Felix Salmon sat down with Gawker's mad genius Nick Denton to discuss how Gawker continues to make so much money while the country continues to pour so much into this bailout. After all, if anybody's pulling a golden rabbit out of their hat these days, it's the guy with a 27% year-over-year rise in revenue in the journalism industry. Denton, spill your secrets!
OK, so Denton doesn't have suggestions so much as explanations. He blames central bankers for pretending as if they could abolish the business cycle by bailing out the economy every time things got hairy (like 1991-2 and 2000-2). "As a result," Salmon writes, "people weren't nearly as cautious as they might otherwise have been inclined to be, and dangers built up until they exploded."
That's not exactly a mind-blowing interpretation (for mind-blowing, check out Felix's wacky solution), but it provides a nice big picture for explaining the past year. When this financial crisis ends, and Michael Lewis writes the essential book, and somebody else turns it into a picture book like Exurbs: A Tale from the Great Recession, I do think that the principle of universal overleverage is going to be the story.
In America, it's not just the banks that have been considered too big to fail -- it's all of us. That's why buyers could rack up mountainous debt on their credit cards, home owners could live in houses they had no business looking at, financial companies could leverage 50-1 and vice-presidents could say things like "deficits don't matter." Somehow we convinced ourselves that caution had no place in American economics.
And it started at the top. I'm reminded of Bernanke's inauspicious toast to Fed champion Milton Friedman on his 90th birthday. "You're right, we did it," Bernanke said of the Great Depression. "We're very sorry. But thanks to you, we won't do it again." Well, we did. And we'll do it again. And it's nice to have a dour Tory remind us that no amount of theory can pry us from history.