The Big Short

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Michael Lewis is a talented writer. He succeeds in being entertaining and informative while rendering historical events into a compelling story.  I got many chuckles from the detached bemusement he held towards his tenure at Salomon Brothers in Liar’s Poker. All of his storytelling gifts are on full display in his account of the housing crisis, The Big Short. However, make no mistake, Lewis is also a polemicist and the bemused tone of Liar’s Poker has metastasized into a smug preachiness which points the finger of reproach in one direction. 

The Big Short recounts the housing crisis primarily from three different vantage points; each of which saw the illusion at the center of the exuberance before everyone else and capitalized on it by shorting the housing market when no one really knew how badly the whole thing would fail.  As a narrative, it is very entertaining. As a polemic, it suffers from confirmation bias and an extreme case of intellectual dishonesty.

Lewis isn’t so interested in getting to the real roots of the housing crisis as he is in spinning an entertaining yarn.  In this respect, he’s every bit as deceptive as the bankers and the industry he smugly ridicules.  His account focuses almost exclusively on the colorful characters and their quirks and quips and the sordid details of their improbable journey leading up to the collapse of 2008.  Unfortunately, he devotes little attention to the incentives bred by legislative agendas, GSE’s, regulatory agencies or monetary policy which created an environment of such extreme moral hazard in the first place.

Measured in terms of storytelling appeal, The Big Short is very successful.  Lewis does a great job of fleshing out the details and motivations of his central characters and portraying them as eccentric, scrappy underdogs that you want to cheer.  Mike Burry is the antisocial doctor with Aspergers turned investment savant who made his name running a portfolio of straight up value investments which outperformed spectacularly in a falling market.  Burry spent countless hours scouring mortgage bond prospectuses and saw a grand opportunity for the short of a lifetime.  Steve Eisman is the brusque Oppenheimer analyst who made his bones being a truth speaking contrarian in an industry of sycophants and dittoheads.  Like Burry, he smelled the rot in the subprime mortgage  market and set out to get to the bottom of it.  Rounding out the cast are Duetsche Bank trader, Gregg Lippman, and the “garage band hedge fund”, Cornwall Capital. 

As a piece of finance history, The Big Short is fairly successful and reasonably informative. It distinguishes itself by recounting events from its unique point of view. The book is also a decent short study of structured finance and credit derivatives. Lewis does a good job of unraveling and demystifying CDO’s and credit default swaps.  A recent college graduate told me that this was required reading in his finance class. This book has some merit as historical document, but let’s not get carried away, folks.

The book also succeeds in portraying how difficult it is to stand alone and hold on to an investment thesis when the chips are down. When things began to unravel in the subprime market, all of the players apparently faced incredible pressures from every side to stick to their convictions. Lewis apparently took some liberties describing the pressure Joel Greenblatt placed on his most successful disciple, Mike Burry, but just as any other life endeavor, sticking to your guns when the world is shouting you down is never easy. 

On the other hand, one detects the unmistakable stink of partisanship throughout the book and the reinforcement of leftist caricatures and narratives.  A particularly egregious example is his account of Cornwall Capital’s attendance at a Bear Stearns hosted client conference in Las Vegas.  In their ongoing attempts to get to the bottom of CDO machine and confirm their bearish thesis, they attended a target practice session at a firing range.  The Bear Stearns salesmen were surrounded by “men in tight black t-shirts who appeared to be taking the day off from hunting illegal immigrants with local militia”.  He goes on to describe how the targets were pictures of Osama bin Laden, al Qaeda terrorists, a black kid attacking a “pretty white woman”, and an Asian “hoodlum waving a pistol”.  That’s great, Lewis. Corrupt white investment bankers making piles of money exploiting the working class and indulging their irrational gun nuttery and racist proclivities on a firing range.  Just sprinkle in some stuff about white privilege, white supremacy or gun control and it’s Salon ready.  Stereotypes get created for a reason and there’s usually granules of truth to any stereotype you can name.  Maybe all of the worst assumptions Lewis infers from his description are true, but it’s difficult to view these details serving any other purpose but to reinforce smug, elitist contempt for gun owners and investment bankers alike.

Given the overarching disdain Lewis heaps on the finance industry throughout the book, his remarkable unwillingness to pile a comparable level of contempt on the central banking and regulatory apparatus which shaped it is very revealing. One wonders what, if anything, he ultimately wants to affirm with this book. He speaks of a naïve “hope that the government would intercede to prevent rich corporations from doing bad things to poor people” and unironically calls America a “free market”.  Yet, he reveals the ineptitude and disconnection of the government at various points throughout the book.  Between the scathing critique of banking and, when it occurs, failure of government oversight, what is Lewis promoting here beyond self-righteous disdain and knee-jerk cynicism for American finance? 

Lewis is forthright about both the failure of the SEC to intercede when Cornwall Capital exposed the imminent CDO calamity in their own offices as well as the false triumphalism of Fed propaganda as it was blared from its CNBC megaphone. And yet, he has the audacity to assert that Wall Street uniformly opposes regulation in boom cycles but “insist” on being rescued in a market collapse.  Based on what was revealed in Hank Greenberg’s lawsuit against the government, one can hardly say that the government’s confiscation of the majority of common shares in AIG was a product of pleading from AIG leadership.  It’s not even completely clear that AIG needed a bailout in the first place. The TARP cash that was dispensed in the aftermath of the crash wasn’t exactly as willingly and eagerly taken by banking executives as Lewis would lead you to believe either.  With regard to monetary policy, the ultimate source of all of the loose credit in the first place, he makes only one passing mention of it through the words of Steve Eisman. 

Michael Lewis seems exclusively focused on heaping all of the blame for the crisis at the feet of the industry, and in this respect, The Big Short succeeds wildly. Individuals are responsible for their actions, and investment bankers certainly deserve their share of the blame.  However, by refusing to point any finger of blame at the government power which shaped the industry or the central bank which pumped all the credit into the system in the first place, Lewis seems engaged in a game of self-deception of his own.  He speaks of government “forcing” change on the financial industry as though government is this bastion of moral rectitude and virtue and that passing laws and regulation is some kind of unalloyed good.  He bemoans industry consolidation and its transformation from a collection of private partnerships to publicly traded corporations, but leads you to believe that this too was the byproduct of capitalism’s inexorable march towards Armageddon. 

Lewis also seems to be taking some unnecessary self-satisfaction in portraying Eisman et al as the Prescient Ones while everyone else was asleep at the wheel. This idiotic self-delusion is at its nauseating worst at the beginning of the last chapter where he has the gall to insert a quote from goddamn Pope Benedict XVI.  Positively loathsome. Why doesn’t Ron Paul’s speech from 2001 count?  He seemed more attuned to the situation than Paulson, the Wall Street establishment, the Fed or the SEC.  What about Peter Schiff’s numerous warnings?  What about the warnings of several other libertarian thinkers and economists?  Even if it wasn’t his primary intention, Michael Lewis is affirming American state capitalism with this book. The Big Short is kind of a postmodern Horatio Alger story. Amidst a sea of industry-wide self-deception, several clever and enterprising individuals made a fortune as Rome burned. Murica, motherfuckers!

The banking industry is already nearly universally hated, and yet, Michael Lewis seems solely concerned with throwing gasoline on a fire that’s been stoked for years by politicians and demagogues alike.  Just like the heroes of his own story, he’s having his cake and eating it too. Because even as he shows you all the financial arsonists who set Rome on fire, he’s earning a tidy sum by giving you the requisite dose of cynicism that government officials count on in order to keep the game rigged for themselves. Casino capitalism is great when you’re tacitly betting for the house to win.  The only house which presents itself as too big to fail is the government, and in every hand, the house wins. 

It’s sadly unsurprising that The Big Short has been dramatized for the big screen. It’s not the chronicle of the financial crisis the American public needs, but it’s the one that it gets. If anyone in television or film had any guts, they’d adapt The Great Deformation for the screen. Hollywood loves feelgood pablum, and Lewis is a very capable purveyor of the liberal agitprop that’s Hollywood’s stock in trade. So enjoy this smug moralizing disguised as definitive financial history while you queue up for the ballot box to vote for Hillary or Bernie, proles.  The finance industry is filled with opportunities for skewering and Lewis has proven that he’s more than happy to turn a buck plying his brand of elitist cynicism. 

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