Tuesday, January 13, 2009

Moral Hazard

Kate Jennings in her novel Moral Hazard (2002) layers the decline from Alzheimer's of her heroine-narrator's husband Bailey with the late 1990s financial crisis working its way through the Wall St Investment bank where she works as a speechwriter: a job she's been forced to take to pay for her husband's care.

This is a brutally moving and unflinching novel that takes the idea of Moral Hazard from insurance and finance and parlays it into her own crisis which centres on the moral hazard of not euthanasing her deteriorating husband.

Almost a novella in length Jennings writes epigramtically in this timely work. Well worth reading in the current climate as a way into grasping through literary fiction the structures of feeling that the bewildering temporal world of CDOs and other derivatives present: a sort of Alzheimic perpetual present that defers and displaces any tallying up of obligation, consequences and meeting of debts.

It also provides definitions such as -


Hellishly complicated, computer-generated financial contracts, derivatives are the brainchildren of those maths pointy-heads known in Wall Street lingo, as “quants” – from the words “quantitative analysis,” I’d guess. Derivates and the regulation of them were particularly contentious in the early nineties, although, as one old-timer commodities trader told me, sniffily, they’d been around, in one form or another, since the Sumerians. “Once upon a time, it was commodities, then futures, now derivatives,” he’d opined, delicately shooting his cuffs. “It’s all structured finance. It’s all aimed at neutralizing risk by parceling it up, selling it to someone else. Quanting around, nothing new in that.(5)

Cathy finds company-expert Mike to give her quick lessons in understanding the novel financial products:

"The mathematics can be awesome. You have to admire the mathematics. And they can be an excellent risk-management tool . . .” He trailed off, obviously wondering whether he should continue. “Well, it helps to look at derivates like atoms. Split them one way and you have heat and energy – useful stuff. Split them another way, and you have a bomb. You have to understand the subtleties.”

Understand the subtleties. God is in the details. Cracks me up (7-8).

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