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No Meltdowns for Morris as a Writer or Investor

October 17, 2011

By Miriam Hill
Excerpt from
Penn Law Journal Fall 2011 Volume 46, Number 2

Charles Morris
Charles Morris C'63, L'72

To Charles Morris C’63, L’72, the impending explosion of the financial markets seemed obvious way back in 2004. He had to wait around a few years, watching bankers and traders borrow billions and bet on new products he knew they didn’t understand, but in 2007, he was vindicated.

The market meltdown that year was almost perfectly timed for the release of his 2008 book on the crisis, The Trillion Dollar Meltdown, which predicted that investors would lose at least that much money to the reckless behavior of Wall Street. In fact, the devastation was so great that he revised the book in 2009 as The Two Trillion Dollar Meltdown.

“I’d been watching this thing evolve since 2003,” says Morris, whose book won the Gerald Loeb Award, which recognizes excellence in journalism in the fields of business, finance, and the economy. “The whole bubble just got bigger and bigger and bigger and it became clear that the whole world was going to be in trouble because housing prices had doubled in six or seven years.”

He had long been schooled in the dangers of greed and financial innovation. He had researched the topic for his 1999 book, Money, Greed, and Risk: Why Financial Crises and Crashes Happen, a history that includes everything from 19th century “wildcat bankers” to Michael Milken.

Since graduating from Penn Law, Morris has had an eclectic career which includes 12 years of government service — including positions as director of the New Jersey antipoverty program, assistant budget director in New York City, and secretary of Social Health Services in Washington State — a stint as a corporate banker for what was then Chase Manhattan, and, until 2004, president of CapitalThinking Inc., a venture-backed software company that sells to the financial-services industry.

Morris defies the stereotype of the writer as neurotic obsessive driven to drink by the terror of the blank page.

“I tend to write about things that I want to learn about,” the 71-year-old New York resident says. “Books are something that I find very congenial. I find it fun… and I think of myself as a craftsman, not an artist.”

He has cast his writer’s eye on New York City’s fiscal crisis (The Cost of Good Intentions: New York City and the Liberal Experiment, 1960-1975), the Cold War (Iron Destinies, Lost Opportunities: the Arms Race between the United States and the Soviet Union, 1945-1987) and the Catholic Church (American Catholic: The Saints and Sinners Who Built America’s Most Powerful Church). In all, he has written 12 books.

One of his most highly-praised works focused on a group of doctors. He had stumbled across data showing that Americans spend more on hearts than on cars, which sent him on a research spree that led him to Columbia Presbyterian in New York City. He spent six months at the hospital, work that culminated in 2007’s The Surgeons: Life and Death in a Top Heart Center.

Watching doctors there perform surgery, he realized that one key to their success was an intense, systematic review of their work that reduced errors and improved surgical outcomes.

“There was sort of this really harsh criticism that they maintained toward each other, and they never took it personally,” Morris says. “They would have a meeting where they . . . had to say, ‘What did you do wrong,’ and there wasn’t anything judgmental about it because they all did stuff wrong. Everybody was honest all the time. It was very impressive. You almost never see that kind of thing, certainly not in the corporate world, not in the finance world.”

CapitalThinking’s business gave him a window into new classes of arcane credit derivatives, that spiraled from $1 trillion outstandings to $50 trillion in just a few years. There was poor documentation, few or no controls, and they were often used to conceal dangerous levels of debt — a colossal accident waiting to happen. He took his money out of the stock market in 2005, but later used some of it to bet against the banks just before the crash.

The market collapse took a few years longer than he anticipated, mostly, he says, because the Federal Reserve kept interest rates so low.

Unethical and even criminal behavior also contributed, he says. Prosecutions have been rare, he says, because the cases are hard to make. He also thinks the federal government, having spent at least $1 trillion to rescue the banks, did not want to sue and force them to lose more.

Those who deserve blame for the crisis include a “broad swath of people,” including some in both the Democratic and Republican parties, who believed that “if you let finance run untrammeled, bankers will distribute capital into most efficient channels, and the whole world will prosper,” Morris says. “That just happens to be wrong.”

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