February 21, 2011
Book Club: There's a Little Tiger Mom in Each of Us
Posted by Christine Hurt

I think the hardest part about reading Chua's book for me is that it is like catching myself in a mirror -- and I don't look that great.  I am a junior Tiger Mom, with Tiger Mom aspirations.  Like Chua, we have rules that are not universally accepted around us (limited electronics use, fairly censored TV watching, computer only in common areas, etc.)  And, like Chua, I am a yeller:  a warrior with words, and with sarcasm.  (Last week, when my daughter was lamenting having to write a long essay, I countered with "Well, if you don't like to write more than a few sentences, I have a list of mediocre colleges you may want to think about.  And a list of occupations, most of which end in "repair.")  Reading some of Chua's and Lulu's verbal jousting was a little too close for comfort.  I also felt the heartbreak of thirteen-year-old Lulu's detaching from Chua, which felt all-too-familiar to me.  I kept thinking of the song "Slipping Through My Fingers," from the musical Mamma Mia.  I wanted to pound on my Kindle screen and tell Chua to wake up and get her daughter back.

But because I walk a similar path, I understand Chua's motivations.  We are all products of our childhood, and we all vicariously use our children as avatars to mimic or correct our childhood.  Chua seems to be doing both -- she wants to use her strict parenting to ensure that her children have similarly successful outcomes as well as acquire hard-earned insights and skills on the arduous journey, but she also (like Western Parents) wants her kids to have what she didn't.  Luxurious foreign travel.  Dresses from Barney's.  Musical instruments that cost as much as automobiles.  Tastefully simple celebrations with lots of guests that reek sophistication.  Chua is trying to give her kids the best of both worlds:  the work ethic of the recent immigrant and the sophistication and pedigree of a Mayflower descendant.  And she has seen many reaffirming payoffs, though we see that her strategy is high-risk and high-reward.

I also understand her basic quandary:  how to "make" a child do anything.  My first child was my "Lulu," so I figured out at about two months that I couldn't make a child do anything they didn't want to do.  Unless you are willing to resort to some sort of physical coercion, which I'm not, then the second-best strategy is to try to make the child want to do what you want the child to do.  this can be achieved, if at all, through reasoning or incentives (otherwise known as bribery and threats).  And sometimes, nothing works and you find yourself with a child who still says "no," even after you've taken away every physical possession known to man and grounded them for their natural life span.  Then you realize they are on to you.  Like the ants in A Bug's Life, children can sometimes catch on to the fact that parental control is fairly illusory and depends completely on the voluntary compliance of the child.  If I could have warned Chua of anything, it is that the child will have this epiphany earlier rather than later if you do not choose your battles.  If Chua's main goal is to have her children emerge successful and having reached their full academic/musical potential, then she should only try to use control as a means to an end, not as an end in itself.  So I winced when I read that she went into "bet the family" fighting mode over Lulu playing at her own Bat Mitzvah and over Lulu trying caviar.  Getting her way in those episodes was an end in itself, proving that children must obey their parents, not a means to the greater end of self actualization.  And of course we know what happened next, if you have read the book.

In the end, the parenting memoir as genre doesn't have much to offer as advice.  Chua has an "n" of two, with mixed results, which aren't complete yet.  All of us have small n's, with way too many confounding variables.  If we don't like Chua's methods, it is hard to combat her anecdote with our anecdotes.  Many commentators and reviewers have questioned whether her children are really hapy/will be really happy in the future/etc.  There's really no way to know, and no way to know if their happiness/unhappiness is linked to the fact that their parents heaped both huge amounts of love and expectations on them.  I think the best way to read Battle Hymn for the Tiger Mother is as an account of one woman's decision to parent in a particular way and the transformation that occurs in her because of that choice.  As I said in an earlier post, I'm not sure that enough time has passed between the events in the memoir and the writing of the memoir for the author to have truly processed the transformation of Tiger Mother.  Unfortunately, she has said "no sequel," so we may just have to catch up with her at a conference in a few years to get the rest of the story!

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Book Club: The Challenges of Parenting
Posted by Michelle Harner

Parenting is hard. It is by far the most challenging (and most rewarding) thing that I have ever done. It makes billing 3,000 hours per year at big law look like a walk in the park. So I am not in a position to critique any parenting techniques or decisions that are based on love, compassion and concern for the children.

And regardless of what you personally think about Amy Chua's parenting style, I think her love for her children comes through clearly in Battle Hymn of the Tiger Mother. You can question her methods and tactics, but not her love or devotion to her children. Yes, the cynic could say that her children are not her primary concern; rather, she is living through her children and hoping to shine in the light of their successes (even Chua acknowledges this cynical perspective in the book). But I find it hard to be cynical about a parent who spends so much time interacting and working with her children and who, in the end, modifies her approach to preserve that fragile parent-child bond.

I will admit that my parenting style is very different from that portrayed in the book. I will also admit, however, that I was not surprised by the explanation or adoption of what Chua refers to as the Chinese way of parenting because, having participated extensively in a competitive activity during my childhood, I experienced some of those techniques. I am incredibly grateful to my mother for all of her love and devotion.  And although I am raising my children differently, I do not think my parenting philosophy is better or worse--it is just different.

Nevertheless, I recognize that we as a society do judge parenting techniques. As I was reading Chua's book and thinking about this forum, I was reminded of another parenting book, Bad Mother:  A Chronicle of Maternal Crimes, Minor Calamities, and Moments of Grace, by Ayelet Waldman. The Waldman book is an interesting review of the challenges of parenting, particularly when the "Bad Mother police force" is watching your every move. The motivation for that book also is interesting--the author was criticized heavily by other mothers after publishing an essay in the New York Times about loving her husband more than her children (see, e.g., here and here).  (Notably, Waldman commented on Battle Hymn, see here.)  Chua likewise has apparently received death threats over her book.  Moreover, I suspect many of us have experienced or heard horror stories about the often judgmental cliques that develop among mothers, starting with the preschool crowd.

This harsh criticism of, and resulting guilt inflicted on, undeserving parents bothers me more than whether we let our children attend playdates and sleepovers. This conduct is even more troubling when you consider how children may mimic the conduct of their parents (see, e.g., here, here and here).  As such, I suggest a battle hymn for civility and support among parents.

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Book Club: Tiger Mothers, the Reflection Doctrine, and the Perils of Perfectionism
Posted by Lyrissa Lidsky

Amy Chua's Battle Hymn of The Tiger Mother is a brave and provocative work--inspirational and disturbing in roughly equal measure.

To be a mother is to be judged. Strangers in public places offer advice about whether your baby is dressed appropriately for the climate; family members, friends, and mere acquaintances feel at liberty to share their often strong opinions about how you feed or discipline your children. Amy Chua is therefore brave to offer up her parenting for minute public scrutiny in this book that is part memoir and part spirited defense of parenting methods that many of her readers are likely to brand extreme, including calling children names ("fat", "lazy") and making invidious comparisons between one child and another. 

As a mother of three sons (ages 12, 9, 6), I found Chua's honesty about the difficulties (battles, really) of parenting to be remarkably inspirational. One of Chua's themes is the difficulty of attempting to inculcate one's children with values that do not seem to be shared by the wider culture. Like Chua, I sometimes feel as if cultural forces are aligned against my attempts to produce respectful, disciplined, and hard-working children, and it is inspirational to hear of another parent's struggle against these same forces. Like Chua's children, my own sometimes make me feel like an ogre when I am standing over them demanding (often quite loudly) that they re-do a project or assignment until it represents their best efforts.  Many times I feel like throwing up my hands when I am dealing with an obstinate and argumentative child who simply doesn't want to do the work required to realize his full potential as a student, especially since these battles are always waged after a long day at work, when I'd like to relax and read a novel. Chua's book truly inspired me to redouble my efforts with my sons and not to cut myself slack when I am feeling overworked and exhausted.  In fact, Chua's book was so inspirational that the "Tiger Mother" moniker has become a running joke in our house. When my sons are obstinate about doing their work, I'll say to them, "Don't make me go all Tiger Mother on you." It is, I hope, a joking reminder that I'm willing to do whatever is necessary to make them the best students they can be. 

Chua's book is billed, in part, as a memoir, and as the book unfolds, Chua begins to question, albeit mildly, whether her "Chinese mother" model can and should be applied by every parent to every child. Chua's older daughter responds well to her parenting methods, which involve a highly regimented and demanding schedule of study and piano practice under the constant, intense, and highly critical gaze of Chua herself. Her youngest daughter, however, eventually rebels, but not before she has become a highly accomplished violinist, and even her rebellion involves merely quitting violin and being unpleasant to her mother; she remains, evidently, an extraordinary student and is talented both musically and athletically. Despite this, Chua tell her daughters at the end of the book that she would do nothing differently if she had it do all over again.  She insists that she made "great choices" in parenting, and she defends her extreme methods "even though all those people worried that you [i.e., her daughters] would be permanently damaged psychologically." (227). Throughout, she rails against lazy Western parents who place insufficient demands on their offspring and allow them to choose mediocrity.

The point, though, is that Chua's daughters are still too young for her to make a fully informed judgment about the virtues of her parenting style as applied.  Herodotus wrote, "Call no man happy until he is dead." By the same token, no parenting can be judged successful when the children have not even become adults. And even if Chua's parenting produces accomplished adults, are accomplishments the ends of successful parenting, or are they only means?

In judging her own parenting, Chua falls prey to what a friend of mine calls the "reflection doctrine." Chua judges her parenting successful because her daughters have accomplishments, such as playing at Carnegie Hall, that reflect well on Chua herself. Chua's daughters accuse her of only valuing them to they extent that they are extensions of herself.  In what is probably the climactic scene of the book, Chua's younger daughter shouts at her "You don't love me. You think you do, but you don't. You just make me feel bad about myself every second. . . . You're a terrible mother. You're selfish. You don't care about anyone but yourself . . . .Everything you say you do for me is actually for yourself." (205). No one should be judged by what her teen daughter shouts at her in a fit of anger, but after reading the book, it is easy to see how Chua's daughters could come to feel as if they were only valuable for their accomplishments. Even her more compliant older daughter complains, in essence, that no matter what she does to please Chua, it is not good enough.

For me, but not for Chua herself, the central tension in this memoir is between being a parent with high expectations versus being a parent who can never be pleased. On Chua's account, her own mother and father could never be pleased, and she seems to attribute her extraordinary success in life to the perfectionism that her parents' attitudes inspired. Yet perfectionism has costs. Chua admits that she started off as a math major in college to try to please her parents but dropped it when her father "told me I was in over my head, saving me." (31). She wrote her senior thesis on a subject she found boring, again because it "seemed vaguely sciencelike." (31). She went to law school, "mainly because I didn't want to go to medical school." She attributes her success in law school to "working psychotically hard" rather than to being brilliant. (31). Meanwhile, she worried that law wasn't her "calling": "I didn't care about the rights of criminals the way others did, and I froze whenever a professor called on me. I also wasn't naturally skeptical and questioning; I just wanted to write down everything the professor said and memorize it."  After law school, she went to Wall Street as "the path of least resistance." Though she was good at the job, she felt like an impostor. (31). Even once she entered academia, she often suffered from writer's block, despite her obvious talents and abilities and, yes, accomplishments.  

Despite her own experiences, Chua never asks herself if the costs of being a parent who cannot be pleased are ultimately worth it. Chua attributes her success but not her difficulty in finding her way in life to her parents' methods. She freely admits, however, that her husband was equally successful even though his parents took a much more relaxed approach. Unlike Chua, her husband "loved the law," "loved writing briefs and litigating," loved prosecuting, wrote "for fun" a "100-page article on the right of privacy--it just poured right out of him." The article was published by the Harvard Law Review, and her husband got a job at Yale Law School without applying "even though [Chua] was the one who always wanted to become an academic." (32). Could there be a lesson here? If there is, Chua doesn't see it.

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Book Club: Battle Hymn of the Tiger Mother: Perils of the Memoir
Posted by Christine Hurt

I have so much to say about this fascinating book, I'm going to split my thoughts into separate posts and look forward to reading my friends' posts in between.  This post is mostly on the topic of the memoir.  In case you haven't been to a bookstore in the past two decades, you may want to know that the memoir is the genre of choice these days.  The autobiography used to be the arena of the at least once famous writer, but the memoir celebrates everyman (or everywoman) by presenting the forces that shaped that person as somehow distinctive.  These forces are usually a bad childhood marked by someone's (the writer or a family member's) mental illness, substance abuse or both.  As Tolstoy reminded us, "Happy families are all alike; every unhappy family is unhappy in its own way."  I am addicted to memoirs, and I've even read an amazing memoir by another female law professor, Elyn Saks.

Amy Chua's memoir is not marked by any of the typical antagonists of the memoir -- no mental or physical illness, no substance abuse, no legal or financial problems.  Instead, the tension is between Chua's parenting style and the expectations of modern U.S. culture.  Unfortunately, we never see who wins.  My first quibble with the memoir is that it attempts to tell a story that is not finished.  If we are to truly judge her choices by their results, then the results aren't in.  Sophia and Lulu are still teenagers at home, and we get the sense that there will be other clashes between the Tiger Mom and her pride.  Chua's sister, whose cancer is chronicled somewhat, is still in treatment.  No loose ends are tied up.  This is a substantive problem and also a form problem.  The last chapter reads as a series of texts among Chua, Sophia and Lulu, sort of a "ok, 'bye/see ya later/love ya/ok, bye" ending.   Secondly, perhaps because the events in the book are still fresh, Chua studiously omits many details about her husband, which she acknowledges, and her marriage, which follows from the first omission.  Not wanting to write about one's husband and marriage seems reasonable to most people, but it makes for a strange book that one writes about one's children.  It's like viewing their family life with an obstructed view, and the family life is the main topic of the book.  I kept asking myself, "What did her husband think to himself/say to her/tell the 911 operator about that?"

No memoir is worth reading unless the writer has processed the events and has the self-awareness to write about them honestly from the viewpoint of both a participant and an observer.  Chua as writer seems very self-aware.  She is very funny and purposefully sets up dramatic irony between what she seems to be saying about a particular incident and the reaction that she knows the reader will have.  She takes a transparently tongue-in-cheek tone that lets us know that she gets it, just like we do.  Though she is rarely critical of herself in her own voice, she allows many criticisms to be thrown toward her out of the mouths of her children, whom she has already presented as extremely intelligent and wise.  Chua knows that these criticisms will resonate with us, just as they must have resonated with her.  The only moment that I thought she lacked self-honesty (and this may be simple a lapse in editing) was early on when she anticipated argument that she was pushing her prodigy children for her own selfish desires.  She counters this argument by saying that if it was all for herself, then she would spend hours and hours on Saturdays and Sundays doing yoga or other "moms day out" type of indulgences.  However, the Chua that we get to know would not accept this argument.  Chua has detailed how her life has been about learning and teaching her children the connection between short-term hardship and sacrifice and lifelong reward.  So I believe Chua's own counterargument to herself would be that she could easily be sacrificing hours and hours of yoga, book club and manicures so that she could receive praise from her friends and colleagues at the girls' recitals, Bat Mitzvah concerts, and Carnegie Hall extravaganzas.  And finally, I do wonder if more separation in time from the book's writing and the events of the book (which seem to have happened the day before the book was bound) would have given the book even more insights.

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Book Club: Tiger Mothers, Resilience and Sleepovers
Posted by Jennifer Collins

My immediate reaction upon finishing Battle Hymm of the Tiger Mother was utter exhaustion.  I consider it a good parenting day if I get home from work at a decent hour, survive the homework gauntlet, get a reasonably healhy and tasty dinner on the table, and get my three kids into bed without them inflicting any serious physical or emotional injury on each other.  But Amy Chua somehow finds time to be a tenured law professor at Yale, travel around the world, supervise her children's music practice for hours every day, write pages of music practice notes, and clock her daughter doing 2000 multiplication problems a night (although in fairness, this last task may not have happened every night).  I am clearly completely inadequate at this multi-tasking thing.

But on a more serious note, I found myself reflecting on the implications of tiger parenting in light of my current position.  I recently moved into administration on the university level and thus am now spending a great deal of time on the challenges facing our undergraduate students.  As was widely reported a few weeks ago, the emotional health of college freshmen hit an all-time low this academic year -- students report feeling more stressed out and depressed now than at any time in the past 25 years.  Although this trend is no doubt due in part to the current state of the economy, something more seems to be going on -- many students today are lacking resilience.  One passage in Battle Hymm rang particularly true for me; Chua writes that when a child receives a bad grade, Western parents in essence assume the problem is someone else's fault and not their child's -- Western parents "may schedule a meeting with the school principal to challenge the way the subject is being taught or to call into question the teacher's credentials."  Chinese parents, on the other hand, "excoriate, punish, and shame the child," and work through "dozens, maybe hundreds of practice tests . . . for as long as it takes to get the grade up to an A."   (I have to believe that on some level the child of a Chinese parent eventually earns the A just to get her parent to leave her alone, rather than valuing the achievement for its own sake.)  At their core, both these scenarios involve parents coming to the rescue, albeit in very different ways.  And both run the risk of children failing to internalize a drive to succeed and learning how to cope with and then bounce back from, on their own initiative, a personal failure.  To put the point more crudely, in the Western parenting world, children play on teams where everybody gets a trophy (a personal pet peeve of mine).  In the Chinese parenting world according to Chua, children are only permitted to do activities where it is already apparent they will eventually be able to win the equivalent of a gold medal.  In both worlds, the child always gets a trophy.  So is it any surprise our kids can't cope when they get to college or law school and are confronted with the reality that a grading curve means everyone, no matter how many practice tests you take, simply cannot get an A?  Western parents surely don't have all the answers when it comes to resilience, but I am not convinced Chinese parents do either.

Finally, even if we assume for a minute that Chua's parenting approach might be good training for academic or musical excellence, that is true only for solitary pursuits.  A child who never plays a team sport, or has a sleepover or a playdate (and Chua clings to her antipathy towards these even despite her increased flexibility at the end of the book) lacks the opportunity to learn how to negotiate conflict, to motivate others, or indeed to lead. This is a significant failure in our increasingly interconnected world.  So, for example, an adult who was raised by a Chinese mother may be well situated to be a concert violinist or a brilliant mathematician developing theories alone in an academic office, but would not be prepared to function effectively as a part of a team at Ford or Microsoft -- or to lead, inspire, and motivate a group of other (presumably less capable) employees there.  We have had sleepovers the past two Saturday nights to celebrate my boy/girl twins' eleventh birthdays, and I have spent the past two Sundays muttering "never again" to myself as I picked yet another cheese puff out of our basement sofa.  But after finishing the very thought-provoking Battle Hymm, I regretfully conclude that there may have to be some more messy and conflict-ridden sleepovers in my future.

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Book Club: The Obsession With Being Number One
Posted by Erica Hashimoto

I think there are many good ways to raise children.  Different things work for different kids and parents, so I try to steer clear of judging other parents for how they raise their kids.  That having been said, I have some pretty fundamental disagreements with the views Amy Chua expresses in Battle Hymn of the Tiger Mother, less because I disagree with the way in which she raised her kids and more because she appears convinced that hers is the only right way.

In the book, Chua focuses almost all of her energy on ensuring that her daughters outscore and outperform (in the things that she thinks matter) all of the other kids who might be viewed as competition.  And she is quite dismissive of "Western" parents who don't properly focus on that goal.  If she is right that the "Chinese way" is all about having your child rank first, that is not a society in which I want to raise my child.  I think it would be a real nightmare to go to a school where every child has been taught to measure her success by how many other children she has beaten, and to measure her failures by how many kids got a better score on a test.  Leaving aside the obvious problem that in any class, only one child is going to be able to meet the goal of being number one, I don't want my daughter aspiring to show up other kids in her class.  I want her to do well in school.  I want her to work hard.  But I also want her to work well with others.  I want her to be the child who brings out the best in others.  That skill may not be tested, and it may mean that another child will do better on a test than she will, but that is all right with me. 

I also don't want to live in a place where other parents view my child as competition rather than as a fun, interesting person who is friends with their kids.  Having the support of other parents with kids around my daughter's age has made me a much better parent.  And those parents all want the best for my daughter.  I just cannot imagine raising my daughter wondering whether her friends' parents are hoping that she will fail (or at least not succeed too much) so that their children can get the highest score on every test. 

To my ears, this sounds like a completely, ridiculously obvious point.  But Chua seems never to back off of her view that her obsession with being first creates a better society and should be the only way.  Even at the end, she is scheming to try to ensure that her daughter will beat all of the other kids in tennis.  My guess is that Chua would say either that I am weak or that I am valuing the wrong things.  I will leave it that we just have very different values, both for our children and for the society in which we live.

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February 20, 2011
Book Club: Battle Hymn of the Tiger Mother
Posted by Usha Rodrigues

I'm very pleased to announce the Conglomerate Book Club on Amy Chua's Battle Hymn of the Tiger Mother.  We have assembled an array of law prof moms to give their take on law prof/Tiger Mom sensation Amy Chua's book and parenting philosophy.  I quote from Christine's excellent description of what we're hoping for:

Just so you know what to expect, everyone is going to speak to the book.  Not the author's family life or personal biography, even if some of our participants know her personally.  We are going to speak of the daily balance that law prof moms face not only of work time and family time but also of inspiration and unconditional love.  How does a mom sit on an admissions committee, seeing that the average admit to her alma mater has a near-perfect gpa and then go home and tell her child that grades aren't everything?  How do we prepare our kids to mix in any sphere they want, including the ultracompetitive sphere we inhabit, while preserving their spirit?  These are hard questions for me, and I'm looking forward to hearing everyone else's take on both the book as memoir and the book as challenge.

I finished the book last night and am still amassing my thoughts..so I'm anxious to see what our book club participants have to say!

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February 08, 2011
Conglomerate Book Club: Battle Hymn of the Tiger Mother by Amy Chua, Monday, February 21
Posted by Christine Hurt

A few weeks ago, one WSJ excerpt sparked a nationwide parenting discussion and inserted the term "Tiger Mother" into the common vocabulary.  Law professor Amy Chua's new book, Battle Hymn of the Tiger Mother, became an instant NYT bestseller, and news stories about her, her family, or the national debate would grace the covers of magazines from Time to People.  Well, here at the Glom we thought it was strange that all kinds of folks were chiming in (David Brooks?) while we knew a big passel of other law professor moms who might be able to speak to the topic from experience.

So, we rounded up a whole bunch of rockstar lawprof moms with school-age children or younger to give us their take on the book on Monday, February 21.  Usha, Lisa and I are chomping at the bit to blog about this a little more, and we've told the Glom Dads that they can certainly chime in as well.  Joining us so far are Mehrsa Baradaran (BYU); Lyrissa Lidsky (Florida); Sarah Lawsky (UCI); Jennifer Collins (Wake Forest); Andrea Schneider (Marquette); Erica Hashimoto (Georgia); Michelle Harner (Maryland); and Miranda Fleischer(Colorado).  I think the median number of children in that list is three, so there's a lot of fodder there.  Like Prof. Chua, some of our participants have parents from other countries (Lyrissa and I are from West Texas, which may count as well).  Like Prof. Chua, some of our participants have law professor spouses.

Just so you know what to expect, everyone is going to speak to the book.  Not the author's family life or personal biography, even if some of our participants know her personally.  We are going to speak of the daily balance that law prof moms face not only of work time and family time but also of inspiration and unconditional love.  How does a mom sit on an admissions committee, seeing that the average admit to her alma mater has a near-perfect gpa and then go home and tell her child that grades aren't everything?  How do we prepare our kids to mix in any sphere they want, including the ultracompetitive sphere we inhabit, while preserving their spirit?  These are hard questions for me, and I'm looking forward to hearing everyone else's take on both the book as memoir and the book as challenge.

We're also interested in what our readers have to say, so we hope you jump in on the comments!

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December 16, 2010
All the Devils are Here: In the Details, Subtler Devils
Posted by Erik Gerding

If you have spent a fair amount of time reading about the financial crisis, you are unlikely to be surprised by the broad outlines of McLean and Nocera’s book. But this book should still be required reading. First, the author’s are masters of the storytelling craft. Many scholars can examine the institutional and economic causes of the crisis, but McLean and Nocera can make these explanations vividly understandable. At the same time, they weave together a tapestry of stories of captains -- among them Angelo Mozilo, the management of AIG, executives at Fannie Mae, various regulators -- who sailed their institutions and the international economy straight onto the blackest of shoals.

However, what interested me most was not the treatment of the usual suspects, but how the juxtaposition of the various stories – the invention of mortgage-backed securities, the rise of Countrywide, the development of AIG’s credit derivative business – reveals subtler villains and difficult puzzles. Much of what I find interesting below may not strike you as novel, but the value of this book may be in getting us to look once more with fresher eyes at patterns that tend to submerge back into the vastness of the big picture of the crisis. The book still has me mulling over the following:

Making the numbers: the poorest decisions by financial institutions and regulators were driven by a monomaniacal focus on managing according to a single measure of success: Countrywide’s management was obsessed with market share, policymakers fixated on homeownership percentages, and, of course, short term share price preoccupied any number of firms. Perhaps the subtlest but most telling examples of management by numbers – both stupid and smart -- is the contrasting attitudes that Wall Street firms took towards measures of risk like “value-at-risk” (“VaR,” which measures the maximum loss that a firm could expect in its portfolio from specified kinds of risk with say a 95% confidence interval). The book contrasts banks such as Merrill Lynch, on the one hand, and their more sophisticated competitors like JP Morgan and Goldman, on the other. McLean and Nocera portray Merrill’s CEO, Stanley O’Neal, as being obsessed with massively and crudely increasing his firm’s risk solely to earn the same profits as Goldman. At the same time, the authors describe how banks that used raw VaR numbers as a lodestone failed to understand the limitation of VaR models – such as the fact that the model says nothing about the level of losses in the remaining 5% of cases (to use the above confidence interval). This created incentives for traders to game models by making investments that would not be captured in VaR figures – for example making trades with a low probability but high magnitude of potential losses to fit into that unknown 5%. Contrast this with the attitude towards VaR of both the metric’s creators at JP Morgan and the senior executives at Goldman; at these firms, the firm’s VaR number – which was often recalculated at the end of each trading day -- was seen as the beginning of the conversation on appropriate levels of risk for the firm, and not the end.

Most readers will likely be less interested in the limitations of risk management tools than I’ve been, but the more general lesson on the dangers of managing according to simple numbers has broader implications. Americans seem hardwired for lists and rankings (with the end-of-the-year bacchanalia of lists now upon us). The danger of making decisions based solely on “hard numbers” has dangers not only for industry, but also for government and statecraft. Think of how many Presidents set goals for increasing not only homeownership, but also for goals such as levels of college education or exports. What nasty tradeoffs, for example, irresponsible oversight of student lenders, are made in order to meet brute goals? Academics are not immune from this fixation with navigating according to simple numbers – witness the games played with school rankings (or even the obsession – heaven forbid – with law review placements and citation and download counts).

Bully cultures and dissent: it is also striking to see how the firms that fared the worst – like AIG and Merrill – suffered more because of a culture of bullying, in which risk management was not only marginalized, but dissent was squelched with screaming and naked power plays. Contrast this again with the portrayal of Goldman, which, by no means a warm and fuzzy place, nevertheless encouraged active discussion and debate on levels of risk-taking and potential threats to the firm. There is also a direct parallel to the tale of how Bob Rubin and Larry Summers responded to Brooksley Born’s concerns on the regulation of OTC derivatives during the Clinton Administration. I can be reflexively skeptical every time an academic brings up the fuzzy concept of “culture,” but the book makes a powerful case for institutional cultures in which dissent is allowed and ego is channeled.

Accounting scandals were the smoke, the fire came later: the experiences of both AIG and Fannie Mae may surprise in that accounting and regulatory scandals did not chasten behavior and risk-taking. Instead, they seem to have merely pushed risk-taking, as if hydraulically, to other parts of the organization. This may perplex many lawyers – wouldn’t you think that being called to the mat by the government would sober up a client and increase the leverage of the in-house compliance chaperones?

Instead, it appears that the competitive and cognitive dynamics of a continuing bubble dominate – something I examined in 2006. These dynamics radically alter decisions to comply with law and can far outweigh the effects of scattershot prosecutions and enforcement actions. Regulation through litigation seems a rather quaint idea after reading this book.

CEOs with J.D.s: speaking of in-house compliance guys, it is also striking to consider again how many of the ceos of financial institutions had j.ds – Rubin and Blankfein at Goldman, O’Neal at Merrill, Prince at Citi, Raines at Fannie Mae. I’m not sure what this means other than to explode the myth that going to law school makes one automatically risk averse. Might having a law degree counterintuitively mean that an investment banker has to take a convert’s attitude towards financial risk: become more Catholic than the Pope?

Where were the lawyers?: This question has been asked many times by many others, and unfortunately this book does little to answer the question. Lawyers and their role in the many fateful decisions of firms and agencies are largely degree absent from the book. But there are certainly clues. The book provides many examples of “siloing,” in which different groups within a firm did not share valuable information on risk – for example, the level of “stated documentation” mortgages being made – with other groups. This explains to a large degree how the build up of risk both inside a firm and system-wide was missed. Were lawyers unable to play the siren role because they were stuck in a silo or marginalized? Or was it their lack of understanding about finance and economics?

Or is perhaps the inherent conservatism of our profession also counterintuitively to blame? Think about how precedent works for transactional lawyers. If a model agreement has worked many times before, it may be less likely to be questioned anew. If a lawyer were to suggest new risk factors for securities disclosure what might happen? Likely there would be pushback and a request for an example of someone else using that language – in other words, a request for precedent.

Did lawyers fail to apply enough pressure on the brakes due to reluctance to displease or lose clients? Or was a broader shift in professional norms at work, in which lawyers saw their role as helping clients develop work-a-rounds for regulations rather than as counselors counseling compliance with the law. At a conference earlier this year, a friend of mine phrased the distinction as the difference between a role of “transaction cost engineer” (borrowing from Gilson) and one of “protecting the franchise” of law.

Answering the question of “where were the lawyers” has profound implications not only for scholarship, but moreover for legal education. Will the crisis cause legal educators to re-think what we do in the classroom? If so, I hope we move beyond simplistic calls for more ethics classes? Business schools (my apologies, David) have a patent on rolling out new ethics programs as a clockwork response to each new wave of scandal. Excuse my hearty skepticism about whether those courses really change the behavior of future bankers, or whether they are more window dressing to make donors and universities feel better. Ethics courses may help the conscientious be aware of difficult questions, but only rules – whether imposed by law or a community – will deter the true “bad man.”

###

So All the Devils was a welcome read, even in a busy season, because of all the thinking it has forced me to do. On a more abstract level, it has also made me think about my own scholarship as I continue to plow away on my own book. One limitation of McLean and Nocera’s journalistic account is that it focuses much on the individual decisionmakers – a version of a Great Man account of history. The reader may be left thinking “if only these individuals had made these particular choices differently.” Focusing too much on the trees misses the systemic forest of failures. Had Angelo Mozilo not pushed Countrywide deeper into riskier mortgages, some other firm would have taken its place. To McLean and Nocera’s credit, they do provide brief and accessible accounts of some of the scholarship on the meltdown – such as Gary Gordon and Andrew Metrick’s account of a “bank run” on the repo market. Still, the lion’s share of the book is devoted to the personal.

Yet the personal and narrative approaches can serve as a tonic for scholarship, my own included, that emphasizes economic and institutional forces and downplays individual decision-making. One limitation of this latter approach is that it may – although not by necessity – lead to giving short shrift to “softer” factors that contribute to crises, such as changing norms. Moreover, a focus on economic and legal changes may be misread to suggest that human agency has no part in the equation. For all the justified reluctance to inject morality into financial crises – and I do reject the idea that human nature changes from age to age or that greed was an invention of the last ten, twenty, thirty years -- downplaying the human element can lead to the trap of believing that all was pre-ordained by iron laws of history.

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All The Devils Are Here: From ARM to ABACUS
Posted by Christine Hurt

I'm very glad we all had an excuse to stop grading for a moment to finish All The Devils Are Here.  I very much enjoyed this very readable, but extremely fact-based, account of the years leading up to the financial crisis.  I also liked the way the authors drew a line from mortgage brokers signing up "hard money" borrowers all the way to investment banks dealing in CDOs and CDS's.  Because really, one doesn't exist without the other, and that entanglement is the important part of the story.   Finally, I think the most valuable part of the story is the Fannie Mae/Freddie Mac story, which just isn't given enough attention.  Unlike other players, these GSEs are not only still here, they played a role in the attempt to stabilize the industry and were largely ignored by Dodd-Frank.

After seeing the title, I was surprised that the book wasn't going to come out hard for criminalization of some of the actions of the players in the book.  Oh, there are plenty of sins here:  sloth, gluttony, envy, pride.  And most everyone in the book is painted some color of stupid, but few are devilishly (or criminally) evil.  And no one escapes, regardless of party or ideology:  Clinton, Bush, Obama, Summers, Rubin, Greenspan, etc.  What the book lacks are any angels.  There are Cassandras, but as in real-life, Cassandras (think Harry Markopolos) are a mixed bag.  Some see it coming, but whine only as loud as they dare before annoying others (Ned Gramlich).  Others try to warn, but their personalities get in the way (Brooksley Born).  The picture that is painted is of lobsters egging each other on into a pot of water that is slowly heating up.  A few lobsters beg off, but we really don't hear from them again (Dave Zitting, pp. 149-50).  Most are afraid of being left behind if they don't join the party.  Then they all realize the water is starting to boil.

The book is far too factually accurate to be called one-sided; however a running theme of the book is that financial innovation is bad.  Or, that financial innovation serves no useful purpose and leads to ruin.  Let me explain.  The book traces the housing market from the post-war 30-year fixed to the first mortgage-backed security to the increase in subprime lending to the securitization of subprime to the "slicing and dicing" of MBS to synthetic collateralized debt obligations to credit default swaps.  However, the book does not really analyze the utility of any of these innovations, even the home mortgage.  (p. 6, noting that the 30-year fixed "is designed to allow middle-class families to afford monthly mortgage payments" but is "standard in only one other country (Denmark)".)  We can all agree on the internal and external risks of financial innovation, but these innovations were not just innovations for innovation's sake.  I would like to see some account acknowledge that good things came from the securitization of home mortgages.  And, good things came from being able to "credit enhance" mortgages for the sake of securitization, through reinsurance or guarantees, and good things came from allowing purchasers to hedge their risk through credit default swaps, which give the market a lot more price information than the credit ratings agencies do.  The authors mention some of these assertions, but put them in the mouths of actors already deemed devils, so they aren't given as much credit as they are worth.

Because this is the problem with prescribing a low-risk diet.  We cannot go cold turkey.  We can't imagine a United States without a mortgage product.  For the capital necessary for lenders to offer mortgage products to this many people, we need some sort of securitization.  Prudent investors will want to hedge this risk with products that counteract the risk.  In a perfect world, this will decrease overall risk to as close to zero as possible.  But, in a non perfect world, the need for liquidity will necessitate professional risk-takers (speculators), and overall risk will rise.  Securities, even asset-backed securities, don't tank investors.  Investors tank themselves.  And some financial products look like tasers and some look like WMD.  How to regulate?  This is a big question, and understanding and acknowledging the tension is important.

I think one great example of this tension between positive utility and negative utility is Chapter 22, which details how the GSEs began expanding its subprime mortgage debt IN THE SUMMER OF 2007!!  Why?  Because it saw an opening, as mortgage firms were failing, and the government saw a need.  To keep the system going, the GSEs had to step in when other buyers couldn't, or there would be no new mortgages.  So all the risk in the system became concentrated in the one place that would hurt taxpayers the worst, but for the sake of allowing taxpayers to keep refinancing their mortgages.  That is not any easy knot to untangle, my friends.

The book has a lot of fodder for those who like to ponder what ifs and alternate regulatory worlds!

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All The Devils Are Here: The Nocera Interview
Posted by David Zaring

Joe Nocera, my favorite Times columnist, was willing to answer some questions about All The Devils Are Here, the subject of the Conglomerate's latest book club.  Your interviewer (that would be me) was probably trying a little hard on the questions (they are very long!), but the answers do try to make the best of them:

All The Devils Are Here pays a lot of attention to the way that government policy and regulation facilitated the crisis, as opposed to corporate misconduct (though you talk about plenty of that, especially in the mortgage industry).  Is it fair to say that one of the themes of the book is that misguided government policy was the sine qua non of the crisis?  And if so, do you think that government policy can be rejiggered to prevent this sort of thing from happening in the future?

Misguided government was a big factor, no question, in all sorts of ways, some known, some not so well known.  For instance, it was the government that gave the big three ratings agencies, Fitch, Moody's and S&P, their special status, meaning that pension funds, money market funds and others could invest in securities that had an investment grade rating from any one of the big three.  Government looked the other way at the subprime abuses.  And government refused to do anything as derivatives became increasingly important in finance, and created systemic risk that had never existed before.  But even so, government was only one leg of a three legged stool.  The other two legs were the rise of the subprime companies, which handed out loans that borrowers could never hope to repay, and Wall Street's voracious appetite subprime mortgages it could bundle into Triple A securities.  There is also another factor: the universal belief that housing prices could only go on one direction: up.

Business law scholars think a great deal about how the corporate form can facilitate good business decisions.  But financial institutions tend to use corporate governance best practices (no poisons pills, dual class stock structures, plenty of outside, if not always qualified, directors), and yet have extremely high levels of insider compensation, regularly exercise poor risk management, and so on.  You’ve looked at the way the banks were run during the crisis; how did you think their corporate organization affected their performance, if at all? 

It is important to remember that most Wall Street firms were partnerships before they became corporations.  When they took investment risk, they did it with the partners' money; when they reaped rewards, it was the partners who put those rewards in their pockets.  Once the partnerships became publicly traded corporations, they were suddenly freed from the fear that losses would come out of their own pockets--it was now shareholders' money they were putting at risk.  Yet their view of compensation never changed: the vast majority of the gains they made went not to the shareholders, but to themselves.  Most Wall Street firms put aside more than 50 of revenues--not profits, but revenues--for compensation, an astounding figure.  That is why there was so little brake on the riskiness, and even the foolishness, of the risk-taking:  all the incentives went in the opposite direction.  Having a corporate structure, in no small measure, created those warped incentives.

Economists almost always write collaboratively, legal scholars sometimes do, and it seems pretty uncommon in business journalism.  How did the collaborative process work for you two?

Bethany and I are like a tennis doubles team that has been playing together for a long time.  We know each other so well, we can anticipate where one is going, and we each know the others' strengths and weaknesses.  We have been working together, on and off, for some 15 years, most of that time at Fortune, where I was an editor and Bethany was a writer.  We worked together on The Smartest Guys in the Room, which I helped to edit.  And this time around, we divvied up the reporting--she took on the subprime companies, Goldman Sachs, Fannie and Freddie, among other topics, while I covered Merrill Lynch, AIG, the Clinton era in Washington and so on.  Bethany is a great reporter and a brilliant thinker, who is also one of the fairest journalists I know. I am a better editor and stronger on narrative,   She pushes me to think things through better; I push her to write her chapters in a more story-telling fashion.  And since we both know that about each other, we never fight.  (Well, almost never.)

 

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December 15, 2010
All The Devils Are Here: The Book Club
Posted by David Zaring

Welcome to the Conglomerate's book club on Bethany McLean and Joe Nocera's All The Devils Are Here, their comprehensive account of the financial crisis and the progenitors of same.  What the book does, and what few other financial crisis books have done is to take a longer, more synthetic view of what went wrong - this is no tick-tock.  I'd compare it to Gillian Tett's Fool's Gold in that worthy endeavor.  Here's what I found particularly notable about the McOcera take:

  • It's all about regulatory failure.  The book is no screed against government incompetence, but it is focused on how the government's moral hazardish support of the housing market led to tons of problems.  And then when the crisis develops it (correctly in my view) concentrates on the government's response.  I think the financial crisis illustrates the way that Wall Street has become entwined with Washington, and so I think this is the right focus.  The last paragraph of the book quotes Lewis Ranieri: "What should the government do?"  It's a question that can get lost amid all those Wall Street titans.
  • Paul Volcker, everyone's hero, was a Fannie Mae lobbyist - that's a nice nugget.
  • It's all about housing finance to these guys, and there, the hardly propitious outer planets of the business - thrifts in Long Beach, for example - turn out to have been critical, if fraudulent players.  It's not an area that has gotten nearly enough play - until this book.
  • But there's an eclectic choice of subjects here - good stuff on mortgage makers, credit ratings, Frannie, and Hank Paulson.  Less on other stuff.  So that's how you know what they think is important.

I think you should get the book.  My co-bloggers may have different perspectives on its perspective, of course, and I'm biased towards taking the government view on anything.  So we can all look forward to a good, and interesting, book club.  Do weigh in with your views.

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Reminder: Tomorrow We Discuss All The Devils Are Here
Posted by David Zaring

We'll be talking about Bethany McLean and Joe Nocera's financial crisis book tomorrow and thereafter, and Joe Nocera will answer some questions, too.  Join us, won't you, and weigh in with your thoughts, too.  Here they are on the Daily Show, to whet your appetites.

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December 01, 2010
Book Club Reminder: All The Devils Are Here In Two Weeks
Posted by David Zaring

We'll be reading Joe Nocera and Bethany McLean's All The Devils Are Here on the blog starting December 16, and just to whet your appetite, we'll be posing some questions to Joe Nocera (who will answer them!) when it happens.  Do read along with us, and let us know what you think.

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November 17, 2010
Next Glom Book Club: 12/16, McLean & Nocera, All The Devils Are Here
Posted by David Zaring

Please join us in December for the next Glom book club, on Bethany McLean and Joe Nocera's All The Devils Are Here, their account of the financial crisis, which, thankfully to this reader, is both heavy on the governance and the finance in equal portions, and not a tick tock, but a broader view of the unpleasantness and the steps that led to it.  You've got a month to read along and join us, so please do exactly that!  Here's Nocera on the book for New York, an entertaining Deborah Solomon style interview.

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