A novelist and a mathematician have combined forces to produce a fictional account of the Lehman Brothers’ crash that injects life into soulless corners of financial teaching reading lists. Review by
When he took over his position he had been informed that some decisions, whenever necessary, would be above his powers. He knew what he had to do.” So the less-than-above-board options are introduced for a chief protagonist in Izaías Almada’s and Matheus Grasselli’s novel, The Venetian File. “He” is a fictional version of Hank Paulson, then US Treasury secretary, in the days leading up to the fall of Lehman Brothers in September 2008. In the midst of an endless series of crisis meetings and frantic phone calls, an envelope containing instructions arrives on his desk, marked “Top Secret”.
The envelope is also (one assumes) fictional as is its sender – a secretive organisation that controls the global financial system.
The story tells how from that moment on, the Treasury secretary, along with other recipients of similar messages among the world’s most powerful finance ministers and central bankers, knew what needed to be done – the subsequent course of the financial crisis had been determined.
The tale unfolds in a series of subplots, artfully woven together, that trace the lives of the novel’s protagonists. Willbe and Sarah are a young New York couple who travel to Italy in the hope of discovering ancient secrets. M. Henry is a reclusive financier who issues orders from a castle in the Ardennes forest. Inspector Lucca is investigating the violent death, in Venice, of an unidentified Japanese businessman. We also follow the fates of Giuseppe Fibonacci (a descendant of the 13th century mathematician) and Friar Luigi in 14th century Italy at the dawn of modern banking. Meanwhile, Paulson and others are settling the fate of Lehman Brothers. All these threads come together in a pacy, Dan Brown-esque story of conspiracy, intrigue and murder (with Brown character, Robert Langdon, getting a brief look-in).
I had only just finished reading the book when I started to see its potential value in finance teaching. So I added it to the reading list for my investment class at the beginning of this year.
One of my reasons for embracing The Venetian Files for teaching purposes is the sense of historical perspective which it offers. Most finance teaching is ahistorical – textbooks on the subject barely mention the past. For the majority of the students in my class this book was something of an eye opener, a first step into any kind of economic history.
Not only did they get a glimpse of the origins of modern finance in the Italian city states, but they also saw the onset of the 2008 crisis as a very human drama. The fall of Lehman Brothers is at best a dim and distant memory for the current generation of undergraduate students. As Matheus Grasselli told us, when he spoke to the class in April, “understanding the history of something is the only way of understanding what’s going on.”
He went on to explain that contemporary economists and mathematicians have a tendency to prefer abstract models (“just give me the axioms and the agents”) but without history we have no idea why we have these agents, or how the institutions that deploy them developed. “Nothing is obvious on its own, events do not take place in isolation, and history helps us to connect all the dots.”
I have also found literature a useful means of introducing ethical dilemmas, and The Venetian Files meets that purpose well. In chronological order, we start with Friar Luigi’s agonising as to whether to join a banking venture, wrestling with his conscience as regards the practice of usury – money lending at extortionate rates – not to mention the risk of incurring the wrath of the Inquisition. Readers witness numerous other occasions during which our characters have to make difficult choices, ranging from those holding great power whose decisions will change the course of history to relatively mundane issues including corruption and greed.
My hope was that finding a novel in the course reading list as they arrived back after the winter break would be a pleasant surprise for students. The Venetian Files certainly trumped some of the other reading material at least in terms of readability and affordability. We had regular discussions on the book and the progress of the different characters, which gave me the pretext to explain some of the concepts referenced in the book in greater detail.
The book brought the concept of moral hazard to life in a way that was beyond the reach of most financial textbooks. Thanks to Friar Luigi, even double-entry bookkeeping started to look interesting. There were also spin-off benefits: the class in which I explained Minsky’s financial instability hypothesis and the origin of financial bubbles and crises was livelier than it might otherwise have been.
I asked the students to write a short review of the book, which gave me the opportunity to evaluate the impact it had on their learning experience. The students were given two final challenges: I asked if anyone could guess which one of the characters in the book I have met in person. Matheus asked if anyone could figure out which real academic was the model for Professor Pfeiffer. In the story the professor explains how money is created in a modern economy and how double-entry bookkeeping is key to understanding the process. At the time of writing the term has not quite ended, so I do not know if anyone will crack both of these.
My class received the book extremely well. The overall feeling they conveyed was that the book helped to explain the Lehman crisis in a way that was precise and deep but not overwhelming. It had the capacity to bring fresh perspectives to readers with specific subject knowledge as well as to those with no prior grounding in business and economics. And the human element helped to make processes more clearly understandable. The end result was that the students felt that they were helped really to understand what was going on, sometimes for the first time.
Overall The Venetian Files is extremely helpful to anyone interested in an interdisciplinary approach to finance. Not only does it integrate historical and moral perspectives on the 2008 crisis, but also it interweaves accounting, finance and economics in a way that the compartmentalised world of university teaching often fails to do.
Grasselli told us that the story is set to continue. Indeed he and Almada plan a trilogy. The years following 2008 have certainly given the authors a wealth of material, and it is hard not to be curious as to what they have in store for their readers.