a slump, what other genres might enjoy a renaissance? Judging from the Great Depression, when Astaire-and-Rogers movies ruled the world, there's also plenty of room for pure escapism. If you could manage to be the PG Wodehouse of the 21st century, you'd be in good shape. And pulpy science-fiction may be in for a big upswing, but the emphasis would have to be on pulpy. It may not be a good time for science fiction that is realistic or relevant. In fantasy, it's hard to say; the genre was near unto nonexistent back in the 1930s. At first glance, it might seem that fantasy would be the perfect escapist vehicle, but as Tolkein pointed out, even when fantasy is not allegorical, it is often very applicable, and good fantasy might not be as escapist as the public would like.

Me, I'm switching over to Time-Travel Romances. And with the rise of audiobooks, I don't see why we can't have musical-comedy novels...

8 comments:

David Thayer said...

This is what happens when good people violate FASB rules. IT CAME FROM OFF THE BALANCE SHEET...

mattfwcurran.com Web Admin said...

Hi, David

One of my friends seized my shoulders during a night out recently and said "my god, you were so right." A little later I realised why they said this when the reminded me of a drunk conversation I had with them five years ago, when I told them that we'll all be in the financial-shit in a couple of years due to the mortgage market not being regulated enough i.e. people buying houses they couldn't possibly afford. Apparently I also told them that interest rates and lending rates will go up seriously once the bubble bursts. It's because of this paranoia that we never bought a house when others told us it was important to get on the property ladder "no matter what". It was the "no matter what" that has now exploded in the faces of some people. And you know, I could say "I told you so," but we're no better off even with house prices falling. Interest rates in the UK are just too damned high.

On a writer note, I reckon (and hope) that apocalypse novels will come back into demand. Everyone likes a good ol' end of the world story, especially when the end of the world is nigh. Also, horror stories tend to come back in fashion during times of social stress. And thrillers. Thrillers about bankers being murdered will no doubt thrill the masses. Or politicians. A massacre of politicians and bankers will surely please some readers out there.

David Isaak said...

Hi, David--

Yep, start with little anomalies like that, and pretty soon people are diverting office supplies to personal uses!

David Isaak said...

Hi, Matt--

Yeah, it's really annoying when saying "I told you so" still leaves you mired in the mess with everybody else! On the other hand, take comfort in the fact that you don't own as house whose mortgage exceeds its market value.

I hadn't thought about it, but you're right--down times are good for horror, too. The 1970s were the great horror revival, weren't they?

Jen Ster said...

In 2000, our cat was dying of cancer and our landlord, upon hearing the news, said, "Don't get another one, I'm going no-pets." We said screw you and bought our first place, an 800 square foot condo in San Diego, for...well, six figures, but the first figure was still a 1. In 2004, we sold the place and moved to Dallas, and the first figure in the six figure price was no longer a one. What's more, the first offer we had on the place (36 hours before it was technically for sale) had a first figure that was, uh, even higher than a number that was no longer a one.

We came here and bought a house for five figures. That was four years ago. I think we could reasonably sell the place for, well, a low six figures in which the first figure is absolutely a one. Our neighbors did. Meanwhile, back in San Diego, there are still condos for sale where the first figure is neither a one nor the number next higher than one but the number higher than that. However, a rather distressing number of them say "BANK OWNED" in their ad.

So, we bought a house we could afford, in a decent neighborhood, with 20% down and a traditional 30 year fixed interest mortgage upon which we've never fallen behind - even when I was unemployed for four months. Where's my bailout?

David Isaak said...

Hi, Jen--

Absolutely! Or, if not a bailout, can't we at least get gold stars or something? Best in Show? Teacher's Pet?

We still own a house down in San Diego, which we bought back in 1995. Four bedrooms, good neighborhood...and under $200K when we bought it. At the time, there were still a ton of foreclosed properties and the Valifornia market was in the tank. Amazing that only 13 years later everybody thought that could never happen again.

At the other end of such problems, I knew a guy who worked for ARCO oil who was transferred to Dallas in the mid-80s: the middle of the Texas oil slump and the California property boom.

So as not to pay taxes on capital gains, he had to buy a house of equal value to the one he was selling in California. But to his great embarassment, the only thing of equal value was literally a mansion--something on the order of 12,000 square feet. So he bought it and his family lived in 3,000 sqaure feet of it, and closed up the rest of it.

Sort of like a post-apocalypse novel, innit?

Anonymous said...

Regarding Depression crazes: Don't forget the wildly popular Shirley Temple movies that swept the land--little Miss Curlytop. Also some so-called classic comedies on the order of Laurel and Hardy. People did love stories about the very rich, esp.when the very rich rescued the poor little moppet along with her/his friends and family--many stories about orphans and deserted children. Everyone wanted a happy ending. But then, how can one explain The Grapes of Wrath; Gone with the Wind etc. Speaking of pulp, lots of westerns read esp. by men and boys.

David Isaak said...

A revival in Westerns might not be a bad thing.

But Lord save us from a revival of Shirley-Temple-type films. That child is my personal nominee for the Antichrist and the only evidence I've ever seen that we are living in the End Times.