Letters to the editor

From left: Amy and Jonny Seponara-Sills, John Ritter, James Corwin/Corbis
Most-Responded-To Pieces of 2008:

1. “Shooting Britney” David Samuels, April

2. “In the Basement of the Ivory Tower” Professor X, June

3. “Is Google Making Us Stupid?” Nicolas Carr, July/August

4. “Marry Him!” Lori Gottlieb, March

5. “Unforgiven” Jeffrey Goldberg, May
High Spirits?

Fernet Branca (“The Bitter Beginning,” November Atlantic) has been used in my family as far back as I can remember (I’m 90). There was nothing better to cure a sore tummy, indigestion, or cramps.

For a long time, it was not available. My daughter worked for a liquor distributor and she couldn’t get any. She found out the reason it wasn’t on the market: the original recipe contained opium. No wonder you felt so good after taking it, and no wonder the “new” version doesn’t live up to the old stuff.

Gene Boggiatto
Castroville, Calif.

Wayne Curtis replies:

For reasons too obvious for elaboration, the history of spirits and cocktails generates much intriguing, if unsubstantiated, lore. Representatives of Fratelli Branca “would not deny” the opium claims, but neither would they confirm them. Nor did they have any opinion on Fernet Branca’s contributions to longevity.

Bubble Burst

Henry Blodget blows his analysis of “Why Wall Street Always Blows It” (December Atlantic) by using the word bubble 29 times to explain how my clients, friends, and family have recently lost hard-earned money.

Deflation is an unprecedented, noncyclical problem, which is why interest rates at the Bank of England are at their lowest level not in five or 10 years but in more than 300. Investors in the Japanese market enjoyed a bubble a generation ago, but their “lost decade” stemmed in large part from an unprecedented demographic environment. Investors in emerging markets have not suffered another round of cyclical exuberance about the thieving skills of populist dictatorships; instead, emerging markets finally “emerged” with fiscal conservatism, liberal free trade, competitive production, and vast savings just as the U.S. savings rate approached subzero—which caused unprecedented dislocations for everyone. Even in the United States, hundred-year-old industrial companies are on their deathbeds, not because of a cyclical downturn after an “SUV mania” but as a result of relentless and noncyclical phenomena (e.g., globalization, deunionization, a broken health-care system).

In this meltdown, many efforts at long-term investing have been rudely interrupted by short-term, leveraged noise and stupidity, but we need a broader analysis to understand why leaders of some of the world’s august capitalist institutions are begging for bailouts. This may be the start of a broader realignment of capital that is not cyclical.

Solomon M. Karmel, Ph.D.
Financial Planner and Branch Manager, First Allied Securities
Bellevue, Wash.

Henry Blodget wants us to believe that we’re all equally responsible for the current financial crisis. That’s nonsense. He concludes that if we just “save more, spend less, diversify our investments, and avoid buying things we can’t afford,” we’ll learn from our mistakes. Funny, I, like millions of others, did exactly that. Except for a mortgage with a significant down payment, I never borrowed a dime, always bought cars with cash and drove them into the ground, and followed a conservative diversified investment strategy promoted by Blodget’s former employer, Merrill Lynch. The payoff for this good behavior is a loss in net worth that I’ll probably never recover in my lifetime.

Frank Drobot
Los Altos, Calif.

Henry Blodget replies:

There is no rigorous definition of the term bubble. I have used it loosely to describe situations in which prices soar to previously unfathomable heights and then collapse, revealing even the most sophisticated explanations for the booms to have been comically stupid.

It may be, as Solomon Karmel suggests, that the U.S. is now in a noncyclical decline, and that this is what caused the collapse. I think it’s more likely that history is just repeating itself, and that we’ll now go through a multidecade period of paying for our debt binge, as we did after the 1920s. Given the rise of Asia, I agree that it is indeed unlikely that we’ll ever again have as much power in the world—economically or militarily—as we did in the last decades of the 20th century.

As to the wisdom of diversification: if my former employer, Merrill Lynch, recommended that Frank Drobot limit his borrowing and diversify his portfolio among multiple asset classes, this was a sound strategy. It can’t prevent losses—no investment strategy can—but it’s still the wisest long-term investment plan for most individuals.

Banking on China

Banker Gao Xiqing’s candor (“‘Be Nice to the Countries That Lend You Money,’” December Atlantic) is refreshing, but his model of treating financial derivatives as mirrors seems precisely wrong. Mirrors transmit information about objects without transmitting their substance. Derivatives do the opposite, delivering the substance—risks and all—of their underlying assets without information that might inspire caution or provoke regulation. Real-estate agents to mortgage brokers, brokers to banks, banks to Wall Street, and on to insurers—every derivative step obscures risk; none reflects it.

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