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Five Years Later

As Iu2019ve gotten older, Iu2019ve become more and more convinced that we get where we are because of luck as much as anything else, in the business world as well as the academic world.

Five years ago, Lehman brothers went bankrupt, AIG was nationalized, Ben Bernanke stared into an abyss, and Mohamed El-Erian asked his wife to take out as much cash from the ATM as she could. And Simon and I started blogging.

I already wrote my anniversary reflections on the financial crisis for The Atlantic. Here I wanted to talk a bit about how this blog started.

This is a story I’ve told in person many times, so you should bear in mind that the stories we tell often are the ones we tend to misremember the most, for neurological reasons. As I recall, on Thursday, September 18, Henry Paulson presented his initial, three-page proposal for TARP. At the time, I was in something like my third week of law school, having just left the company where I worked for seven years. Simon had left the IMF I think the month before. I remember thinking the thought that I’m sure many of you had: if Treasury bought toxic assets at fair market value, that would only lock in banks’ losses and prove that they were insolvent; if it paid book value or something close to it, that would help the banks but would be a massive taxpayer subsidy. The next day, however, as far as I could tell, the media basically missed this point. On Saturday I talked to Simon and suggested writing an op-ed about what seemed to me (and probably ten thousand other people) a crucial problem, and on Sunday we drafted something.

On Monday, the Washington Post contacted Simon (remember, he had just left the IMF the month before) and asked if he had anything to say about the impending collapse of modern society—which, by chance, he did. But our draft was far too long (I didn’t know about the 800-word rule, which is a standard for print opinion articles), so we cut it down to focus on the governance issue, which turned out to be far more important than I think we even suspected at the time. (Think about TARP, PPIP, Neil Barofsky, Elizabeth Warren, et al.) I skipped my torts class to do the final edits—but I did tell the professor in advance. We had some excess material on the pricing issue, so Simon submitted that to Martin Wolf’s online forum at the FT.

And I thought I was done—I would go back to taking classes and enjoying having no real responsibilities (other than familial) after eleven years of work. Simon, though, pitched the idea of a blog, and that’s how The Baseline Scenario began. Like any blog, we had virtually no readers at the beginning, but we got cited by some of the big fish (like Mark Thoma, to whom I am forever grateful), and things grew from there. I remember thinking that if we didn’t get to 10,000 daily page views or something (I forget the actual number) within six months I would stop, and for a while it looked like we wouldn’t get there. But then Simon wrote a post about the American oligarchs, Bill Moyers invited him on TV, Krugman cited us a couple of times, and I was stuck.

Then there was the Atlantic article, which opened up the possibility of writing a book, which seemed like a fun thing to do—and it seemed unlikely I would ever have the opportunity again. The book was popular—in part because the SEC sued Goldman Sachs two weeks after it was published, so Bill Moyers devoted almost an entire show to us—and, to my surprise, made it possible for me to become a professor. And that’s how I became a professor, rather than a lawyer (which was the plan when I went back to school).

So why am I boring you with the story of this latest chapter in my life? To me, these past five years have been a lesson on the overwhelming importance of serendipity. There was a dramatic financial crisis, which gave us something to write about. I had just left my job and enrolled in the easiest law school in the country, which gave me time to think and to write. Simon had just left his job, which meant he could take positions in public other than those of the IMF. The Washington Post asked him out of the blue if he had anything to submit. (For ordinary mortals like us, it’s pretty hard to crack print op-ed sections.) I had dinner with some of my new classmates and ended up explaining CDOs and CDSs to them, which was the inspiration for our “beginners” posts. Bill Moyers read Simon’s post. The SEC sued Goldman just as our book came out. And, during my last year in law school, the UConn law school was hiring. (UConn is one of only two law schools within an hour of my house, and I wasn’t about to move.) And there was plenty of what turned out to be good fortune in earlier years, as well, such as my not getting a job as a history professor, which would have sent me down a completely different path.

As I’ve gotten older, I’ve become more and more convinced that we get where we are because of luck as much as anything else, in the business world as well as the academic world. This is one reason I have the positions that I do on taxes and social insurance.

That’s also one of themes of Michael Lewis’s story for This American Life, about Emir Kamenica, who resolutely insists that he is where he is because of a freak occurrence—an English teacher reading an essay he plagiarized from a Bosnian novel (stolen from a library as he was escaping a war that killed his father) and getting him into a good private school. The people who think that they deserve everything they have because they are geniuses and worked hard all their lives are, in more or less Lewis’s words, “just like every miserable bond trader at Goldman Sachs.” And who wants to be like that?

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