n+1's Diary of a Very Bad Year

by Rob Horning

5 October 2010


I had read some of the interviews that n+1 had conducted with an anonymous hedge fund manager when they first appeared online, as the financial crisis was unfolding, but they have a much different impact when collected as a book—the recently published Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. Just about everything in that title is off. The hedge-fund manager isn’t really confessing to anything, and the interviews that make up the book took place over several years, 2007 to 2009. It’s not a diary at all; it’s not the ruminative voice of someone talking to themselves but a series of informal talks where someone who knows a lot about something deliberately explains it to someone who is relatively ignorant. Also, the way the book has been marketed as a financial-crisis postmortem is somewhat misleading. The hedge fund manager (HFM) discusses possible causes of the crisis, as well as its impact and some of its consequences, but it’s less an analysis of the 2008 meltdown than it is an elucidation of how the financial world operates in general—how capital flows work, what different kinds of debt are, what risk means, how financial players’ minds calculate odds and find their edge on others, how they habituate to a zero-sum environment and try to tame irrational animal spirits and waves of panic, how they administer their nonrenewable and ever-depleting stock of “emotional resiliency” as HFM calls it. The book gives a concrete sense of what investment banks and hedge funds do, what trading at that level consists of and how it struggles to get financed.
Keith Gessen, the n+1 interviewer, admits in his introduction to having been “shockingly and embarrassingly ill-informed” about how capitalism works, despite having a political investment in critiquing it. I completely empathize with that; after quitting grad school, I put myself through a kind of baptism by fire several years ago, reading every section of the Wall Street Journal every day (before it was a Murdoch-run waste product) to try to get a grip on the business world, which suddenly came in to focus as being far more relevant to “the struggle” than the use of metaphoric language by late 18th-century novelists (even if they are arguably intertwined in the grand scheme of things, as I once wanted to argue in a dissertation). It dawned on me that my gripes with consumerism didn’t reckon with the structural forces that generated it, or with the good faith efforts of the many people making their living to make consumerism so. It seemed willfully blinkered to analyze culture—pop culture, material culture, consumer culture—without taking into account the business context that produced and distributed it and in certain, inarguable ways determined it. Only then can one make pertinent suggestions about how to change things, about where vulnerabilities exist, where processes can be subverted or resisted.

The n+1 book speaks to the same intuition. If you really want to criticize capitalism, it is incumbent to learn how it works, to understand the sort of people it rewards and why. And that means admitting ignorance and listening to those people. It means wrestling with their logic, respecting their mastery of the system as it is, accepting that their ideological precepts have real, practical consequences that hardens them into a kind of wisdom about how things “really” work and people “really” act.

You can’t read the n+1 book without coming away impressed by HFM’s lucidity and eminent reasonability. He is the personification in some ways of the poor ghoul Marx evokes in Chapter 24 of Capital—the capitalist compelled beyond his individual will or pleasure to accumulate. Marx describes the fate of those who become “capital personified”:

But, so far as he is personified capital, it is not values in use and the enjoyment of them but exchange-value and its augmentation that spur him into action. Fanatically bent on making value expand itself, he ruthlessly forces the human race to produce for production’s sake; he thus forces the development of the productive powers of society, and creates those material conditions, which alone can form the real basis of a higher form of society, a society in which the full and free development of every individual forms the ruling principle. Only as personified capital is the capitalist respectable. As such, he shares with the miser the passion for wealth as wealth. But that which in the miser is a mere idiosyncrasy, is, in the capitalist, the effect of the social mechanism, of which he is but one of the wheels. Moreover, the development of capitalist production makes it constantly necessary to keep increasing the amount of the capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation.

HFM often comes across this way, as someone who has become divorced from the ideological incentives of capitalism but continues to exercise its calculating logic because it has become a weapon he can brandish so adroitly. Toward the end, he seems to recognize this, in the form of “stress” and discomfort at constantly having to deal with other ruthless capitalists, and he plans to retire.

Gessen notes that HFM exemplifies how the financial world has become “a place where the best of human reason, science and intuition are applied to the question of whether credit spreads will widen or tighten in the next 24 hours.” And that’s certainly the impression the book gives, though it reveals how that question is not as narrow as it may seem but can be unfolded to encompass all sorts of broader issues—how credit spreads are so intensely overdetermined that their movements could credibly seem to intimate the movements of the spheres. You can see hints of how capitalistic thinking is so labile and accommodating in practice despite its bottom-line fixation. In some ways, the bottom line is never really drawn but instead represents a horizon, an ideal, something akin to Gatsby’s green light across the bay.

The bottom line is always being redrawn. In other words, capital is a process, it must be in motion—there must be a constant concern with liquidity, with what is convertible. Capital is never a pile of money one can take hold of. As HFM notes, it’s not as though the money cycling through the financial world is ever “like the pool that Scrooge McDuck has, with gold coins, and he swims around in that, and when the money is needed he takes the gold coins out of the pool and uses them to pay for things.” Money, as HFM explains, is “consuming power moved intertemporally.” He almost sounds like he espouses the labor theory of value when he argues that when someone has money, it means “they’ve produced more than they’ve consumed in the past, so they have a right to consume more than they are producing in the future.” This means that money is always a credit—an implied debt somewhere in time counterbalances it. “My money, through an extended chain of financial relationships, is someone else’s debt, it’s a credit to somebody else.” The financial world is basically all about playing with that chain, with manipulating the idea of value in the time dimension—that is, with pricing risk. HFM points out that “what you do when you’re trading is apportioning risk. It’s about moving consumption from today to tomorrow, or vice versa, and about the risk associated with that, about transferring the risk associated with that. If nobody wants to take the risk, then nothing happens.”

That’s a pretty stark explanation of capitalist political economy. All activity essentially takes the form of risk—or animal spirits, as Keynes called it. Risk is akin to effective demand and the propensity to consume—it’s all understood as risk. Consumption as well as production carries risks. All human endeavor is thrown into the calculus of risk, and capitalism convinces us that it could not be otherwise, that is the realistic way to view collective action and personal decisionmaking. Capitalism is a foundationally insecure society, it knows itself only in terms of insecurity and deliberately produces insecure subjects.

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