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Mises Daily: Monday, March 01, 2010 by


[Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable • By Mark Gilbert • Bloomberg Press, 2010 • 192 pages]

"Sanity remained in short supply."
– Mark Gilbert, Complicit

Complicit, by Mark Gilbert, the London bureau chief for Bloomberg financial news, is unusual — a book concerning our recently demised speculative boom that you can still take along to the beach. Using that peculiar British talent of evoking laughter by the use of sneering disdain (he refers to the last suckers to buy into the mania as "the hindmost"), Mr. Gilbert takes the reader on a tour of almost-impossible-to-believe tales of greed, stupidity, and woe across eleven short, engaging chapters.

The book comes at you in a series of brief, loud bursts: every chapter is further divided into sub-sections such as "Be Careful What You Wish For"and "LIBOR Freezes Over." The fact that Mr. Gilbert, as per the book's dust jacket sleeve, plays bass in a rock band makes complete sense, as this offering falls into a bizarre hybrid subgenre — Joey Ramone of the Mersey — that lies somewhere between the Jam and Roger Lowenstein.

Complicit is a frenzied trip down memory lane, even for those of us who lived through the thick of it all. Though I personally watched a proud Lehman Brothers morph into a corpse at the speed of leverage, I found myself growing slowly appalled while reading the alphabet litany of bailout acronyms; every page was a reminder of how much I'd already forgotten.

Naturally, those of Austrian mindset will disagree with almost all of Mr. Gilbert's conclusions about what happened before, during, and after the Great Moderation. But the importance of reading books that you don't agree with exceeds that of reading those that preach to your choir. It expands your understanding of any subject to see how others look at things, and, most importantly, it grants you access to some great reads.

The best chapter is number ten, Giants Fall, where Mr. Gilbert recounts the collapse of Bear Stearns, Lehman, and AIG (let's be honest — every top tier financial behemoth collapsed) along with the Federal Reserve's ad hoc, utterly lawless response.

The book's tone matches exactly the events it describes: it reads like a whirl of jumbled madness, and that's just pitch perfect. If you were there, if you took the cab rides to eat trendy food and the jet jaunts to paradise, if you hugged your bonus tight before throwing it into the wind, you know that a whirl of jumbled madness was exactly what it all felt like.

Cruel to Be Kind

America long ago watched Lady Liberty replace her golden torch with a dance pole, the better to crotch grind the ignorant marks and empty their pockets with lurid distractions. Mr. Gilbert, though on the other side of the pond, sniffed out the timeless insanity we reek of, noting Playboy playmate Jamie Westenhiser's 2005 announcement that she was henceforth out of the skin trade and into real-estate sales. As Gilbert puts it, "Just as shoeshine boys … offered stock tips … before the Great Crash of 1929, a stripper signaled the top of the U.S. housing market" (p.23). Instead of Colonel Kurtz moaning, "The horror! The horror!" Complicit holds up, "The absurdity! The absurdity!"

When his blood is at high tide, Mr. Gilbert displays the biting wit his people are known for. He derides as useless "fairground hawkers" (p. 5) the mathletes who churn ever more complexity into the financial markets "every time Microsoft Corporation upgrades its Excel spreadsheet software to accommodate more cells, rows, and columns" (p. 5). All of them get manically busy just to create "an investment strategy customized to your particular paranoia and enthusiasm" (p. 35).

Echoing descriptions of how gambling gripped entire peoples during other manias, he likens the derivatives markets to "a casino … they had the whiff of a Nigerian banking scam" (p. 37). He mocks the haggard look of Bank of England governor and whiz kid, Mervyn King, fresh off a viewing of the collapsed Northern Rock bank: he "looked as if he hadn't slept for weeks. A bank run really was the stuff of central banking nightmares" (p. 126). When Mr. Gilbert hits his target, he hits hard.

He gives a shining description of how that bank was crushed under the weight of its own stupidity. Northern Rock managers felt it prudent to loan out 125 percent of home value on offered mortgages, gambling along with their debtors on an overheated housing market. Mr. Gilbert insists, and is undoubtedly correct, that most people who worked at Northern Rock were honest. "There was no pyramid scheme" (p. 121).

Nonetheless, he rightly excoriates the resultant bailout by pointing, not only to the long-term damage it caused to England's economy, as "the system loses its ability to moderate future behavior," (p. 122) but to its inherit injustice too, since "the UK taxpayers were on the credit crunch hook" (p. 122) for gambling debts that they had nothing to do with. His sense of outrage for the "little guy" is admirable and often on display.

Northern Rock, in fact (and in the opinion of Austrian economic thought), was part of a global financial system happily engaged on an inflation-driven pub crawl that, as Mr. Gilbert earlier pointed out, "was mushrooming into an enormous inverted pyramid, with a tiny triangle of real money at the base trying to buttress towering layers of debt and derivatives" (p. 74). Fractional-reserve banking itself is a pyramid scheme by its very nature, and the author seems to hint at it. "The truth … your money isn't sitting patiently in the bank's basement, waiting to race upstairs to the ATM when you make a withdrawal. Your cash is having the time of its life in the global financial casino, drunk on leverage and high on liquidity" (p. 83–84).

If that's not a pyramid of fraud, then what is?

"Once upon a time, I had a little money. Government burglars took it."
– Elvis Costello, "Blame it on Cain"

Blame It On Cain

As a believer in a gold standard — a belief considered by almost everyone in the Western world to be a "dunce" cap — almost all of my disagreements with Mr. Gilbert concern money. As in all speculative crazes, it is money that lay at the heart of the boom's story. And without a lucid explanation to the reader about what exactly money is, no story of any boom is complete.

In regards to this all-important question, Complicit is a tease. At the book's starting gun, Mr. Gilbert declares that "where did the money come from?" is a "key question" to answer (p. 1). And he does answer it, perfectly pointing out that "central banks [are] responsible for steering global monetary policy" (p. 46). Even more enticing, he accurately records that "there wasn't anywhere near as much money as there seemed to be … it was all an illusion" (p. 1). Yet, despite the occasional flash of monetary skin, the book as a whole is a frigid prude. Neither "money" nor "credit" is felt important enough to even list in the book's index.

This is odd; Mr. Gilbert is fully aware that money was the crux of the boom. He sees that while "the seeds of the global crisis were sowed in the housing market" (p. 9), the "foundations of the housing boom crumbled easily because they were made of borrowed money" (p. 11). He reminds us that it wasn't just the housing market that got drunk on easy money, since "floods of liquidity were seeping into every part of the financial market" (p. 133). And who else besides the central bankers (who were "responsible for steering global monetary policy") and the politicians who appointed them made all this possible (p. 115)?

Yet, unlike Gilbert's rogues' gallery of short-sighted bank CEOs, idiot traders, foolish investors, and spineless regulators, the central bankers and politicians who were the crazed lunatics behind the curtain get off scot-free. While the author mildly upbraids them for not taking away the punchbowl once the party started to really get out of hand, he never asks why they were serving the poison to begin with. This is all because he never asks what money is.

The last chapter gives one final tease, a brief shout toward bringing back what he calls (correctly) "a true capitalist model" to "allow the free market to dictate the price of money everywhere and anywhere." The very thought of such freedom, though, is quickly dismissed out of hand since "the prevailing lack of trust in market rationality … might prove [it] even less popular than the current system" (p. 169).

As his fellow countryman once wrote in Cato's Letters, "if our money be gone, thank God, our eyes are left."[1] I'd like to see Mr. Gilbert walk through the valley of money, return home, and tell us what his eyes fell upon, then answer why a free market in money "might prove even less popular" then the government-sanctioned monopolies that we are currently forced to deal with. To whom would the freedom to choose be "less popular," and why? Why not allow the working masses to decide the matter, rather than having a central authority dictate to them?

For now, not giving money the respect it deserves leaves Mr. Gilbert offering suggestions to prevent a repeat of the boom's effects but foregoing any attempt to remedy its monetary cause.

"The true villains were clearly the bankers themselves."
– Mark Gilbert, Complicit

Wreck and Recover

In his book-length review of Adam Smith's Wealth of Nations, P.J. O'Rourke lambasted its last chapter, the one in which Mr. Smith "yielded to the temptation to slide down Olympus," climb from his lofty metaphysical perch, and dispense some practical policy suggestions — always a risky proposition.[2] Mr. Gilbert sails the same rough seas in his closing chapter, "Conclusions and Policy Prescriptions."

Mr. Gilbert's primary policy suggestions quite naturally target his villains — the bankers — for enhanced political control (p. 163). In his eyes this comes from the very nature of banking, since "finance is just too dangerous and too important to be allowed to grow unfettered" (p. 168).

As the final chapter ages, it suddenly swerves into a disjointed segue, asking "what proportion of senior (bank) positions women occupy" and suggesting that "a government mandated quota system … might be worth trying" (p.173). Maybe the female touch will sooth market volatility.

With this chivalrous pleading on behalf of the fairer sex, Mr. Gilbert — abruptly and without a hint of premonition — brings Complicit to a crashing halt. I slammed the book closed, pleased with this perfect ending, though I couldn't place exactly why I felt that way. It took a bit of thought until it finally hit me — it brought back memories of the Replacements (the seminal '80s punk band) and their habit during live shows of deliberately goading the crowd, ending a concert by playing, for instance, "Yummy Yummy Yummy" over and again until the audience either stormed out or rioted.

Until Complicit, I'd never read a book, especially not one on financial markets, that ended by giving me the middle finger.

Despite leaving some important questions untouched (questions I would love to see a writer of Mr. Gilbert's ability attempt), Complicit is a rousing, fun look back at the Great Moderation's riotous career, filtered through the mind of someone who labored in the center of it. And ending the story the same way the boom ended for so many a greedy, blinkered little pig — abruptly and without a hint of premonition — only highlights the talent that makes Complicit such an enjoyable read.


[1] Cato's Letters No. 4: Saturday, November 26, 1720.

[2] O'Rourke, P.J. On The Wealth of Nations (New York, NY, Atlantic Monthly Press, 2007) p. 132.