Panic! by Alex Preston / Features / Untitled Books

"The human brain deals in stories, it comprehends things through the structure of myth."

Panic! by Alex Preston

Alex Preston studied English at Oxford before embarking on a career in the hedge fund industry. He started writing his debut novel This Bleeding City just before the credit crunch took hold of the global economy. Here he traces how fiction has responded to financial crisis, from Zola to Amis.

"But it was nice while it lasted," Charlie said. "We were a sort of royalty, almost infallible, with a sort of magic around us." F. Scott Fitzgerald, Babylon Revisited.

In a Business Week article written just after Lehman Brothers went bust in September 2008, the travails of the stock market were compared, not as had become commonplace, to the 1929 Crash, but to the Panic of 1907: "Searching for a way to describe the current stock market meltdown? Call it the 'Panic of 2008.' In the past century, the world has seen countless financial crises, economic downturns, and market crashes. But the last major event to be called a 'panic' was the Panic of 1907. If ever it were appropriate to revive the term 'panic,' this is the time. The day-after-day declines in the stock market are unprecedented."

I started reading panic novels sometime in the middle of 2007. The loans that I was trading crashed early and crashed hard, and, trying to get a sense of perspective, I began to study market panics of the past. Whilst some of the books I read were dry, factual accounts, telling of bank runs and huge losses, looking from the outside at the blunt historical fact of each panic, it was in the novels that I found the most to comfort and terrify me. The human brain deals in stories, it comprehends things through the structure of myth. I understood a great deal more about the dark days of 2008 and 2009 having read novels that presented earlier panics in fictional form.

The emotional intensity and dramatic tension of the stock market panic naturally gripped the imagination of writers throughout history. Balzac and Trollope were dealing with bankers and the financial markets early in the nineteenth century. But the panic novel can be dated to the 1882 failure, in France, of the Union Generale bank and investment company. This French panic gave birth to the first of this new generation of novels, Zola's L'Argent (sometimes listed as Money).

What differentiates the panic novels from their Victorian predecessors is a focus on didacticism and a wish to use the framework of the novel to elucidate the sometimes bafflingly arcane world of the financial markets. In the late 1800s, markets became increasingly abstract, via an explosion in speculation using options. These options (which had been around for centuries, but largely used for hedging purposes) enabled the trading of commodities via financial contracts rather than the physical products themselves, driving a wedge between the popular understanding of commodity trading - to enable those without, say, wheat to purchase it - and the actual dynamics of the market. Furthermore these options made possible the trading of stocks upon margin, leading to the rise of the speculator.

Following closely Zola's naturalistic model, Frank Norris' The Pit is the earliest of the panic novels, and presents the most resolutely positive image of the early twentieth century financier in its hero Curtis Jadwin. The novel, although largely forgotten now, was enormously popular upon publication. It was the second in a planned trilogy of novels about the wheat market, and deals with the period between the 1880s and 1910 when Chicago, uniquely positioned between the great and fertile plains of the Mid-West and the waterways which connected America to the Old World, was for a time the financial capital of the U.S. The story traces the rise and fall of the financier Curtis Jadwin, and is based upon the life of Jospeh Leiter who attempted to "corner" the wheat market in 1900 (Leiter was the uncle of Cynthia Moseley, and his wealth helped establish Oswald Moseley's New Party).

Commodity speculation, of the sort depicted in The Pit, made Americans nervous. This nervousness springs from the dissociation between signifier and signified - the option and the wheat it references. There is a clear link between the abstract and unsettling nature of the medium through which Jadwin is carrying out his speculative foray and the hysteria which is engendered. The fact that it is options rather than the physical product which Jadwin is trading is crucial. Not only does the options market create a sense of the unheimlich in its separation of signifier and signified, but the complexity and abstract nature of his speculation distances Laura, his wife, from his business interests. "I hate speculation. It seems to absorb some men so". She sees the Chicago options market (known as The Pit) as "a monstrous sphinx with blind eyes, silent, grave..."

We are told early in The Pit that Mr. Cressler, the doomed banker who insisted on morality and straightforwardness in his dealings in the market "never wearied of protesting against the evil and danger of trading in margins". In Theodore Dreiser's The Financier it is exactly this sort of margin trading that allows the hero Frank Cowperwood to build himself up into a financial titan. In The Pit Jadwin is presented with many typically heroic attributes, and his attempt to corner the market is seen as a heroic struggle whereby man learns not to battle nature. Jadwin emerges from the struggle wiser and happier, riding sunsetwards with his wife. Dreiser's novel is far more complex. The Financier is unique amongst American panic novels in that it refuses to moralize against certain forms of economic behaviour. Whilst in The Moneychangers, Upton Sinclair attempts to create a wholeheartedly negative picture of the scheming bankers (particularly J.P. Morgan) whom he believed engineered the Panic of 1907 in order to achieve a steel monopoly against the wishes of the president, Dreiser paints a more ambiguous vision of the moneymen.

In his excellent book Mourning Modernity, Seth Moglen talks of the sense of "modernist loss" engendered by the capitalist transformation of America during the 1920s. Moglen views disenchantment with consumerism and mass culture, rather than the First World War, as the key driver of modernism's break with the past. "As the logic of the market came to permeate virtually all aspects of life, as people at all levels of society strove to satisfy more and more of their desires through the consumption of commodities, subjectivity itself seemed to be remade, with something missing at its heart". Moglen cites The Great Gatsby as one of the key texts through which to understand the "crisis of alienation" that has afflicted the modernists. Whilst Tom Buchanan is indeed a bleak presentation of the banker rich in material things but empty at heart, I believe a more poignant financier can be found in Babylon Revisited, Fitzgerald's short story written as a response to the stock market crash of 1929.

Whilst in the early, naturalistic panic novels, we are shown the ways that human emotions drive the fluctuations of the markets, in Babylon Revisited, we see that the hero Charlie Wales' existence, which was founded upon and dominated by the stock market, has been rendered bleak and meaningless by the Crash. The beginning of the story is like a roll call of the dead. Charlie is at the bar of the Ritz in Paris - scene of his boom-market follies - and asks after his pre-crash friends. All are sick or gone. One even left without paying his bar bill. There is a symbolic return to the bar at the end of the story when the barman says to Charlie: "Some of the fellows I hear about in the States lost everything...". Crucially, Charlie realises that his real loss occurred not in the crash, but in the months of dissolution at the end of the boom, when he locked his wife out of the house (implicitly leading to her death) and drank himself into an asylum, thereby losing his daughter. He admits that he lost a lot in the crash "but I lost everything I wanted in the boom".

The barman misunderstands this statement, presuming that Charlie was using options to short the market - the only way that traders lost money during the years of relentlessly rising stock prices. "Something like that," replies Charlie. Thus Charlie equates the loss of his family with the losses made by options traders. These options represent the financial sophistication and speculation which Charlie has already compared to the mad antics of his drinking days. He now understands that the madness of the markets and the mania of the people operating within them are one and the same.

The reason that markets move in boom-and-bust cycles is because they closely track the patterns of the human mind, of human emotions. Strident optimism is pursued by crushing despair. The writers of the early panic novels grasped this. They also understood that there is no point in unravelling the arcane complexities of the markets - the options, the derivatives, the structured products - without analysing the psychologies of the people who traded these instruments. We have lived through our own panic, and in order to learn from it we must create our own panic novels, our own way of comprehending how things got so out of hand.

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This Bleeding City is published by Faber.

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Tuesday, 30 March, 2010