Ten years that shook the world
Ten years that shook the world
Michael Lewis and Roger Lowenstein are masters at decoding and interpreting. The two writers are without parallel when it comes to decoding the most arcane concepts of modern finance for the lay reader. Just ask any college student applying to investment banks what he’s reading.
It’s this last decade’s excesses and the ethos behind them that both Lewis and Lowenstein now try to decode and interpret.
Lewis, the personal storyteller, narrates in The Big Short how, against the wisdom of the best and brightest on Wall Street, a few maintained a different world view. Nearly all of Wall Street bought mortgages and securities based upon these mortgages, investing in the conceit that US housing prices would keep rising. Not Lewis’ protagonists. Because they didn’t believe any part of this conceit, they decided to “short", or bet against, mortgage securities whose market value was predicated on this conceit. Eccentric in degrees— one character can’t help but be rude and impulsive, another suddenly realizes he suffers from Asperger’s syndrome— they preferred to swim against the tide.
Where Lewis’ tale is personality-driven, Lowenstein’s is anchored in detail. Yet, reading both works together helps get a better sense of the combination of characters and events that comprised last decade’s ethos. Particularly, in sections of their books that almost seem to build on one another, both writers lucidly decode one device at the heart of the hubris: a complex derivative called a collateralized debt obligation (CDO), a pool of bonds based on mortgages. Everyone loved this product, because they made billions off it.
Save for the few who saw it as a weapon of financial destruction. Lewis’ short sellers, for instance, realized that a loss in home value would multiply across the system to sink these CDOs, bleeding banks red. So they shorted these derivatives.
Both writers are partial to the few who saw through this conceit, because they too wish to expose it. No doubt, it took unusual clarity and courage in the mid-2000s to rebel against the accepted order. However, it becomes too simple to celebrate these rebels. Lewis, for instance, gives his protagonists a righteous halo: They feel “morbid" that their bets succeed, that they benefit, while the economy is in free fall.
That Eisman doesn’t have the prudence to stop feeding the CDO machine suggests it’s either moral zeal or raw profiteering that guides this gang. If we believe Lewis, it’s the former: These characters have a heightened sense of good and evil; they only want to prove the other guy—meaning, the whole ethos—wrong. It’s difficult to assess the counterfactual, but if Eisman & co. hadn’t placed their bets—by 2006, big banks had started imitating their bets too— the system could have held fewer toxic assets. We may have had a more contained bloodbath.
But Lewis doesn’t care for such a counterfactual. His protagonists’ attitude resonates with his own rebellion against the 1980s zeitgeist: His personal experiences, in fact, frame the book. Perhaps he has his own moral crusade.
Lowenstein too appears to have some moral axe to grind. He is repulsed every time bankers get paid too much, every time there is a “moral disconnect" between Wall Street and Main Street. He can’t forgive one banker for ordering a $350 (around Rs16,590) bottle of wine just to sample one glass of it, not realizing that all kinds of rich people do so.
Lowenstein has so many axes to grind—a lot of his targets, such as rating agencies, deserve his criticism, of course—that, by the end of it, the book becomes a truncated composition of many different books. He wants to both explain the ethos of an entire decade and narrate the hour-by-hour drama of the few September 2008 days that shook the world, all within 368 pages.
This is where the worst financial crisis in 80 years proves too much for the writers. In the nearly two years since Lehman Brothers collapsed, robust press and academic coverage has enabled us to decode and interpret many different viewpoints for ourselves. So where Lewis and Lowenstein may have served brilliantly as decoders and interpreters for past financial mayhem, their tales now seem limited. This time, indeed, is different.
abheek.b@livemint.com
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