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What Happened To The American Dream? 'Transaction Man' Aims To Explain

As politicians grapple with the best policies to ensure a better economic future for the country, it's essential to understand how the economy became so tilted against the middle class and poor in the first place.

In Transaction Man: The Rise of the Deal and the Decline of the American Dream, Nicholas Lemann, a longtime New Yorker staff writer and dean emeritus at Columbia University Graduate School of Journalism, offers his own take. His theory, as he writes in his introduction, is that the loss of the American dream occurred because of "our move from an institution-oriented to a transaction-oriented society," which meant concentrating power in the financial sector and away from government and larger corporations. This, he says, led to, among other things, a decline in union power, a reduction in long-term employment, banking tricks like subprime mortgages, and the financial instruments those subprime mortgages were packaged in, which led in turn to the financial crash in 2007.

For people who have read The Big Short by Michael Lewis, watched the film based on it directed by Adam McKay, or otherwise paid attention to how and why the economy cratered a little more than 10 years ago, many of these broad strokes will seem familiar. Transaction Man seeks to put the turn that led us there into context and take a look at where things have gone since.


He does this through centering three people, each of whom coincides with one of the movements he takes as seismic. There is Adolf Berle, a longtime adviser of Franklin Delano Roosevelt, representative of the Institution Man; Michael Jensen, an economist whose theories undergirded much of the financialization in the 20th century, representative of the Transaction Man; and Reid Hoffman, a co-founder of LinkedIn and a venture capitalist, representative of the Network Man. Lemann supplements this top-down view with the stories of people living in the Chicago neighborhood of Chicago Lawn, detailing the on-the-ground consequences of the Jensen's worldview. This structure can feel hokey at times, but that is offset by its fundamental clarity.

Lemann begins the book in earnest exploring Berle's life and work, which culminates in his theory that large corporations were inevitable and, "when [the corporation] could be successfully pushed into behaving like a social institution, [it] was the American welfare state, at least for its many millions of employees, their families, and to some extent the much wider circle of small-scale suppliers, service providers, and retail outlets for its products." He thought of corporations as entities that were susceptible to pressure from a powerful federal government, Lemann writes, which could be forced to provide what the government had been unable to offer to post-War America, like national health care — which President Harry Truman had hoped to offer as part of his Fair Deal.

This was true for certain people — and for a short period of time — until Jensen and those who believed what he did (Lemann focuses on the men who ran Morgan Stanley) chipped away at those gains. Their theory, the germ of which was criticism of corporations "as not sufficiently market oriented" led to the 1980s and 1990s vision of, in Lemann's view, profit maximization over everything else. Despite the insistence from Jensen and his colleagues that, as Michael Douglas' character in Wall Street might say, greed was good, the hits kept coming. Lemann writes:

"There was the bursting of the Internet bubble in 2000, indicating that public markets actually might not be so good at pricing companies at their true value. There was the collapse of such companies as Enron, WorldCom, and Nortel, which had used fraudulent accounting to make themselves look far more successful than they were."


This cascade eventually disabused Jensen of what he'd spent a lifetime advocating for, citing business peoples' lack of integrity as the problematic virus.

Lemann gives Jensen his due credit for realizing the error of his ways, though by the time he does the avalanche seems imminent. To illustrate the consequences, Lemann turns to Chicago Lawn where, at the height of the 2008 crisis, 600 houses stood vacant, according to Lemann. Because mortgage brokers thought of their product as a financial asset to be packaged and traded more so than as loans that had to be paid back, they lent recklessly. The practices Lemann describes include:

"...making loans to people who spoke only Spanish, even though all the documents they were signing were in English. Or they'd make 'no stated income' loans, based on no information at all about the borrower's finances. Or they'd simply invent an income for borrowers who didn't have one."

Even more than a decade out, reading about the lending practices is startling.

It is here, though, that Lemann loses his footing. He is clearly well-versed in the financial, economic, and political histories of his Institution and Transaction Men. But his section on Reid Hoffman, his Network Man, is tacked on, like the reality of our economic situation passed by his expertise. It is certainly interesting to read about Hoffman's animus toward teachers' unions, or of his friend Mark Pincus, founder of Zynga, who fantasized about a Kickstarter campaign to fund a Michael Bloomberg presidential run wherein "A million people [buy] the Presidency." But the reporting on their actual economic ideology is razor thin compared to Berle and Jensen. There is little on the consequences to people like those who live in Chicago Lawn.

Unlike the first two sections, driven by Lemann's exhaustive knowledge and his commitment to contextualizing the story, his closing salvo ultimately feels aimless. He drifts through time throughout the book but only at the end does it grate. One gets the impression that it was added to make the book more current and not because of its interest or narrative importance.

Transaction Man, of course, was already mighty relevant. As financial reporters grapple with how near the next recession maybe, it is important to have an understanding of what led to the last one. This knowledge will not prevent the next recession and it will not prevent the one after that. But Lemann's writing on, for example, how community organizers in Chicago Lawn fought with their local, state, and federal representatives until someone was dispatched to lessen their suffering might be essential.

Bradley Babendir is a freelance book critic based in Boston.

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