3.30.08

Today the bunny is pleased to welcome Colin Harrison, author of six novels, including The Finder, which will be published by Farrar, Straus & Giroux on 10 April. Mr. Harrison is also a senior editor at Scribner, a division of Simon & Schuster (itself a division of Viacom). The bunny thinks that makes him an excellent candidate to question about the book publishing industry, since he has the view from both sides of the desk.

The Bunny Papers: Where is the publishing industry now?

Colin Harrison: As a writer and as an editor, I am bullish on the future of books, for the foreseeable future. Call it 10, 15, 20 years. After that, who knows, we’ll all be reading books on the inside of our eyelids. I’m not worried about the book business. Now, it’s true, the book business has big challenges, but those challenges are well-known. People like books, they like to feel books, they like throwing them into their bags.

TBP: So people still like to read. But will they read in print or on screen?

CH:I have a broad theoretical answer to that. My theory is that content in its short form has lost almost all its market value. Once upon a time, if you wanted to have stock prices that were pretty current, you needed to pay $11K to have a little box on your desk. Now it’s free. 20 minutes delayed, but free. There are a bunch of newspapers now you don’t have to subscribe to, because they’re free. People will download short films, but will still go to movie theaters for feature-length films. I think the structural pressure is on magazines and newspapers. The way this is maybe going to be solved is with these new electronic readers. But I say "maybe". With an electronic box, people drop it on the pavement, it might break. When it comes to books, the culture still celebrates books as a fetish item. Books are still something people collect. One of my pet phrases is, "There’s nothing like a book."

TBP: There's nothing like the consignment model of returns, which the industry has been running on since the Depression, either.

CH:The book business still sells newly-printed books published 50 or 75 years ago or more. You don’t see the same parallel in the auto industry. Books don’t have the same kind of obsolescence curve other consumer items do.

TBP: Have you ever worked in sewage?

CH: No. I just thought it was an intriguing way to kill somebody.

(Author photo by Joyce Ravid)

3.23.08

The bunny is in a reflective frame of mind these days. In particular, he's been thinking of 1981 and 1982, and how they might be seen as offering a premonition of the current morass.

No, it wasn't Reaganomics, or crack cocaine. It wasn't Ultravox or AIDS, Swatch watches or masses of black rubber bracelets. These were the years that saw the theatrical releases of The Road Warrior, Escape from New York, and Blade Runner, seminal filmic visions of the full-throttle progress of modernity smashing head-on into the retaining wall of dystopia. The bunny wonders if David Bowie, who preceded this mood of celluloid Da-Sein himself, on vinyl, by a good decade, saw any of these movies, and what he made of them. Come to think of it, he wonders the same about Fritz Lang, Adam Smith, Thomas Malthus, and Aristotle. But that could just be all the blueberries he scarfed for breakfast going to his head.

Towards the point: the bunny sees this cute little crevice of doomsday augury (replete with some choice rides!) as perhaps offering a metaphorical prism through which to view a trend that was actually going on, though not in those years specifically (the bunny likes to truncate time, it's one of his few indulgences, humor him). To wit: the shift in mentality that seemed to occur as more and more financial houses went public. Again, it's not specific to 1981-82. It's not some sort of averaging of dates, not with the staggered IPOs of Merrill Lynch (1971), Bear Stearns (1985), Lehman Brothers (1994) or Goldman Sachs (1999). Remember, we are in the realm of allegory, not algorithm.

What has transpired since the start of the 1980s is not merely the longest bull market in (US) financial history, but also a transformation, nay, transmogrification, of the financial mindset from one of thrift, efficiency and self-sustainability to the firebombed casino before you today. And that, the bunny believes, is because the industry became a game of Playing With Other Peoples' Money.

The bunny can already hear the nay-sayers out there, braying about transparency and responsibility to shareholders. And what, the bunny would retort with a wry whisker twitch, would they make of the Bear Stearns debacle? What did they make of Alan Schwartz desperately saying anything he could to prevent a Pamplona-style run on the bank, while Jimmy Cayne and Warren Spector played bridge as Bear burned? For that matter, what did they make of Credit Suisse CEO Walter Kieholz mugging for the TV crews in Davos saying they didn't have large fourth-quarter write-downs, followed by sf2.86 billion in losses due to "trading improprieties" not two months later?

This, the bunny believes, is a classic case of oversophistication. Put too many people into too many dollars NOT THEIR OWN and promise them astronomical bonuses based on performance (you don't think the shareholders in investment banks, even solvent ones, get paid first, do yez?), and you will get Uncontrolled Investment Diversification Mitosis, the technical term for which is Greed. And greed, as all bunnies know, metastasizes.

This oversophistication is a direct result of financial sharpies constantly dreaming up new ways to make money, which is a lot easier to do when you're not gambling with your own. Let it go long enough and you get an unraveling of the whole gesamkunstwerk (yes, the bunny knows German), which then prompts government regulators to get involved, who are guaranteed to screw things up further, thus leading to the sort of meltdown depicted in the three films named at the top of this rant. Oversophistication, cheap money, SOMEONE ELSE'S MONEY, and human greed led humanity down this road.

The bunny sincerely hopes the bipeds can sort things out amongst themselves. A bit of self-restraint, doncha know. The bunny is a prey animal. He has no self-imposed delusions of morality as humans do. His concerns are to eat without being eaten, and to find enough does to sire his kittens before meeting up with the Black Rabbit of Death. His kind have been at this a long time (90 million years, give or take, and still counting!). He knows about survival. He hopes the banks and brokerages that made this mess will have the instincts to pull themselves--and the rest of their world--out of it, or we'll all be listening to that opening voiceover from The Road Warrior in live Surround Sound.

But, he fears, there's just too many of them in charge who clearly don't know what the buck they're talking about.

Bunny buttresses:

"Credit Suisse faces first-quarter loss" by Simon Kennedy, Marketwatch, 3/20/08

"UBS enters ranks of record losers after $14 billion subprime write-down" by Warren Giles, Business Report, 1/30/08

"Mortgage crisis talks under way" by Chris Giles and Krishna Guha, Financial Times, 3/23/08

"What Created This Monster? by Nelson D. Schwarz and Julie Creswell, New York Times, 3/23/08

"What Went Wrong", Economist special report (pp.79-80), 3/22/08

"Natural History of the Rabbit (Oryctolagus Cuniculus), by Alexandra Sardi and Janelle Cooper,

http://www.baa.duke.edu/companat/BAA_289L_2004/Natural_History/Rabbit/rabbit_Natural_History.htm

3.16.08

O, to be blessed with an embarrassment of riches, chortles the bunny to himself.

Ordinarily, he doesn't like to think of himself as the sort that chortles, sniggers, or otherwise engages in gloating. A creature of the land, he is well versed in its gentry's mores.

But these are extraordinary times, and the getting's just too good. It's a bumper crop, a bounteous harvest of misery and woe and finger-pointing, with much of it being done exceptionally well. If pressed, he'd have to give the laurel wreath to Gretchen Morgenson in this morning's Times:

"But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street...Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A.R. Baron, clearing dubious stock trades. And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt.) It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there...As of February, according to Bloomberg data, 15% of those loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4%..." (p.1)

Great going, Gretch, cheers the bunny. Give it 'em good, by jingo!

Here's another, from Liz Rappaport and Justin Lahart in today's Journal:

"The US is at the recieivng end of a massive margin call...For years, the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer...The growing crisis of confidence now extends to the credit-worthiness of borowers across the spectrum--touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and the US government to rapidly repair the problems." (p.A1)

Marvelous stuff, isn't it? Give it up for Tom Cahill and Katherine Burton at Bloomberg last week:

"'If you have leverage, you're stuffed,' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back."

Bully for you, Bloombergers, rants the bunny. Rah, rah, sis-boom-bah, greedy bipeds all go BROKE BROKE BROKE!

The bunny does his best to keep his nose above politics, so it's not the fetid fumes from the national mudslinging contest nor state sex scandals (as if that would really roil a rabbit's equilibrium) that have gone to his head. Nay, this is karma in its terrible eternal majesty, the great circling of the cosmic clock. In a word: payback.

The Great Unwinding, as the bunny has come to think of it, is all atwirl like a streamer of firecrackers dangling from the fire escape of a Mott Street community center on the Lunar New Year. For years, the great pyramid of banks, brokerage firms, funds of all stripe and spot, Blackberry-toting businessmen and Joe Sixpacks alike have all spun to the same tune of Intangible Investing, AKA Spend What You Don't Have (perhaps taking their cues from their elected leaders). Then after dancing as fast as they could the music stopped, the markers were called in and lo, borrowing from Peter to pay Paul just didn't work when Paul showed up with his bros, a roll of electrical tape, two tire irons and a case of beer. (In a telling aside, casino revenues in Vegas are down almost 5%.) The panjandrums of Wall Street and Points Hedged clearly thought they would be immune to credit-borne pathogens, and now that their condition has progressed from symptomatic to full-blown, they have (predictably) become dependent on the Quick Fix handed out by Uncle Sam on the quarterly corner (or even a block or two away).

The mountain of leverage, like that of garbage in Naples, has come crashing down. Government intervention teamed with deep private pockets (J.P. Morgan, wherever he may be, must be greatly amused) can only prolong the inevitable reckoning. Those with debt-to-equity ratios too swollen from too many trips to the borrowing trough will be called to account. Once again the perils of cheap money are thrown into sharp relief, and the all-but-done rate cut coming this Tuesday won't help.

The bunny is a burrower. Now's as good a time as any to dig deep and wait out the carnage happening topside. Lest we forget, it's Tax Time.

Bunny Barrage:

"Rescue Me: A Fed Bailout Crosses a Line" by Gretchen Morgenson, New York Times, 3/16/08

"Debt Reckoning: US Recieves a Margin Call" by Liz Rappaport and Justin Lahart, Wall Street Journal, 3/16/08

"Hedge Funds Reel From Margin Calls Even on Treasuries (update 1)" by Tom Cahill and Katherine Burton, Bloomberg.com, 3/10/08

"One Ill Compounds Another, Hammering the Economy" by Vikas Bajaj, New York Times, 3/14/08

"Hedge Funds Squeezed As Lenders Get Tougher" by Carrick Mollenkamp and Serena Ng, Wall Street Journal 3/7/08

"Mortgage Fallout Exposes Holes in New Bank-Risk Rules" by Damian Paletta and Alistair MacDonald, Wall Street Journal, 3/4/08

"New Spasm Jolts Credit Markets" by Liz Rappaport, Joellen Perry and Deborah Lynn Blumberg, Wall Street Journal, 3/6/08

"Chips are down as Las Vegas feels pinch", ny Matthew Garrahan, Financial Times, 3/9/08