April 12, 2010

"If things aren't being explained so you can understand them, it should be a bad sign."

Michael Lewis: Our Appetite for Apocalypse

m lewis redoMichael Lewis is the non-fiction novelist of our apocalyptic American mindset in 2010. The heroes of The Big Short, as he puts it in conversation “were betting on the end of the world… The only characters you can really trust are the people who are delivering a very, very dark message.”

Michael Lewis, remember, was never really a sportswriter, despite Moneyball, Coach and The Blind Side. Nor was he ever a finance guy, despite the prescience of Liar’s Poker and his sure touch now with the Wall Street collapse of 2007-2008. Michael Lewis’s real business and his genius instinct is for resonant social fables that just happen to play out on ballfields and bond markets.

The Big Short is a high literary feat, complete with a real-life “unreliable narrator,” a particularly despised contrarian bond dealer, Greg Lippmann, who was betting brazenly against his own market. “The guy selling the best ideas is a completely untrustworthy character,” the author remarks. The true center of The Big Short is an atmosphere of anxiety that has developed a taste for the catastrophic. Lewis’s short-selling characters resonate because they’re acting out our common sense of “the probability of extreme change” in financial markets and in real life. It’s an anxiety that envelops Tea Baggers and Greenpeaceniks in the same cloud of anger.

ML: The broader thing about all these characters to me is that their attitudes, their approach to life, their ability to hear the data, was something that was marginalized in the system itself. They didn’t belong, none of them belonged, and they should have belonged. What is it about the system that doesn’t want them as a part of it? And it’s terrifying when all the people who were wrong are in charge, and all the people who are right are on the outside.

CL: It sure is. To me there’s a direct analogy to be drawn with the war in Iraq. The Congress signed off “oh well, he must know something.” Tony Blair embraced it. The media by and large encouraged it. A very, very few people said “are you kidding?” And yet the ones that warned against the war in Iraq got the same prize that your guys got for warning of the meltdown.

ML: Yes. Ostracism.

CL: Exactly, and they’re still ostracized.

ML: It’s funny. There is an analogy. And the analogy is there’s a kind of a blind faith in leadership that is the result in both cases of ordinary people feeling they can’t evaluate the situation because it’s too complicated. The financial system got so complicated, and the complexity became opacity. When Alan Greenspan stands up and says something, no one understands what he’s saying. But they think that’s a good thing, because it’s all so complicated they shouldn’t understand what he’s saying. And the fact is they should. The fact is, if things aren’t being explained in a way you and I can understand them, it should be a bad sign, not a good sign. But the complexity was turned on its head. It was used as a way to mask bad things that were happening.

There’s a joke in it all. The joke is that the financial system, and there are analogies to the political system, but the financial system wanted to do something it really shouldn’t do. It wanted to make lots of loans that it shouldn’t make. They created all this risk that was going to blow up the system. In order to do that they needed to disguise the risk. So to disguise the risk it used all this complexity, which served as a smokescreen. And the joke is that it ended up disguising the risk from itself. That the very people who created the smokescreen were engulfed in it, and they couldn’t parse the system they created.

Michael Lewis with Chris Lydon in Boston, April 7, 2010.
Guest List
Michael Lewis
financial journalist and best-selling author of The Big ShortMoneyball, and, most recently, Flash Boys.

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  • Chris, I have listened to many of the interviews with Michael Lewis about this latest book. Lots of sameness. Intelligent. Useful. But the same. Once again, you brought the something more – and something more alive – that made this conversation sing in a way the others haven’t. Thank you so much for what you do.This one is the keeper!

  • Another extraordinary interview! Please put all of your podcasts of radio open source on PRX for broadcast. Some are, but all should be, like this one. Your interviews are some of the best public radio content being produced but ironically some of the best interviews are not available to air on public radio! In addition to this one, I’ve especially enjoyed Roy, James Morone, Ted Bogosian, McChesney and Nichols, and so many more.

    In the current interview Lewis says we are in a place where “all the people who are wrong are in charge and all the people who are right are on the outside.” It is really critical that the media, and especially the big media, provide the views of the outsiders more than they do. Maybe this economic catastrophe could’ve been averted if they had.

    Finally, please make it possible to download the audio from your website which I currently cannot do. I know podcasts are available, but you also need to make the audio downloadeable from the site. – Thanks and keep up the good work.

  • My only question is “how come there were no adults in the room?” I can only conclude that the children locked them out. The ranks of high-rollers are staffed by panicked cynics who, convinced that humanity and the planet are going down the tubes, are shorting the future. There is no other plausible explanation to explain why good old greed has become so endemic and incurably metastatic.

  • Also, I am envisioning financiers, having read glossy, high-priced briefings from consultants and think-tanks, putting there money on this bubble or that imminent disaster. Smart money takes a short position when things look like they’re getting worse. I used to blame short-sighted policies under Bush on undue influence of apocalyptic Christian advisors (of which he had plenty). Now I see that Wall Street had the same dismal view of the near future, except that salvation consisted for them of reaping maximum short term profits by keeping retail investors in a suckers’ game. The rapturists making policy played right into their greedy hands. And adults still aren’t in the room.

  • Tim

    @Geoff – there are adults missing every where.

    Have you heard about Magnetar, the hedge fund that helped create about 30-65% of sub prime, and bet against the garbage and made billions?

    ProPublica report, Naked Capitalism Report, Campaign Contributions, Vid explaining CDOs are here, my link:


  • dave bernard

    There really is one element in the runaway Housing market that’s being neglected, and that is the idealistic peer pressure that home-owning is central to the American Dream. The advocates of this notion of ‘equality’ saw the upward trend in home-owning as a measurement of justice. Bostonians will recall the charges of ‘redlining’ loans to unqualified loan applicants. So, at one point, the banks were doing what they should have done in exercising judgement about risky prospects. Boston banks came under external policy pressures to engage in irreponsible practice. This is a matter of record.

  • Jim Killelea

    Followed up on the Moyers inerview tonite by checking the Baseline website. Found your interview of Lewis extremely on target. The financial insiders will continue to exercise subtle control over the “political process.”

    Our President seems to have given great weight to Larry Summers et al, but this will likely wane as the new Treasury Secy gains traction. I wonder what Roman Weil’s take on this topic is.

    All the best…. JKK

  • eric

    This method also applies to the IPCC.

    Don’t question the professionals, even though their conclusions are based on deliberately misleading and dubious data. Skeptics are labelled “deniers” and the press plays along.

  • David Kramer

    Chris, while the match for the fire was lit by financial greediness, the drying tinder and some of the kerosene was laid by our Government. It was Clinton AND Bush AND the Congress that believed that it was everybody’s right to own a home. Larry Summers famously remarked when he was in the Clinton administration “Nobody washes a rental car.” So they put undue pressure on Fanny & Freddy to lower the standards for home loans. Their need for increased profits pushed them to keep lowering standards until NINJA (no income, no job, no assets) loans were de rigeur. Wall street took advantage.

    More than enough blame to go around, but nobody sells a lot of books (or wins elections) blaming the government.


  • I can’t go along with Lewis’ “sympathy” for Summers at Harvard, having been close enough by to see this unpleasant man in action at the time. But the interview overall is great, Chris. The reason for pressing a little harder on the Summers matter is simply the degree of counter-intuition involved in this whole Wall Street story. Somehow the fact that he was a bully, dismissive of others’ views, and woefully narrow in his own, seemed to enhance, rather than raise questions about, his apparent appropriateness as the guy to get us out of this mess — because those characteristics were the language the perpetrators knew best and respected. And, alas, still do.

  • Having just read “Inside Man” about Tim Geithner in the Atlantic (http://www.theatlantic.com/magazine/archive/2010/03/inside-man/7992/) I am confused about his motivations, which I had associated with those of Wall Street bankers, but may be more complex. And then Jim said here “Our President seems to have given great weight to Larry Summers et al, but this will likely wane as the new Treasury Secy gains traction. I wonder what Roman Weil’s take on this topic is.”

    Might Obama economic policies change if Summers is eclipsed? How would they change? I am wondering who of the economic advisers were in favor if the SEC going after Goldman Sachs last week and who opposed it. That would tell us something.

    Like Katherine, I believe Summers behaved atrociously at Harvard. Happily, the adults in the room managed to kick him out. Will Geithner be the adult in the West Wing that tells Larry to go to bed without supper?

    It was just a year ago I that ranted about Summers being Obama’s bag man for Wall Street. I wasn’t too happy with what Barney Frank was saying then either. For what it’s still worth, see http://maxentropyproductions.net/blog/bentropy01.html#%5B%5BLet%27s%20Lose%20Larry%5D%5D.

  • Potter

    It’s complicated so the simplifications and the story aspect are very welcome. What pulls me in ( besides the money /finance issue) is that this story is essentially about human nature (greed) and the self-serving irresponsible casino culture that formed over time. The story that Michael Lewis tells could then easily, when stripped, be a child’s moral fable, or maybe it is one already.

    How dependent we all are on our financial system working for us. And now we know that it can’t work without plenty of oversight.

    I have listened to a few interviews with Lewis and he is always engaging, but this one is the best by far and away.

    Thank you.

  • Remember how Zizek said in Oliver Stone’s Wall Street that the only attractive character was Gordon Gecko? And in the Prologue of The Big Short, Mr. Lewis says people read Liar’s Poker as an instruction manual. I know I shouldn’t, but The Big Short has made me want to— oh it’s too terrible to even say! It’s a great book though. Too enjoyable!

    I’m completely fascinated with this analogy to the Iraq war. Perhaps it’s reactionary, inappropriate, and/or uncouth to put it in partisan terms (especially because the financial system isn’t exactly a partisan issue in the United States), but the right-wing of the United States seems to have a lot more power than the left in saying what is and is not “acceptable” political thought. When trying to figure out how to solve the problems that face our country, perhaps the question “how can we make ‘being correct’ acceptable?” would be of aid. (Sarah Palin being nominated to the VP slot validated knowing little and a certain kind of right-wing extremism as acceptable. Demonization of the critics of the Iraq war made listening to them, even after they were proven correct, unacceptable and extreme. How can we use and counter these kinds of things to give voice to those who know what they’re talking about?)

  • Tracy Roth

    OMG! I am not someone who typically, well…I never listen to “financial” interviews or read books about it. I have to say OMG, your interview with Michael Lewis and “The Big Short” captivated me. (I continued to listen to the entire interview in my parking lot once I got home). What an eloquent speaker and I’m sure journalist (I’m going to buy the book…I never buy “financial” books); his discussion about the Iraq War and comparing the Subprime debacle to that, his comments (paraphrasing) “there is a sort of socialist society for a very small part of our society, and the rest of us are living in capitalism” his discussion about a social class warfare, the fact that “Wall Street” is not and does not have to be “too difficult” for “us” to understand. I’m going to listen to the entire interview again, post a link to this page to my Facebook….it was just a riveting interview. THANK YOU!

  • It has been said that every generation believes that it has discovered music, and sex. I suppose we could add to that, fraud and abuse of power. Every generation is shocked to discover that they have been mislead by people they imagined they could trust.

    But we must let each other discover these things. Music and sex for the thrill of discovery. And fraud and abuse of power because, if instead we teach everyone from birth that we are governed by evil beyond our reach, we foreclose the possibility that the new generation will forge a world with less of these.

    We can learn, and teach, the timeless lessons: Don’t think to get ahead by investment instead of saving; Question authority; Spread the power around; Watch the incentives; Don’t put yourself in a position of dependence on things one doesn’t understand; and so on. But we shouldn’t be surprised to find ourselves shaken down by our generation’s version of fraud, at once unique and cyclical. We’ve got a long ways to go, and we’re not nearly as far along as we like to think.

  • Investing or trading is all about trend and timing. Even if somebody sees a “black swan” on the horizon it doesn’t necessarily mean there are enough “seers” to interpret this (still distant) event as a change of trend, let alone translating into a specific point of time for the bubble to burst. A great interview nevertheless! THANK YOU!

  • WoW

    Thank you.

  • An hour with Michael Lewis, author of ‘The Big Short’

  • Interesting stuff by the way! Thank you.

  • kathleen smith

    I worked selling mortgages back in 2003 and 2004 and I said then that the loans we were making for Countrywide and Bank of America were going to fail. It didn’t take a genius to see this. Mortgage brokers convinced people to take loans that we knew they could not pay back – and we would tell the people if you can’t make the payment just sell the house and you will be off the hook. It was a bubble and the money was in making and selling the loan, but not in collecting the note. Wall street and banks need to be regulated and the glass steagal act needs to be restored.

  • “Lots of sameness. Intelligent. Useful. But the same.”

    Yes, sameness – everything is bad. He doesn’t explain shorting – not because he doesn’t understand, but because he is interested in characters for a screenplay.
    Shorting isn’t complicated: when markets go down shorts buy, putting a floor under the stock price. Shorting is an integral part of what makes the equity markets the closest thing to a perpetual motion machine ever invented.
    At least he didn’t feed the hysteria behind naked shorting….

    Oh and how do we know the garage guys aren’t lying about their success?

    The Beardstown Ladies were a group of older women who formed an investment club, formally known as the Beardstown Business and Professional Women’s Investment Club, in Beardstown, Illinois, USA.

    Founded in 1983, the group achieved fame for their stock market acumen, claiming
    investment returns of more than 23.4% per year from their inception through
    1994. They received considerable attention in national media outlets, and
    authored a best-selling book, The Beardstown Ladies’ Common-Sense Investment
    Guide, following it up with four more books.In 1995, personal finance counselor and best-selling author (Personal Finance for Dummies, Investing for Dummies) Eric Tyson wrote an article in the San Francisco Chronicle exposing the fact that this club did not have any documentation or audit to back up their claimed investment returns.

    In 1998, an article in Chicago magazine asserted that the group’s stated returns had
    included the new investments made by its members, and that when computed in
    conventional fashion, their annual rate of return for 1984–1993 was actually
    9.1%, considerably less than the 14.9% return on the S&P 500 during the
    same period. Outside auditor Price Waterhouse, hired by the club, confirmed
    the sub-par 9.1% annual rate for 1984–1993. The auditor also discovered the
    Beardstown Ladies’ annualized return was 15.3% when all of 1983–1997 was
    included; this was better than the average stock fund at the time, but still
    worse than the S&P 500 return of 17.2% for the same period.
    This revelation led to a class action lawsuit against their publisher (Hyperion, a
    division of Disney), which settled the case by offering to swap the books for
    other Hyperion books.
    As of 2006, the club still existed and was still investing.