Review: Antony Beevor's 'D-Day: The Battle for Normandy'

Jonathan Yardley / WASHINGTON POST

It's not the title of Antony Beevor's new book that tells the tale, but the subtitle. One third of the way through his more than 500 pages of text, Beevor has finished off D-Day. Allied troops and materièl have successfully (if bloodily) secured the beaches of Normandy, but their job has only just begun. Ahead lies the battle for Normandy itself, two and a half months of vicious fighting, frequently hand-to-hand, before the liberation of Paris in late August.

It is a dramatic, important and instructive story, and Beevor tells it surpassingly well. "D-Day" is very much a work of military history, so of necessity it is chockablock with the sort of battlefield chess-playing that can leave the non-military mind in a state of considerable confusion. But Beevor is less interested in moving troops from pillar to post than in telling us what war was like for them and for the civilians whose paths they crossed. Readers fortunate enough to know his previous books -- among them "Paris After the Liberation" (with Artemis Cooper, 1994), "Stalingrad" (1998) and "The Fall of Berlin 1945" (2002) -- are aware that his fascination with warfare is compounded by a deep knowledge, not always encountered in military histories, that war is hell.

People looking for romanticized combat or Greatest Generation sentimentality will not find an ounce of either here. At one point, during the fierce battle for the town of Saint-Lô, Beevor quotes a medic: "It's such a paradox, this war, which produces the worst in man, and also raises him to the summits of self-sacrifice, self-denial and altruism." Two pages later he quotes a French gendarme appalled by looting by soldiers and civilians alike: "It was a great surprise to find it in all classes of society. The war has awakened atavistic instincts and transformed a number of law-abiding individuals into delinquents."

The two comments summarize war as Beevor sees it: humanity at its cruelest, most violent and most selfish, alleviated by occasional moments of compassion and heroism. He admires some of the generals and ranking officers on both sides -- most notably the Americans, Dwight Eisenhower and George Patton, and the German, Erwin Rommel -- but never hesitates to point out instances of "military prima-donnaship," whether practiced by the admired Patton or the British field marshal, Bernard Montgomery, whom an angry Eisenhower dismissed in a postwar interview as "egocentric" and "a psychopath."

The story of D-Day itself has been told so many times and in so many ways that Beevor is right to restrict his account of its central event, the assault on Omaha Beach, to a mere 25 pages, albeit 25 pages filled with blood and chaos. There were many times when the "situation on many parts of Omaha . . . was indeed horrific," and many of the deaths suffered that day were either excruciatingly painful or wholly unnecessary, or both, as when landing craft -- part of "by far the largest fleet that had ever put to sea" -- dropped their gates well short of the beach and deposited their human cargo in deep water where many men drowned. "The total number of American dead during the first twenty-four hours was 1,465," fewer than some had forecast but still a terrible day's work.

By the end of the day on June 6 and then well into the next day, Allied forces had secured Omaha and the other beaches they had invaded: Utah, Gold, Juno and Sword. Exact statistics for casualties for all the forces involved in the first 24 hours are just about impossible to come by, "since most formations' figures accounted for a longer period, never less than 6 to 10 June." But the figures for the first two weeks in Normandy are nothing if not sobering: American, British and Canadian casualties came to 5,287 killed, 23,079 wounded and 12,183 missing.

I draw two conclusions from those statistics. The first is that although the Canadian role in the invasion of Normandy (or for that matter throughout the war in almost all theaters) is often minimized or even ignored, in Normandy it was large and important. Canadian troops were involved in many hard encounters and often acquitted themselves with great bravery. "The strength of the Canadians lay in the quality of their junior officers," Beevor writes, "many of whom were borrowed eagerly by a British Army short of manpower." The second point is that the remarkably large number of missing soldiers cannot be attributed to those captured by the Germans. Though Patton cruelly dismissed victims of battle shock and those who went AWOL as crybabies, in truth they were as much war victims as those who had been killed or physically wounded. "US Army medical services had to deal with 30,000 cases of combat exhaustion in Normandy," and:

"Nothing . . . seemed to reduce the flow of cases where men under artillery fire would go 'wide-eyed and jittery', or 'start running around in circles and crying', or 'curl up into little balls', or even wander out in a trance in an open field and start picking flowers as the shells exploded. Others cracked under the strain of patrols, suddenly crying, 'We're going to get killed! We're going to get killed!' Young officers had to try to deal with 'men suddenly whimpering, cringing, refusing to get up or get out of a foxhole and go forward under fire'. While some soldiers resorted to self-inflicted wounds, a smaller, unknown number committed suicide."

As Beevor says, there was a sharp contrast between the Allied foot soldiers and their German counterparts. The most fanatical of the latter (and "fanatical" is indeed the word), especially those in the SS and its Hitler Jugend offshoot, had been brainwashed by the Nazi propaganda machine into believing that the fate of the fatherland was in their hands, and they fought with that uppermost in mind. The British soldiers by contrast had been at war for five years and were exhausted by it. Americans and Canadians were not fighting for land they could call home and thus were motivated primarily by the group loyalty so essential to military morale.

The Allied advance across Normandy was anything but a cakewalk, and might well have been turned back had it not been for the air supremacy that the Allies enjoyed, enabling their planes to give ground troops pulverizing air support (men on the ground soon learned to radio enemy positions to fighter and bomber pilots so they could pinpoint their fire), while Rommel was left to ask: "What's happened to our proud Luftwaffe?" German troops "often resorted to black humour. 'If you can see silver aircraft, they are American,' went one joke. 'If you can see khaki planes, they are British, and if you can't see any planes, then they're German.' "

En route to Paris, the Allies had to contend not merely with stout resistance from the Germans but with endless disputes among their top leadership, self-interested political maneuvering by Charles de Gaulle, suspicion and hostility (as well as cries of welcome) from French civilians. "The greatest weight on Norman hearts was the terrible destruction wreaked upon their towns and countryside," and the human cost was every bit as terrible: "Altogether 19,890 French civilians were killed during the liberation of Normandy and an even larger number seriously injured. This was on top of the 15,000 French killed and 19,000 injured during the preparatory bombing for [the invasion] in the first five months of 1944. It is a sobering thought that 70,000 French civilians were killed by Allied action during the course of the war, a figure which exceeds the total number of British killed by German bombing."

Yes, it was a great victory the Allies won in Normandy, and to this day all of us should be grateful to those who won it. But the cost, as Antony Beevor is at pains to emphasize in this fine book, was awful beyond comprehension.

NY Sun Review: Two books on art forgery

The Forger as Huckster: Two Books on Han van Meegeren

By ERIC ORMSBY

The forger isn’t just a swindler. He turns values upside down. He doesn’t merely change good coin for bad; he’s an alchemist in reverse, offering base metal for gold. This is why, in Dante’s “Inferno,” the poet puts forgers and counterfeiters together with alchemists near the lowest circle of hell. There, Dante and Virgil meet the forger Master Adam, a bloated and legless torso wracked with thirst; this false Adam is himself a counterfeit, a mocking copy of the father of mankind. In the Middle Ages, the penalties for forgery were harsh. In medieval Holland, such crooks might be consigned to the ketel, a great cauldron, to be boiled to death. Nowadays, we’re not only more merciful; sometimes we even have a sneaky admiration for con men, especially when they bamboozle the high and mighty and get away with it.

In the case of art fraud, however, whatever admiration we feel for the skill of a forger who passes off a modern fake as a venerable Old Master and makes fools of the experts is mixed with a sharp sense of betrayal. A painting that was once proclaimed a masterpiece suddenly loses its beauty when shown up as a forgery. How were we so thoroughly hoodwinked? What we thought was a Vermeer or a Frans Hals and flocked to see turns out overnight to be nothing but kitsch. And yet, isn’t it the same painting, fake or not? We can all be deceived by counterfeit bills. But a forged artwork makes us question our very eyes.

Han van Meegeren was among the most skilled and successful forgers of the past century; his fakes made him a millionaire. His shady story has been well known for decades but until recently the full depth of his dishonesty remained unplumbed. Arrested at war’s end by the dogged police officer Joseph Piller, a Dutch Jew who somehow survived the Nazi occupation, van Meegeren saved his skin by claiming that he hadn’t actually trafficked in stolen art — he was accused of selling Vermeer’s painting “Christ with the Woman Taken in Adultery” to Hermann Goering — but, in fact, had painted them, and other rediscovered “Vermeers,” himself. In postwar Holland it was better to be tried for forgery than for collaboration, which carried the death penalty, and van Meegeren became something of a Dutch folk hero, as the artist who took the Nazis for a million-dollar ride.

The van Meegeren legend was as phony as his Vermeers, and two new books, appearing almost simultaneously, attempt to set the record straight. In “The Forger’s Spell: A True Story of Vermeer, Nazis, and the Greatest Art Hoax of the Twentieth Century” (Harper, 361 pages, $26.95), science journalist Edward Dolnick gives a brisk and vivid account of van Meegeren’s fraudulent exploits. His book reads like a thriller; crooks high and low, from “fat, swaggering, casually cruel Hermann Goering” to the charmingly candid English forger John Myatt, rub shoulders with deluded art dealers, preening connoisseurs, and duped collectors. But Mr. Dolnick also provides fascinating detail on the “art” of forgery, brought to new levels of ingenuity by van Meegeren. Thus, by adding Bakelite to his paints and warming his canvases in a makeshift oven, he could replicate the hardened surfaces genuine centuries-old paintings display; he even grew skilled at faking the wormholes in antique frames. And Mr. Dolnick is very good, too, on the historical circumstances, especially the daily horrors of life in Nazi-occupied Holland, where the forger grew rich while his countrymen starved. As it turns out, those circumstances had everything to do with van Meegeren’s phenomenal success.

In “The Man Who Made Vermeers: Unvarnishing the Legend of Master Forger Han van Meegeren” (Harcourt, 340 pages, $26), the artist and historian Jonathan Lopez tells the same story but gives it, by contrast, unexpected depth. In his thoughtful and elegantly written account — which he calls “a liar’s biography” — van Meegeren is exposed not merely as an unprincipled peddler of phony masterpieces but as an opportunist with Nazi convictions. He worked with the odious Jan Ubink, editor of “De Kemphaan,” or “The Fighting Cock,” for which he prepared lurid covers in the color schemes of the Reich. And he was pals with Ed Gerdes, a true believer who became the detested “art tsar” of the Nazi occupation. Even van Meegeren’s own paintings not so subtly appropriated mawkish Nazi propaganda motifs. Though both authors have drawn on sources in Dutch, Mr. Lopez is steeped in the literature of the period and it shows to fine effect.

At his trial, which began in 1947, van Meegeren posed as an unjustly neglected artist who had taken his revenge on the art establishment through his forgeries; and they had deceived such eminent authorities as Abraham Bredius, who praised the saccharine “The Supper at Emmaus” as “the greatest Vermeer,” and Dirk Hannema, director of the Rotterdam Museum, who made it a star exhibit. (It now hangs in a side corridor among the museum’s curiosities.)

Though both books are beautifully illustrated, Mr. Dolnick’s includes color plates that make it possible to see genuine Vermeers side by side with van Meegeren’s forgeries. It’s hard to believe anyone could be fooled. Mr. Dolnick notes that the most successful forgeries incorporate contemporary elements to which we unwittingly respond, and Mr. Lopez agrees. But Mr. Lopez clinches his case by including the so-called Greta Garbo Vermeer (usually known as “The Girl with a Blue Hat”), a forgery Mr. Dolnick fails to mention. This is a cloying portrait in which van Meegeren slyly adopted features taken from posters for Garbo’s “Anna Christie.” But Mr. Lopez goes further. He suggests that van Meegeren prospered because the Nazis had “distorted the very realm of perception itself.” In the age of the Big Lie, the world Vermeer depicted with such loving precision itself seemed a forgery.
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Another Review of these titles at the Chicago Tribune.

NYTimes Review: ABSINTHE & FLAMETHROWERS by William Gurstelle

For Those Who Like Danger, the Home Book of Things Not to Try at Home

By DWIGHT GARNER

It’s only a few weeks before the Fourth of July, the time of year that the thinking person — or at least the type of thinking person who likes to hear things go whoosh andka-blam — begins to consider how best to spend the holiday.

Some guys, and I know who a few of you are, will be loading up the car in states where, unlike New York, the sale of fireworks is legal. (Those Phantom Fireworks discount cards can really burn a hole in your wallet.) Others like to prepare emotionally and mentally for the Fourth by getting some reading done.

Two books that put me in the mood for rockets’ red glare are George Plimpton’s classic “Fireworks: A History and Celebration” (1984), and, less conventionally, Jim Paul’s shaggily artful book “Catapult: Harry and I Build a Siege Weapon” (1991).

But when it comes to the theory and practice of making your own noisy, mildly dangerous fun in the backyard, America has a new poet laureate. His name is William Gurstelle, and he staked his claim to do-it-yourself greatness in 2001 with his friendly paperback book “Backyard Ballistics.” Its subtitle tells you all you need to know: “Build Potato Cannons, Paper Match Rockets, Cincinnati Fire Kites, Tennis Ball Mortars, and More Dynamite Devices.” According to the author, it has sold more than 250,000 copies. I keep a well-thumbed copy in the upstairs bathroom.

Mr. Gurstelle, a professional engineer, has now returned with a more contemplative if no less wonky and gonzo book called “Absinthe & Flamethrowers: Projects and Ruminations on the Art of Living Dangerously.” It explores the significance of moderate risk taking to our happiness, well-being and career advancement. (Managers who take the greatest risks are the most successful, he observes.)

It’s also a book that contains meticulous directions for making a real, live, beastly flamethrower in your garage — albeit the propane kind, not the ridiculously dangerous liquid-based variety.

Mr. Gurstelle’s book begins with the words of David Brooks, the New York Times Op-Ed columnist, who complained in 2005 that we are living “in the age of the lily-livered,” where “everything is a pallid parody of itself.”

Mr. Brooks continued: “Gone, at least among the responsible professional class, is the exuberance of the feast. Gone is the grand and pointless gesture.”

For Mr. Gurstelle, this column was as rousing as Henry V’s speech at Agincourt. He is also an admirer of Hunter S. Thompson, who in “Fear and Loathing in Las Vegas” introduced the term “edge-work” into the lingo. (“It was dangerous lunacy,” Mr. Thompson wrote about one of his enterprises, “but it was also the kind of thing a real connoisseur of edge-work could make an argument for.”)

Mr. Gurstelle warns against incorporating Thompson’s hallmarks — “shotguns, LSD and anarchy” — into your lifestyle. Because you are not Hunter S. Thompson. And because he does not want you to die stupidly and young. Just as important, he observes, it is hard to make playing with shotguns, LSD and anarchy artful. And for him, style, ingenuity and playfulness are everything.

In “Absinthe & Flamethrowers,” Mr. Gurstelle burrows into the difference between what he calls “Big-T types” (genuine thrill-seekers) and “little-t’s” (total milquetoasts), while suggesting that most of us dwell somewhere in the middle. He even provides a test that indicates where, on the thrill-seeking scale, a reader stands. He notes “the specific brain chemicals — dopamine, monoamine oxidase and norepinephrine, among others — that underlie the personality traits of risk taking, impulsivity and self-preservation.”

There are pages and pages of warnings in “Absinthe & Flamethrowers.” Some of these are very funny. (“Do not eat any chemicals no matter how tasty they smell.”) All are serious. Mr. Gurstelle does not want you to get hurt. But he notes: “Part of the appeal of living dangerously may be that there is a real possibility of death. However, that possibility should be extremely, extremely remote.”

Mr. Gurstelle exactingly describes how to make your own gunpowder, a substance he calls “the most significant chemical compound mankind has ever developed.” It’s the foundation for many of his book’s activities, the same way the perfect fish stock undergirds dozens of recipes in a cookbook.

Making even small quantities of gunpowder, he adds, “puts you in the rarefied company of such important historical figures as Joan of Arc, Roger Bacon, Mark the Greek, Lammot du Pont, Black Berthold and Leonardo da Vinci.” From there, he’s on to making things like fuses, rockets and an eprouvette, or small cannon.

“Absinthe & Flamethrowers” is not “The Anarchist’s Cookbook Redux.” Making your own gunpowder or small-scale rocket is real work, hardly worth a terrorist’s time.

“Even underage delinquents have easier opportunities for finding materials with which to cause problems,” Mr. Gurstelle writes, “than to go through the rather long and demanding processes described here.”

When Mr. Gurstelle begins to explore things like drinking absinthe, mastering bullwhips, eating hot chili peppers and throwing knives, his book runs briefly into the shallow weeds. There is even a disquisition on “danger dogs,” that is, hot dogs wrapped with grilled bacon. That’s not edge-work, it’s pigging out. I have nothing against any of these things, but Mr. Gurstelle is at his best in the garage with a “This Old Tennis Ball Mortar” sort of project.

“Absinthe & Flamethrowers” ends with Mr. Gurstelle’s own kind of Declaration of Independence, one perhaps worth reading aloud on the Fourth of July, ideally after strapping a battered football helmet onto your head so you look a bit like B. D. from “Doonesbury.”

“We, the intellectually curious, may soon find ourselves trapped in a pen, fenced in by rule-bound sticklerism and overzealous concern for our personal safety, unless we exercise our civil liberties and our curiosity,” he declaims. And so, “It’s time to retake authority from those whose goals are to limit, not expand, intellectual and physical pursuits.”

Bravo, sir. It’s the kind of speech you want to punctuate with a potato cannon blast.

Movers and Shakers in Art Books

Perhaps it says something about our era: The three headlining art books of the season are as much about commerce as they are about art.

Old Masters, New World, by Cynthia Saltzman, examines the acquisition of art by western oligarchs;

Jonathan Lopez’s The Man Who Made Vermeers looks at a master-forger seduced by the Nazis and by the opportunity to fake-for-a-buck;

Edward Dolnick takes on the same topic in The Forger’s Spell, which, according to the New Yorker’s Peter Schjeldahl, is just a lesser version of the Lopez book. (Incidentally: Gawker noticed that the NYTimes seems to be shamelessly boosting Dolnick, who is a Times insider.) The Saltzman book is about the market in a fairly direct way and the other two less so. But I think there’s a pretty common theme running through a lot of art-related journalism and publishing: It’s about the market first, and art last. If the art world decides that’s an unfortunate focus, it’s going to have to do something to change it.

University press to the rescue: The University of California press is releasing an updated version of Lawrence Weschler’s classic book on Robert Irwin, complete with a new cover picture that seems to be from Irwin’s recent MCASD exhibition. [via] The hardcover will retail for $50 (!), but you can pre-order the paperback for under $17. (Also from UC Press: A quarter-century of Weschler’s conversations with David Hockney.)

From Tyler Green’s Modern Art Notes

NYTimes Review: 'Fools Gold' by Gillian Tett

Rewriting the Rules

By PAUL M. BARRETT / New York Times

To understand the calamity on Wall Street, we need erudite financial analysis and good old-fashioned stories about human fallibility. Gillian Tett, who oversees global market coverage for The Financial Times, offers some of each. In “Fool’s Gold,” she describes how a small group of bankers at storied J. P. Morgan built a monster that got out of control and helped destroy much of their industry. Tett’s tale doesn’t explain all of the recent mayhem, but it is one place to start.

She shows us the financial world through the eyes of her talented but short-sighted subjects: geniuses at math and marketing, they thought they had discovered how to defy the laws of nature. The old rules didn’t apply.

Beginning in the mid-1990s, the wizards at Morgan decided they could defeat the banker’s oldest foe — the danger that borrowers will not repay their loans. If that sounds as audacious as bringing the dead to life, it’s not far off. The Morgan team thought they could combine esoteric financial instruments so cleverly that repayment risk would simply disappear, or at least become so diluted as no longer to matter. Relieved of risk, banks would lend more money, corporations would grow more quickly and capitalism would blossom.

Accomplishing this “bold dream,” as Tett puts it, required arduous toil in the financial laboratory — accompanied, at times, by after-hours antics of “Animal House” proportions. The author excels at recreating this fevered environment. She also deciphers Wall Street mumbo-jumbo in terms that a lay reader, or at least a determined lay reader, can understand.

The Morgan bankers assembled innovative amalgams of what are known as credit derivatives. In its simplest form, a credit derivative is a contract between two parties in which the seller agrees to compensate the buyer if a loan goes into default. Used conservatively, a derivative can provide a hedge against risk. Bank A, worried about a loan it has made, strikes a derivative deal to pay a fee to Bank B in exchange for Bank B’s promise to compensate Bank A if the loan sours. Bank A sheds some of the uncertainty related to its loan and feels emboldened to make fresh loans. Bank B assumes some of the risk but immediately enjoys the fee income. It’s “win-win,” as the Morgan bankers told themselves and anyone else who would listen.

They went on to combine the derivatives with a process called securitization, which traditionally involved lenders selling their loans to an investment bank. The investment bank “bundled” the loans together and sold pieces of the bundle to pension funds and other investors. The original lenders, having offloaded their loans, could make new ones. The investors acquired a slice of the loan bundle and its interest income without having to go to the trouble of meeting and assessing the borrowers. Win-win, again.

The Morgan group broke new ground by securitizing not just loans but credit derivatives. They industrialized the procedure, selling securitized debt and derivatives on an extraordinary scale. It got very, very complicated.

The intricacy itself appealed to the Morgan bankers, as did the magical idea of dispersing risk to investors far and wide so that lenders could lend without hesitation. The author introduces characters like the evocatively named Blythe Masters, a pretty blond British woman with a “BBC accent,” an economics degree from Cambridge and fervor for credit derivatives. “I think these products appealed to me because I had a quantitative background,” Masters told Tett, “but they are also so creative.”

Masters became the alluring public face for Morgan’s derivative “products,” marketing them to clients impressed by the concept that risk could vanish. Channeling Masters, Tett writes: “For the first time in history, banks would be able to make loans without carrying all, or perhaps even any, of the risk involved themselves. That would, in turn, free up banks to make more loans, as they wouldn’t need to take losses if those loans defaulted.” By now, you must be seeing the too-good-to-be-true aspect to all this.

Morgan exercised some restraint in imbibing the derivatives potion it peddled to others. That’s one reason that, years later, it is one of the survivors on Wall Street, although as part of J. P. Morgan Chase. Less prudent were Bear Stearns, Lehman Brothers, Merrill Lynch and American International Group.

Tett explains that Morgan’s rivals took the reckless, and in some cases fatal, step of adding subprime mortgage loans to the derivatives-and-securitization mix. That’s an important distinction. When the real estate bubble burst in 2006 and 2007, derivatives and securities tied to subprime mortgages suddenly lost value. It turned out that Wall Street’s computer models simply hadn’t anticipated a national housing crash. The supposedly benign dispersal of risk was revealed for what it really was: a global plague that spread dangerous risk to nearly all major financial institutions. Lenders that had spewed loans with abandon abruptly froze up, refusing to do business even with trusted corporate customers. Investors panicked; stock markets crashed.

Tett’s close focus on Morgan illustrates how the hubris of a relative handful of little-known financiers contributed to the worldwide crisis. But the author’s contention that the “bold dream” conjured up at Morgan was “corrupted” by others may absolve Masters and her comrades too neatly. First, Tett strangely plays down how lavishly Morgan paid its derivatives clique to pursue their bold dream. Surely fat bonuses helped obscure the dangers.

The Morganites sold the notion that financial gravity had been overcome—that risk had been vanquished and that lending could proliferate endlessly. That some would take this to absurd extremes seems entirely foreseeable. The retrospective shock that Tett’s subjects express in interviews rings hollow, especially when we learn that some of them, although not Blythe Masters, left Morgan and personally imported derivatives know-how to institutions that behaved more rashly.

Morgan’s culpability doesn’t end there, either. Tett notes that Morgan provided key manpower and initiative in a ferocious Wall Street lobbying campaign that persuaded Congress, the Securities and Exchange Commission, and the Clinton and Bush administrations to back off from regulating derivatives trading in any meaningful way. Industry advocates received vital backing from the high priest of free market ideology, Alan Greenspan, then the chairman of the Federal Reserve.

The argument that persuaded Washington to allow manic derivatives trading to go unchecked boiled down to the myth that financiers had a powerful self-interest in keeping one another honest. Wrong. As Tett reports, Greenspan went before Congress last October to admit that “he had made a ‘mistake’ in believing that banks would do what was necessary to protect their shareholders and institutions. ‘[That was] a flaw in the model . . . that defines how the world works,’ ” Greenspan confessed belatedly.

Based on Tett’s account, most former members of the Morgan derivatives squad haven’t acknowledged similar regret. That’s ominous, because while many on Wall Street have lost their jobs, a lot of the Morgan alumni are still out there, as are many of their competitors who displayed even greater irresponsibility during the derivatives madness. This book leaves one wondering whether we’ll be smart enough to rein them in with tougher regulations before they open their next bag of tricks.

Paul M. Barrett is an assistant managing editor of BusinessWeek.

Washington Post Review: 'The Myth of the Rational Market' by Justin Fox

On Wall Street, the Price Isn't Right

The upside of the current Great Recession is that it could drive a stake through the heart of the academic nostrum known as the efficient-market hypothesis. This theory holds that stock and bond markets are nearly perfect -- even during such crazes as the dot-com mania -- and that prices on the exchanges instantly and accurately reflect the available information about publicly traded securities. After the market crash of 1987, Yale University economist Robert Shiller called that belief "the most remarkable error in the history of economic theory." He could have said "most harmful error" as well. Yet it lived on and contributed mightily to the mortgage bust.

One presumes from the title of Justin Fox's "The Myth of the Rational Market" that he has come to bury, not to praise. And certainly, the opportunity for such an undertaking is rich. Proceeding from the assumption that economic actors are unerringly rational, the theory's disciples have endowed market prices with the wisdom of every moment. Thus, at 2 p.m. on a Wednesday, the Dow Jones Industrial Average reflects the accumulated financial knowledge of civilization, and equally so at 2 on Thursday -- even if the market has moved hundreds of points in the interim.

How did this faith in the supremacy of market group-think do us harm? For one, as the dot-com and other manias demonstrated, the crowd occasionally gets it wrong. The mistaken faith in markets turned regulators into fawning groupies. Notably, former Fed chairman Alan Greenspan doubted that he or anyone else could detect -- or regulate -- a bubble in advance.

The power of the doctrine was its grand design: the comforting notion that the financial universe adhered to absolute laws. But that was also its flaw. Prices couldn't be wrong; if they were, someone would seek to profit from the error and correct it. The illustrative joke was of two economists who spot a $10 bill on the ground. One stoops to pick it up, whereupon the other interjects, "Don't. If it were really $10, it wouldn't be there anymore."

Theorists such as Eugene Fama decreed that if prices are unforeseeable, then the future direction of the market is random. And if the market is truly random, prices should follow what mathematicians call a bell-curve distribution. In nature, this works. We don't know whether your neighbor will be tall or short, but we can predict, with pretty close approximation, how many very tall people will live in your town. In nature, extreme results such as a village of seven-footers will never occur.

Fox tells the story of how financial engineers assumed that markets would behave the same way, with generally predictable variances in prices. In particular, the theory of option pricing, the cornerstone of modern finance, has built into it the assumption that prices are random. The theory was devised by Fischer Black, Myron Scholes and Robert Merton. The last two won the Nobel Prize in 1997 and were partners in Long-Term Capital Management, the hedge fund that blew up in 1998.

What happened to LTCM? It turned out that in financial markets, extreme events do happen. People get emotional and decide to buy (or sell) in unison. All of LTCM's trades went sour simultaneously. Nonetheless, the modelers kept at it. Rating agencies assumed that subprime mortgagees would behave in random fashion -- large numbers of people would never default at the same time, right? (Oops.)

Fox, a business columnist for Time, spins a fascinating historical narrative, beginning with economist Irving Fisher's paean to markets in, alas, 1929. Postwar economists such as Paul Samuelson noticed that most investment pros do not beat the averages. This led to the one positive contribution of the efficient-market hypothesis: Jack Bogle's invention of index funds, which mimic the performance of the stock market as a whole and keep ordinary people from wasting their money trying to beat it.

Fox recognizes that true believers in the market's efficiency suffered from a "blinkered" mindset and "tunnel vision." Yet I think he lets them off too easily. He laments (as if it were necessary) the lack of any alternative "grand new theory" and finds that the debate has resulted in a "muddle." Fox concludes, "If you do come up with an idea for beating the market, you need a model that explains why everybody else isn't already doing the same thing." Not necessarily. Markets aren't physics. Maybe no one model explains them.

The emerging school of behavioral finance fills in many of the gaps left by the efficient marketers. Behavioral finance, which Fox discusses at length, holds that financial man -- far from the perfect, mechanical trader depicted in textbooks -- is a rather neurotic fellow. He follows the crowd, fails to plan ahead and often makes mistakes. To think that his every price is perfect is a remarkable error indeed.

Roger Lowenstein is the author of "While America Aged." His next book, "The End of Wall Street," will be published in 2010.

VQR Review: 'The Man Who Made Vermeers' by Jonathan Lopez

The Man Who Made Vermeers: Unvarnishing the Legend of Master Forger Han van Meegeren, by Jonathan Lopez. Harcourt, August 2008. $26

Imagine this as the plot of a novel: in the 1920s, a moderately talented Dutch painter reacts furiously to bad reviews and becomes a forger of Old Masters in revenge. He paints six phony Vermeers with biblical subjects, thus creating a religious phase in the master’s career and fooling many established experts. During World War II, he collaborates with the Nazis and becomes the richest painter in the world from his fakes. Then Hermann Goering decides he must have a Vermeer because the Fuhrer has two and buys the phony “Christ and the Adulteress” in 1943. Arrested after the war for trading with the enemy, the artist claims he faked Goering’s masterpiece to fool the Germans. He then becomes a folk hero in the Netherlands despite being sentenced to a year in jail for forgery. But that’s not fiction; it actually happened, and one of the fakes, “The Supper at Emmaus,” still hangs in the Boijmans Museum in Rotterdam. Lopez strips away the folk hero veneer of van Meegeren by deep research into archives and a thorough understanding of the complex world of art, faking art, and selling it. He says, “Although the best forgeries may mimic the style of a long-dead artist, they tend to reflect the tastes and attitudes of their own period.” The faked Vermeers don’t look like Vermeers today, but in the 1940s, they did, as well as looking like National Socialist art. Here is a serious, funny, ironic, informative study of a delicious scoundrel that reads like a novel.
—Don Fry