Showing posts with label books. Show all posts
Showing posts with label books. Show all posts
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Firefighting - The Financial Crisis and its Lessons (2019) - Book review, part 2

The first part of this review attempted to compose a brief but coherent narrative of how the Great Recession started. The emphasis was on brevity at the expense of details. In similarly broad strokes, this part will summarize how the Recession unfolded in America from the crisis managers' point of view.

We left off at the point of the collapse of the housing market. Its implosion was already afoot in 2007, but none of the decision-makers foresaw the devastation it was about to cause in the economy. Bernanke, the chairman of the FED, expressed his belief in a testimony before Congress that the damage will be contained. 

What Bernanke didn't count with was the subsequent panic that spread to the healthy part of the financial world as well, up to a point where policymakers realized that if they let the market sort the mess out itself - as libertarian-leaning purists proposed - there will be carnage. After the French investment bank BNP Paribas froze three of its investment funds in the US in August 2007, and thereby caused a liquidity crunch, intervention seemed necessary.

The first move the FED made to alleviate the situation was the classic one from the central bankers' book. It stepped up as the lender of last resort by opening a so-called discount window where banks in trouble could borrow, albeit at penalty rates. Although this infused some welcome liquidity into the system, it didn't turn out to be a great success. The transactions were confidential, but many banks feared that they would look weak if the market got wind about them. Therefore many of even those who urgently needed liquidity declined the opportunity. Despite the underwhelming results, the fears of inflation rose. Later the FED changed its strategy and organized loan auctions which were much more popular than the discount window.

Although the common narrative holds that the FED bailed out all the irresponsible actors, it silently declined such requests until much later. The first major victim of this intentional inactivity was Countrywide Financial, a $200 billion firm that financed 20% of all mortgages in the US. In January 2008, it was forced to sell itself to Bank of America for a fraction of its value in 2006.

In the meantime, the FED cut the short-term interest rates and the government introduced tax cuts to boost the economy.

The time for the next major player to buckle came in March 2008. Bear Sterns, one of the five stand-alone investment banks in the US, was twice the size of Countrywide and too interconnected not to wreak havoc if it collapsed. Although they changed their mind by this time, neither the FED nor the Treasury had the authority to help it directly. Bear Stearns was a nonbank, therefore the FED had even fewer tools at its disposal to intervene on its behalf. For a time it looked like Bear will file for bankruptcy, but almost at the last minute, Bernanke and Paulson could convince JP Morgan to buy up Bear Sterns with the help of the FED and the Treasury. Which doesn't mean Bear Sterns was bailed out. It ceased to exist and its assets were taken over by JP Morgan. 

The next major event, in September 2008, was the nationalization of Fannie Mae and Freddy Mac, the strange, government-sponsored private enterprises, that underwrote half of the US residential mortgages. This was the biggest financial act since the depression. Republicans cried socialism, the liberals cried crony capitalism.

Bernanke and Paulson hoped that nationalizing Fannie Mae and Freddy Mac will send the soothing signal to the markets that the government is willing to do whatever it takes to contain the situation. But the message had the opposite effect. The markets suddenly realized how big the problem really is.

Then just a week later came the infamous collapse of Lehman Brothers. Lehman was much smaller than Fannie Mae or Freddy Mac, but somehow in the public consciousness, it became the symbol of the start of the Recession. Both the FED and the Treasury wanted to prevent its collapse, but their toolset was limited. Contrary to common belief, the authorities of both institutions were severely constrained. The FED was allowed to lend only against solid collateral and the Treasury could do little without congressional approval. No one in the private sector was willing to step up to buy it as JP Morgan did with Bear Sterns. 

Lehman fell. Its demise sent shockwaves through the whole economy. Still, opinion writers of the FT and the WSJ praised the FED and the government for finally manning up and refusing to bail out irresponsible bankers. Some others, fearing the consequences of Lehman's fall, called Bernanke and Paulson idiots. Both types of reactions showed how much the pundits usually know of the things they write about. 

Some saw the inactivity as a calculated political act to frighten the congress into action. It definitely played at the hand of Bernanke, because actually seeing what Lehman's fall entailed, Congress swiftly voted for expanding the powers of the FED and the Treasury and passed the TARP -  Troubled Assets Program to authorize the expenditure of $700 billion to purchase toxic assets.

The next one on the verge of collapse was AIG, the insurance giant. It was deemed too big to fail and was bailed out just two days after Lehman's fall.

By then, the troubles of the financial sphere spread to the real economy. GE had problems. 

The government's and the central bank's actions weren't popular, to say the least. The public was still against the bailouts. Republicans were against the prospect of runaway inflation. Professionals were against the moral hazard the saving of irresponsible market players might introduce.

There still were some negative new records in the system. The fall of 2008 saw the two largest bank failures in U.S. history: Washington Mutual and Wachovia bit the dust.

In October 2008, The FED organized the first-ever coordinated interest rate cut by major central banks around the world. At home, it organized stress testing of every bank to reassure the markets through transparency.

In November 2008, it started an aggressive monetary stimulus experiment, known as Quantitative Easing to pump even more money into the economy. The first round was followed by the second in November 2010, then by the third in September 2012.

Tapering down some of the FED's QE policies started only in 2013, by which time the Great Recession was a thing of the past.

In the end, the authors admit that their course of action was constant improvisation. The Great Recession was something no one was prepared for. Instead of following some pre-written emergency plan, their method was constant experimenting, changing tools and minds along the way. But in the end, the problem was contained. There was a real possibility of disaster. Among the "could have been" outcomes were Zimbabwe-style hyperinflation, Japanese zombie-banks, even the end of free-market capitalism. To evaluate how successful the crisis management was, we can put the events in historical perspective. The Great Depression sank the US GDP by almost 30%, which was accompanied by an unemployment rate of 20%. The Great Recession caused a GDP fall of less than 5% while the unemployment peaked at 10%.

Contrary to popular belief, the taxpayers' money didn't fall victim to saving the irresponsible Wall Street types. The FED never lost a dollar on its loans and the government, so ultimately the taxpayers, earned a substantial return on their investment in US banks. Which of course doesn't console those who lost their homes, jobs, or savings. And while the public resented the government for saving bankers instead of jailing them, the ones who were bailed out were not happy about the specifics of their rescue either. AIG actually sued the government for what they perceived as an unfairly harsh treatment.

And what about the next crisis? The authors are sure that it will come one day but less sure about how well America is prepared for that. Some things have changed for the better. Regulations have become stricter. Banks have higher capital requirements and some restrictions apply to nonbanks as well. But the emergency powers of the FED and the Treasury have been weakened. 

And, very briefly and very simply, that was the story.







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Firefighting - The Financial Crisis and its Lessons (2019) - Book review, part 1

The 2008 Great Recession was the first major global crisis in my adult lifetime. I still remember standing in the lobby of the Budapest headquarter of the multinational company I was working for. The CEO (or CFO or whatever) was explaining to the crowd of maybe a hundred people that something bad had happened and kept happening, and although the company will do everything to protect its employees, the time has come to tighten the belts. Which they soon started doing. I wasn't alarmed. At 26, I already counted myself as a veteran software engineer, so I felt secure in my place. Besides being cocky, I also lacked imagination. Nevertheless, unlike my younger colleagues still on their probation, I was not affected by the economic near-collapse in any meaningful way, and neither was almost any of my friends or family members, so I rather looked at the whole thing as some interesting and mysterious event in history.

I never had any education in finance or economy, but in the following decade I did some reading and I tried to come to an understanding of at least the big picture. I read about bad incentives, subprime mortgages, bubbles, inadequate regulations, and even some quasi-mathematical explanations of how the securitization of mortgages led to obfuscating financial risks instead of diluting them. But I never felt confident that I could explain the Great Recession well if I had to. In short, I lacked a coherent narrative.

This is the reason why I was so happy to put my hands on Firefighting: The Financial Crisis and Its Lessons, a book by Ben Bernanke, Timothy Geithner, and Henry Paulson, among whom the first held the office of the chairman of the FED, and the other two were the consecutive United States Secretaries of the Treasury at the time of the events. They were actually in charge of the US response to the crisis - within the limits of their offices, at least. If there was anyone who could explain what happened, I thought, these guys are the ones! Another big plus is that the book was published in 2019, more than a decade after the crisis. The future consequences of many of their actions were unknown then, but they have had the time to run their course by now.

The benefit of hindsight is a double-edged sword, of course, as the authors, who had, and at least with respect to their reputation, still have skin in the game, can present the events in lights more favorable to them. I don't have enough knowledge of the history of the Great Recession to judge that, and as a financial illiterate at worst and a curious but lazy layman at best, I really can't evaluate their decisions. In short, I just take their word for everything in the book.

And in the following, I try to summarize what I learned from a 160-pages long summary of a very tumultuous and controversial event, in chronological order. In the first part, we will look at ...

....how it all began

Crises naturally don't happen in a healthy economy, although their inevitability is only seen in hindsight. According to the current wisdom, what led to the crisis were the following: global savings glut, the common practice of overleveraged investments, a patchy system of regulations, bad incentives, rampant securitization, and a subsequent panic that turned a normal recession into the Great One.

Low interest rates and overleveraged investments

What experts called the global savings glut was the phenomenon that in the early 2000s foreign investment poured like rain into America (mostly from China), as local investors sought higher yields and better investment opportunities than they could find at home. This caused a huge build-up of debt (both by private households and banks) but plenty of cash.

The sentiment of never-ending good times and low interest rates incentivized financial institutions to overleverage, that is, they financed their investments largely by borrowing. Let's enlighten the concept of leverage with an example. In this, our private citizen Optimistic Oscar decides to buy a house for investment purposes. The house costs $1 million, Oscar spends $100,000 from his own money, and takes a loan for the rest - that loan is his leverage. He duly manages to sell it a year later for $1,200,000 (a 20% extra). He pays back the $900,000 loan to the back with let's say 5% interest, which amounts to $945,000.  The rest, $255,000 remains in his pocket. He turned $100,000 to $255,000 in a year, earning a spectacular 155% profit!

Had he paid half of the original price himself ($500,000), then he would have to pay back $500,000 * 1.05 = $525,000 to the bank which leaves him with $1,200,000 - $525,000 = $675,000. His profit would be $175,000 on the $500,000 investment, that is, 35%. Not bad, but far from 155%.

How would the math look like in the first case if the price of his house had dropped 20%? He would sell it for $800,000, pay the bank its $945,000, which would leave him in $145,000 debt! He started with $100,000, ended up with -$145,000, that's a loss of $245,000. -145% loss!

What if he had paid half of it himself? Then after paying back $525,000 he would end up with $275,000. He lost $225,000 of his original $500,000. -45% interest. Bad, but at least not -145%!

This whole thing is very much like what banks have been doing since the Medicis. They have realized that not all their clients will come to take out their deposits at the same time. It's enough to keep a fraction of their assets at home, the rest they can invest, and earn profit.

In short, leverage is an essential tool in finance. It multiples wins and losses equally. The markets were superbly optimistic in the early 2000s and took gambles that rewarded them immensely. When the times turned bad, it wiped them out.

Patchy regulations and the shadow banking system

Shouldn't regulations have demanded more prudence? Don't banks have capital requirements stopping them from being overleveraged? Well, there were regulations, and banks had standards. But both were inadequate.

The hodge-podge regulation framework didn't make it easy to see what's happening in the economy. There was no single regulator that could assess the big picture, and the strong anti-regulatory lobby ensured there won't be either.

The regulation net didn't even cover the whole financial infrastructure. Many financial entities - part of the so-called shadow banking system - didn't have to abide even by the low standards imposed on banks. Moreover, government institutes, like the FED or the Treasury, didn't have the authority to help them in trouble, either.

Securitization

And then there was the magic of financial engineering, especially the technique known as securitization. Let's explain that briefly and inaccurately. When Joe Average takes a loan from the bank to buy his house, the bank gives him let's say 1 million dollars on the condition that in 20 years he has to repay $2 million (the numbers are completely ad-hoc). This mortgage is an asset of the bank. Now the bank might find itself in trouble one day and in need of quick money. It can decide to sell Joe's mortgage to another bank (or any financial entity) for, let's say 1.2 million. It forgoes the stream of revenue in the next 20 years in exchange for having the cash now (not completely unlike what Joe did in the first place). So Joe's mortgage is actually a product that can be sold and bought, like a second-hand car. 

A mortgage is, of course, not a riskless product (another common trait with second-hand cars...). Joe can default on it, which is a loss for the bank on him (in case the value of his home doesn't cover the mortgage). However, smart statisticians have figured out that even though Joe Average has a 1% chance to default on his debt, one thousand Joe Averages' mortgages bundled together is a very safe investment, because according to the expectations only 10 of them will default. That's the reason banks bundle products together in big numbers, so the future aggregated loss on them is both low and foreseeable.

Of course, the mortgage is just one example of financial products that generate steady streams of revenue for some limited time. Jane's student loan is another example. Joe's mortgage can be bundled with Jane's debt and a hundred similar products and then sold and resold, and split into smaller products and merged into other bundles made of products originated from other banks. Products can be sliced even "horizontally". To explain it with an example, let's assume a bank has a package of 1000 debts, which it splits into 3 tiers or "tranches", each of which generates the same revenue to its holder. It sells the lowest, Tier 1, for 10 million dollars. When some of the 1000 debtors start to default, this will be the tier whose revenues will be affected by those losses. Tier 2 is sold for a bit more, 12 million dollars. The holder of that will be affected only in the unlikely event of more than 10 debtors defaulting. Tier 3 is the priciest, it's sold for 14 million dollars because its revenue is guaranteed. The owner of this has bought peace of mind for the extra 2 million bucks. The numbers might be unrealistic here, but the concept holds.

So at the end of the day, a Norwegian city council can invest into a product to enjoy a steady stream of revenue for the next 20 years that consists of a fraction of Joe's mortgage monthly payment from Texas, a fraction of Jane's payment on her student loan in California, and bits and pieces from a thousand different origins. Of course, by the time the first cent reaches Norway, these products went through so many hands and slicing and dicing that no one can trace them in either direction anymore.

The core idea behind this whole complicated business is to reduce risk. The products are made of diverse and often geographically distributed components. Some of them will default, but the overwhelming majority won't because they are independent. They need different reasons to fail (Joe's financial situation in Texas correlates very little with Jane's in California), and the failure of one product doesn't affect the other. With the vertical splitting, even the probabilities can be controlled, so risky products will be bought by those who can bear the risk.

At least, such was the consensus before 2008. What happened? 

A housing bubble happened...

... that exposed the flaws in the theory brutally. From the early 2000s, the American government actively promoted house ownership. With the help of government subsidies (tax breaks and such) and the historically low interest rates, a huge number of people could afford (and were actively encouraged) to buy their own houses. They did it mostly by taking loans, sometimes with no capital at all (see overleveraged). House prices shot up all across America. This didn't stop the buyers, because the rise seemed to be inexorable. Joe thought that he could buy his house on a loan only. The interest rates were low (at least in the first couple of years, in the "teasing period") and he figured that the price of his home will continue to rise. Even if he ends up being unable to pay the monthly installments, he can sell the house for more than he bought it for, thus even earning some money on the whole thing.

Bad incentives

The buyers weren't alone to blame. Banks and brokers gave loans to people about whom a basic background check would have revealed that they will never be able to repay their mortgages (these were the so-called NINJA loans - for borrowers with No Income, No Job or Assets). Why? Because they had no incentives to do so, just the opposite. The practice of securitization made them indifferent to whether the buyers will be able to meet their obligations or not. The originators of the loans immediately repackaged and sold them, and thus they no longer bore the risk. Brokers even received hefty commissions after each mortgage they negotiated, making them financially interested in not making those background checks.

What about the financial entities who bought the securities? Shouldn't they have demanded more checks? They actually did, that is what credit rating agencies, like Moody's and Standard & Poor's, are for. However, these agencies were funded by fees paid by issuers or sellers of securities. This is called a conflict of interest. It's like you were paid by Adam Sandler to write a review of one of his movies.

And the panic

Eventually, more and more homeowners defaulted on their mortgages. They put the houses on the market which started to push the prices down. Once the trend turned, there was no stop to it.

The bubble burst and so did the theory of risk-defeating securities. House prices started to fall everywhere, which eliminated the supposed safety of the geographic diversity of the securities. Banks and other financial institutions that stored their wealth in mortgage-based securities saw them evaporate. The byproduct of the financial engineering of spreading out and diluting the risk was obfuscation. No one knew exactly which financial products were affected. So instead of cauterizing the rotten part of the system - and rid it of the bad actors and practices with some collateral damage -, the fire spread. The market players started to distrust those who dealt with any kind of securities. Then those who made business with them. And then those who had links to those. And so on. Everyone was reluctant to lend to anyone else, and the system started to come to a grinding halt.


In the second part, I will sum up how the events unfolded in the following 2-3 years, and what role the FED and the Treasury played in the story.

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Jared Diamond: Guns, Germs and Steel (1997)

After around 300,000 years of existence, largely in our current biological state, today an ever-growing part of humanity lives in a world with so complicated economical and political structures that a single person can understand merely a fraction of it. Yet there are still tribes in remote corners of the Earth that haven't even got to inventing the wheel. Why did advanced civilization arise in few places on Earth, while in others, 10,000 years after the appearance of farming, people are still stuck in the Stone Age? That's the question Diamond set out to answer in his classic book which just reached its twenty-year anniversary. I've finally come around to read it and this is my attempt for a summary.

The popular answers to the question above include the capricious nature of historical coincidences, the role of the Great Men, the differences in geographical circumstances or between races and cultures, the effect of Judeo-Christian values and protestant work-ethic, etc. Diamond stands firmly on the side of the geographical explanation.

This is one of those books that address both scientists and the general public. Like in the case of Richard Dawkins's The Selfish Gene, the author didn't write a jargon-heavy version for experts and a simplified one for popular consumption. It's mostly for the better, although I could have continued living without knowing the detailed characteristics of several dozens of crop variants. But putting up with some heavy dose of agriculture is a fair price for a book that tries to answer the big questions. I would describe its genre as interdisciplinary world-history - but I have no idea whether it's an existing one or there are better descriptions out there.

To summarize the book in one sentence, it says: civilization could only arise among certain social conditions, which in turn couldn't have appeared without agriculture and livestock domestication, which in turn could only happen in certain places on Earth blessed with the right geographical conditions.

Scientists in general test their theories with repeatable experiments with controlled variables. This tool is not available for historical sciences, but nature sometimes offers something close enough. Diamond opens his book with one. The Polynesian islands were populated by a group of people circa 5,000 years ago. The same genetic material and culture were put to test in several, very different environments, and the millennia-long experiment produced a number of very different societies. The islands varied in climate, geological type (the predetermines the quality of soil and the material for tools), marine resources, terrain fragmentation, and isolation. In a couple of thousand years, by the time the first European explorers reached Hawaii, it was already on the brink of the political unification of several chiefdoms. But on Cathams islands, people still lived the same hunter-gatherer lifestyle as their common ancestors before the split.

After this interesting piece of history, Diamond gets to work on laying down the foundations of his theory.

Farming started to appear around 10,000 years ago. The sedentary lifestyle allowed population growth, as women could bear children with 2-year gaps (nomad women couldn't carry newborns until their previous child was big enough to walk with the tribe, which was around 4 years). Farming produced food surpluses that facilitated the division of labor. Not everyone was needed in the fields, so some had time to invent things - like metallurgy, pottery, or writing - or became craftsmen. Food surplus and the higher number of people also led to vertical fragmentation. Priests, soldiers, and chiefs appeared to organize society. The benefits came at a cost (although chiefs, priests, and soldiers appear on both sides): early farmers had a much less balanced diet than their forebears, were more at the whim of the weather, and due to population density and living next to their livestock and where they defecated, were disease-ridden. In some places, farmers in a few generations grew 15cm smaller than their ancestors and had a shorter lifespan.

Nevertheless, farming spread. Farmers were more numerous, technologically more advanced, and exhaled deadlier germs than hunter-gatherers. Plus, they occasionally had professional soldiers. Hunter-gatherers either adopted the sedentary lifestyle or were exterminated (the low genetic diversity of Homo Sapiens compared to other animals suggests the latter happened more frequently). As farmer societies grew bigger, ever more complex and stratified political structures emerged.

But why didn't farming appear everywhere? According to Diamond, very few places on Earth offered favorable conditions. Agriculture required supporting climate and domesticable crops and animals. The species of large mammals suitable to be beasts of burden or food source are not very numerous. They have to satisfy a number of conditions. They have to breed in captivity (elephants or cheetahs out), grow fast enough (gorillas out), be sufficiently docile (no brown bears), have a natural herd-like disposition (no antelopes), and can be supported on local food sources (Koalas out). There are only 14 species of large mammals that tick all the boxes, and 13 of them are from Eurasia - the fourteenth is the South-American llama.

Plant species suitable for domesticating are also rare. They have to grow fast, be nutritious enough, give high yields, be storable, and their genetic code needs to allow for breeding.

If not enough of the conditions are satisfied, changing from hunter-gatherer to farming lifestyle is, in terms of producible calories per hour of work, just not worth it. There were however a couple of places on Earth, that were suitable. The Fertile Crescent in the Middle-East, Mesoamerica, North-East America, the Sahel-zone of Africa, and South-West China. But agriculture still didn't appear in every one of them. Why?

Diamond suggests that it has something to do with continental orientation. Whereas Eurasia stretches thousands of miles from West to East, the main axis of the Americas and Africa are North-South. That means that in Eurasia domesticated plants and animals could spread thousands of miles at the same latitudes. Same latitude by and large means the same climate and day-length. Even areas not initially endowed with the right crops and animals could adopt them in the long run. In the Americas and Africa, the diffusion of plants and animals couldn't even cross a couple of thousands of miles because of the vast differences in climate. Americans couldn't plow their fields because the South-American Llama and the Mesoamerican wheel never met.

Nevertheless, the people of the Americas were approximately as numerous, if technologically less advanced, as the people of the Old World. They lived in highly centralized societies. And yet, they were almost effortlessly wiped out by the Europeans in a couple of generations. How was that possible? When the Spanish made their excursions into the native's territories, they inadvertently unleashed all the germs of Europe onto a defenseless population. Up to 95% of the native Americans were killed as a consequence of smallpox, cholera, measles, tuberculosis, influenza, whooping cough, and the like - overwhelming majority of them before they could have set their eyes on a single white man.

Why was the invisible biological war so imbalanced? Why didn't the Americans retaliate with their own arsenal of plagues (with the exception of syphilis) and devastated Europe? The answer is two-fold. First, Americans didn't live in a radically different environment from the Europeans that could produce entirely different pathogens against which the conquistadors would have had no resistance. Second, most of the European diseases are mutations of diseases in cattle. For example, pox, measles, tuberculosis originate from cows, flu from pigs. Ten thousand years of coexistence made the Old World population largely resistant to them, but the Indians were defenseless.

The first third of the book examined how geography, agriculture, and animal domestication lead to complex societies. However, not every society built on farming evolved from chiefdoms to states and developed advanced technology. Why? Here Diamond admits that geography is relegated back to be simply one of the different factors that contribute to development, although an important one. 

Writing, the most important prerequisite to technological, scientific, and bureaucratical progress, for example, was first developed in agricultural societies with a large enough population - not for the citizen to read poetry, but as tools of bureaucracy and taxation. 

Innovation is the driving force behind technological progress. But what exactly facilitates it is a matter of debate. Culture must play an important role, but not definitive. Islam culture was the vanguard of scientific inquiry until the medieval ages, but then it became a backwater and it remained that ever since. China led the world in technology and sea explorations up until 1500 A.D., and then it suddenly froze in time. Diamond's argument is that Europe's advancement happened because of its fragmented geographical landscape. Mountains, bays, peninsulas, and other geographical barriers never allowed for political unification. Therefore Europe was shared by small, constantly competing political entities. Innovation provided - among others - military advantages, which kept every kingdom constantly on its toes. Technological laggards were conquered by their neighbors. Innovations could diffuse from one land to another, and the process is autocatalytic - innovation begets more innovation. Plus, with the lack of political centralization, seafaring and scientific explorations could not have been banned by imperial decree - as it happened in China in the 16th century.

The last third of the book is a whirlwind tour around the world. From the perspective already laid down in the previous chapters, Diamond examines the history of Africa, Oceania, China, and Japan. He spends the most time on his beloved New Guinea where he worked for thirty years.

The final chapter is a musing over the future of history as a scientific discipline. Diamond argues that history is not just "one damned fact after another", but there are broad patterns in it, that are discoverable, and in a way, within accepted limits, testable.

In the end, the point Diamond makes, again and again, is that the reason for different trajectories for different peoples over millennia ultimately lies in geography. Of all the possible explanations for the varying degrees of civilization - geography, genetic or cultural differences, whims of history -, geographic determinism might be the only one that cannot have racist undertones. I suspect that Diamond's distaste for racialist explanations predisposes him to favor this view, but even if he is personally biased, he makes a good case for it. 

This is an engagingly written but heavy book. Diamond has expertise in anthropology, early-human history, geography, linguistics, botany, and a bunch of other fields, and the reader can't avoid some serious education while working his way through it. I read it end-to-end, but writing this summary required me to re-read parts of it again. Once I managed to digest the content and recuperate, I'd like to compare it with the next one from the genre.

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Anne Applebaum: Twilight of Democracy

A couple of years ago I decided to write a quick summary after each good non-fiction book I read. I read a lot, but I forget a lot, too, and my attention to detail leaves much to be desired. This self-imposed exercise was meant to be a remedy of the sort. Of course, I lacked the discipline to stick to it, but time-to-time I muster the energy to carry it through. Some days ago I finished The Twilight of Democracy from Anne Applebaum, and decided this is a good place to get into practice again. So, here we go...

In her new book, the Twilight of Democracy, Anne Applebaum attempts to explain the reasons behind the authoritarian wave that has swept over the Western world in the last decade. From Hungary to the United States, history seemed to take a sudden U-turn. Even in countries where democracy has not suffered serious blows, nationalists (and sometimes their mirror-images on the far left) have gained territory to an extent that was unimaginable ten years ago.

Applebaum is a renowned historian of the Soviet Union, but her new book is not a heavy tome. It's more like an essay of the length of a short book, in which she makes an attempt to explain how and why the zeitgeist has changed so much and so rapidly. She examines in detail how the events unfolded in Poland, Hungary, Spain, the UK, and the USA. 

There is no real common theme that underlies the changes everywhere. There are some commonalities, but every country has had its own way in the race to the bottom. Poland and Hungary went straight down the rabbit hole. Both the Polish Law and Justice Party and Orban's Fidesz have invented imaginary enemies - migrants, Soros, Brussel -, and managed to keep their base in a constant frenzy of them. The USA and Spain have developed the twin forces of Right and Left-wing extremism that mutually fuel each other. Britain hasn't sunk that low (my way to put it, not Applebaum's), and it's an outlier in this story in many ways, but a bunch of nostalgia-driven zealots and opportunists has taken over the country.

The usual explanations for the general decline in support for centrist politics find the blame mostly in globalism and growing inequality. Applebaum barely mentions them and instead makes two observations. One is about democracy and the other is about the role a special cadre of the elite - she calls them 'clerks' - plays in the political turns and the maintenance of the new regimes.

Liberal democracy has two unappealing features, at least unappealing for a large number of the electorate, especially those who reached adulthood in one-party systems. One is complexity. After decades of socialism, the chaos of democracy with its constant debates, changes, and uncertainties were too much for many people. They needed a simpler narrative. And once someone offered the truth, why would we need pluralistic views? Secondly, liberal democracy is a meritocratic system. That is great for talented and lucky people, but it can be a source of resentment for others. For those, a one-party system where loyalty and not talent is rewarded is often much more desirable.

The other crucial element in these political movements is the existence of the clerks. The bureaucrats, intellectuals, journalists, and politicians who, for various reasons and rewards, decided to serve the regime. They spread the center's lies, explain away contradictions, stoke nativism, present a measured and civilized face to the outside world - while railing their base against it. In Eastern-Europe they largely came of age in the socialist era and the main reason to turn against liberalism was personal resentment. Many of them felt that in the new system they weren't given the status and recognition they deserved, but realized that they could have them in exchange for loyalty.

In England, the Brexiters subscribed to a special form of nostalgia. Being a middle-sized power in the shadow of the USA, China, and the EU is not a glamourous role for a country that ruled over a quarter of the Earth just a century ago. They long for a world where England could make the rules again, and shameless lying, sycophancy, and economical and political damage are a small price to pay for it.

What happened in the West in general, particularly in the US, is an unexpected break-up among former comrades-in-arms. A generation ago, the Soviet threat herded very different characters into the same camp. Christians opposed the Communists on the basis of their atheism and religious persecution. Nationalists hated the idea of Soviet dominance and the Marxist interpretation of history. People of realpolitik were concerned about Soviet influence and threat. Idealists thought that fighting for freedom and human rights is a duty. Free-market advocates hated collectivism. When the Soviet Union collapsed, the cohesive force disappeared with it and the differences become obvious. In the span of two decades, intellectuals drifted into two opposing camps, with no bridge between. 

On one side are (or stayed) the believers of democracy and freedom. Not every one of them is an unabashed pro-market and free-trade supporter, but the latter all belong to this camp. On the other side are the ones to whom democracy turned out to be only secondary to something else. National greatness, or religion, or tradition. Many such people, even staunch Cold War warriors, have found an unlikely lodestar. - Russia, as the defender of tradition, religion, and conservative values. It looks like it doesn't matter how many journalists and human right lawyers Putin kills, politician opponents poisons, or war crimes he commits, or how much he and his cronies steal from his own people, simple claiming to be a defender of Christianity (and not even trying very hard at that) absolves all the sins. Applebaum is incredulous how people can fall for such an obvious lie, and so am I.

The book also addresses the role social media has played in the surge of populism. It doesn't make any novel observations but summarizes the topic neatly. First of all, social media offered the fringes a platform to coalesce. Conspiracy theorists, anti-semites, nazi-sympathizers, and general nutjobs used to have few venues to vent their anger. In the pub, on football-matches, or at family gatherings. The mainstream media slammed the door firmly in their faces. Now they can find and connect to each other as easily as never before. They can live in a social bubble sealed from alternative voices. Additionally, expressing some extreme opinions or insulting people used to come with the danger of retaliation. Anonymity on the net eliminates that.

Even for sane people, social media changed the perception of the world. The traditional ways of exerting political influence - voting, campaigning, international efforts - seem extremely slow and ineffective ways of bringing about change, and that frustrates people.

The world changed in another way, too, which is only partly related to technology, but like that, it's unlikely to go away soon. Apart from the mandatory anti-semitism, far-right parties across the world used to have little to agree on. Just being neighbors logically led to animosity. It has changed, very recently, probably as a backlash against the radical leftward-shift of the mainstream. From Russia to the United States, the right-wingers share a common fear and hatred for gay-rights, feminism, Muslims, immigrants, globalism, environmentalism, and technology (and still the Jews, which, of course, will never change). But they also share a vague ideal as well. The socially conservative, Christian family.

The book, unfortunately, doesn't offer solutions. Applebaum's farewell message is that these are darker days, and the liberal world order might turn out to be a mere blip in history, not the end of it. Let's hope and work against that.


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John Bolton: The Room Where It Happened (2020)

Is Donald Trump an "America First" president? Not nearly enough, according to his former National Security Advisor. Of all the books on Trump and his presidency, none had elicited so much expectation from the public, so much rage from the White House, and so much animosity against its author as John Bolton's.

In a certain respect, the White House's brouhaha around the book seems overblown. Bolton reveals that Trump is narcissistic, erratic, inconsistent, ignorant, he couldn't distinguish between his self-interest and that of America (which is a very charitable way of saying that he prioritizes his well being to America's), and he makes up stories frequently (which again is a charitable expression for lying). In short, the book tells nothing an average citizen doesn't know already for years. If the baseline is what Trump appears to be based on his tweets, interviews, and public appearances, then Bolton's picture - admitting that Trump is occasionally capable of asking good questions, his instincts are not always far off the mark, or he had to put up with active opposition from his own people - is even a small net positive.

On the other hand, this might be what makes the book so frightening for the Trump-campaign. Bolton doesn't portray a caricature, but a fundamentally and irrevocably incompetent man for the job. This, combined with Bolton's unquestionably stellar conservative credentials - the man has been the darling of hawkish Right-wing media for decades -, and being literally "in the room where it happened" amounts to a devastating testimony that's very hard to challenge. The sheer amount of detail and the no-nonsense tone proves that people's shared instincts about Trump are moored in reality. It will be interesting to see how Republicans react when asked about the book, and very probably the standard weaseling out will be "I haven't read it".

Those who bought the book for juicy stories about Trump are up for a disappointment. Bolton is simply uninterested in the ugliness of Trump's character, his obstruction of justice, the naked nepotism, the flirting with the far-right, and the rest of the garbage defining the man. He went to the White House to achieve a very clear set of goals - getting out of the Iran deal and the INF treaty, increase pressure on North Korea, Iran and China, and a couple of others we'll get into later - and Trump was only one of the obstacles he faced there. Although the one he eventually failed to overcome.

Bolton also stands far apart from most critics of the president inasmuch as he himself is the poster boy of the America First philosophy. He despises international institutions, like the EU or the UN, uninterested in nation-building, advocates regime changes in Iran, North Korea, Venezuela, and possibly China, and fundamentally sees the world as a dangerous place where projecting American power is indispensable for peace and prosperity. For the world and, more importantly, for the USA. Being so forthcoming with his views is refreshing, as it unburdens the skeptical reader of the need of being constantly on the lookout for signs of hypocrisy and naked self-interest. Bolton wears his convictions like a badge of honor.

He isn't out to get friends either. Bolton has always been famous for his abrasive and uncompromising style, but there is still something fascinating about his indifference to the social havoc he's wrought on his own head. He clearly revels in insults. He has been always hated by the liberals, and the book won't change that. But now he'll be hated by the Republicans, too. Those on the Right who oppose Trump will never forget his refusal to testify in the impeachment trial (for which his excuses are simply pathetic).

In return, few people appearing on the pages escape his criticism. The media is shallow and antagonistic. The Europeans are nervous, ineffectual, hopelessly bureaucratic, and prefer high-minded speeches to facing the dangers of the world - which they happy to leave it to America. Macron, "the French", is a pompous weasel. The US Ambassador to the UN, Nikki Haley, is shallow and opportunistic. Pompeo is competent but bends to Trump's will too easily. Mnuchin, the Secretary of Treasury, is nervous and dithering. Tillerson was clueless. Obama's name is never mentioned unconnected to some colossal failure. But first and foremost, Bolton never misses an opportunity to kick into Mattis, whom he portrays as a bureaucrat constantly trying to frustrate others' efforts to get things done, for reasons he is unwilling or unable to explain. This goes beyond fair criticism and feels more like personal enmity. The only character of importance in the book Bolton spares from scorn is John Kelly, Trump's second Chief of Staff. Recalling their conversations are the only places where some human sentiment sneaks into the book.

Bolton's critical tone stops abruptly at himself. He is always sure that he is right, to the extent that the book could have been appropriately titled to "The World according to John Bolton". He is not interested in why and how other people see things. Neither in the case of Trump nor in any other. Bolton just records their statements or perceived views as facts and moves on. This might be the biggest flaw of the book, but quite understandable as a necessary mindset for human bulldozer like him.

Having done with the author's views and style, it's time to look at the book itself. Bolton is a famous note-taker with a lawyer's attention to detail. The book reads like a very thick pad of notes describing 500 days turned into a memoir. Which it exactly is, and which is really not a complaint, as the events it covers are thrilling, and Bolton's point of view is that of the man who actually sat at the proverbial smoke-filled rooms and was an active influencer on how those events turned out. The reader is treated with a thorough account of how major crises and negotiations during the Trump presidency were handled.

The first day Bolton started his position as the National Security Adviser the retaliation against Syria's chemical weapon attack was on the table. Then followed Bolton's pet projects, getting out of the Iran deal and the INF treaty. Then negotiations with North-Korea, that spanned over the length of the book. Withdrawal from Syria. Haggling with Erdogan. The very nearly successful regime change in Venezuela. Iran's attacks on American drones and ships. And the one that weighed heavily on almost everything else, the trade war with China. Finally, the infamous Ukraine call. We get a glimpse of early morning calls, turf fights between departments, heated debates in the White House, negotiations with foreign leaders, and all the nitty-gritty details of the chaotic and unpredictable world of international politics.

The elephant, of course, is always in the room, not because Bolton enjoys talking about Trump that much, but simply on the merit of being the president, thus being uncircumventable. Bolton's frustration with Trump is palpable, but at least it gives him an opportunity to show his hitherto unknown humorous side. Trump riffing on his favorite topics like a broken record or his occasional bizarre utterances, in Bolton's dispassionate style, are quite entertaining, and at least one event sounds like a passage straight from Catch 22.

The unsentimental tone and very stark views require some detachment from the reader who doesn't share Bolton's, but for anyone who is interested in how the sausage is made, the book is a treasure trove. Getting anything done in the White House turns out to be a complicated and messy business (even without the multiplicator effect of the current inhabitant), where the cabinet has to fight with lawyers, the Treasury, the State Department, and the Pentagon as much as with America's foreign enemies.

But Bolton's reason for writing the book was, of course, not to give the public more insight into the White House machinery but to show why Trump should not be re-elected. With the skin of a rhinoceros and an obsessive focus on foreign policy, Bolton couldn't care less for Trump's character flaws or legal shenanigans - although at one point he succinctly captures what characterizes an average Trump statement: partial truth mixed with malice and misinformation. The only question interesting to him is: does Trump serve American interests? And his resounding answer is: No.

Bolton's observations are not completely new, much less surprising, but there is a novelty in his narrow focus on Trump's effectiveness as a leader. According to him, Trump has no ideology, or a coherent worldview, or any kind of compass to follow. He approaches every incident transactionally, and it's left for his stuff to piece the puzzles together. He can't distinguish between his personal relationships with foreign leaders and the relationship between America and the countries they lead - an ability that Putin or Xi possess easily.

He also genuinely believes his own propaganda of being the master deal-maker, and that that's the reason why everyone - meaning Xi Jinping, Kim Jong Un, the Iranians, Putin, the Taliban - wants to talk directly with him instead of with any other US official. The common-sense explanation, that people want to negotiate with the one they can get the most concessions from, has never occurred to him. He is so eager to present those deals to the media, that he is not much interested in their substance. In almost any negotiation process with adversarial leaders, his advisors are mostly occupied with preventing him from giving away hard-won US positions.

As someone, who in some sense embodies the "America First" philosophy that happens to be Trump's purported agenda (even if not his isolationist instincts), Bolton is uniquely fit for the job for dismantling the myth Trump has built around himself. You don't have to like him (he doesn't go out of his way to achieve that) or share his views to concede that the book makes a strong case against the re-election of Trump. Especially for ideological Republicans who sofar deemed Trump the lesser evil or worked under the delusion that he is not that bad, after all. His is not that bad, says Bolton. He is worse.

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Michael Shermer: Giving the Devil His Due: Reflections of a Scientific Humanist (2019)

Should Intelligent Design be taught alongside evolution in public schools? What sort of government should we set up on future Mars colonies? Should Nazi speech be banned? What's the story with Jordan Peterson? Does the scientific community stifle dissenting voices of mavericks? Could the monuments at Göbekli Tepe be the legacy of a great civilization predating every other we currently know about? Would the ban on assault weapons decrease the number of mass murders in America?

 Michael Shermer's new book is a collection of 27 of his essays...
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Jon Krakauer: Under the Banner of Heaven

On July 24, 1984, Brenda Lafferty and her 15-month-old daughter were brutally murdered in their Utah home by Berta's brothers-in-law, Dan and Ron Lafferty. The sequence of events that led to the tragic death of Brenda and Erica was set in motion in 1829 in Palmyra, when a man named Joseph Smith, avowedly inspired by an angel of the Lord, set off to write his own book of revelations. Nine months later the Book of Mormon rolled off the printing press for the first time.

 The machine hasn't taken a break since...
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