By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2010, FT-Prentice Hall).
Michael Lewis (2010) The Big Short: Inside the Doomsday Machine; Allen Lane
John Lanchester (2010) Whoops! Why Everyone Owes Everyone and No One Can Pay; Allen Lane
Roger Lowenstein (2010) The End of Wall Street; Allen Lane
Vicky Ward (2010) The Devil’s Casino: Friendship, Betrayal, and the High-Stakes Games Played Inside Lehman Brothers; Wiley
Harry Markopoulos (2010) No One Would Listen: A True Financial Thriller; John Wiley
Modern finance is generally incomprehensible to ordinary men and women. The level of comprehension of many bankers and regulators is not significantly higher. It was probably designed that way. Like the wolf in the fairy tale: “All the better to fleece you with.”
In a thoroughly post-modern contradiction, this incomprehensibility creates a market for a literature that pretends to explain the inner workings of arcane finance. The average reader is not only happy to be stripped of his or her saving in every which way but is also willing to fork out further money to read how it was all done. The latest books on the global financial crisis inhabit this strange no man’s land between fiction and non-fiction writing.
Like all things, the writing is formulaic. Central to these works is the idea of the “human touch”, entailing the humanisation of money. It involves characters that the readers can identify with or hate and an overly Manichean perspective of the world where preferably good triumphs over evil.
In “The Big Short“, Michael Lewis returns to the world of finance. In fact, Lewis self-consciously uses a lunch with John Gutfreund, the head of Salomon Brothers during his time in banking in the 1980s featured in his earlier work, as a framing device in his story. The inevitable question is how does it compare to “Liar’s Poker” (the gold standard for the genre). The answer is complicated.
Unlike “Liar’s Poker” which was based on his direct experiences, “The Big Short” is a highly contrived narrative focused on a group of individuals who prospered from the collapse of the sub-prime mortgage market. Lewis uses their experiences to explore and explain the world of mortgage lending and the excesses of banks.
Lewis’ highly polished writing style makes “The Big Short” an easy and compelling read. As in “Liar’s Poker“, the book succeeds in providing a feeling for the times and some of its dynamics.
His choice of characters to portray varies. Perhaps the most interesting is Dr. Michael Burry, a neurologist who becomes a fund manager. Burry is also a self diagnosed Asperger Syndrome sufferer. It seems that all the fashionable people suffer from this condition – witness Lisbeth Salander, the heroine of Steigg Larsson’s Millennium trilogy. The coverage of Burry’s personal travails and especially his relationship with his own investors as well as banks is interesting.
“The Big Short” lacks the raw vibrancy of “Liar’s Poker“. It also lacks the immediacy of the first person narrative and the first-hand knowledge that made the earlier book interesting. The technical details of the instruments and markets described are superficial. Lewis uses the book to espouse his theory that the woes of Wall Street derive largely from the shift from partnerships to publicly owned investment banks. This view of the issues is simplistic.
Parts of the book derive from a series of pieces that Lewis wrote for various magazines giving it, at times, the feel of a magazine article that has been extended or a series of shorter pieces that have been amalgamated.
In the final analysis, “The Big Short” is a wonderful piece of ‘Faction” – neither history nor fiction, neither accurate nor seeking the real truth. Lewis constructs a conventional tale of fear, greed and stupidity and the triumph of good over evil without ever attempting to get to the heart of the problem. In doing this, Lewis caters, one suspects, to the audience that he now serves. As Gutfreund correctly states that “Liar’s Poker” made Lewis’ career while destroying his. Lewis is now referred to routinely as a “master story teller” – therein may lie a problem.
A journalist and novelist, John Lanchester started studying financial markets as research for a potential novel. “I.O.U.: Why Everyone Owes Everyone and No One Can Pay” (the American title) or “Whoops: Why Everyone Owes Everyone and No One Can Pay” (the non-American title) is his take on the unfolding global financial crisis, which was in the author’s view “the most interesting story I’ve ever found.” Perhaps Mr. Lanchester should get out more often.
In what also sometimes reads like an extended magazine article (Mr. Lanchester contributes to The New Yorker and The New York Review of Books), “Whoops” presents a personalised perspective on the author’s journey of discovery. There is little new here but an understated, humorous, jokey writing style and a gift for the telling phrase enlivens the book.
For example, Mr. Lanchester describes the fall of the Berlin Wall and the integration of socialist economies as: “The jet engine of capitalism was harnessed to the oxcart of social justice, to much bleating from the advocates of pure capitalism….” The rise of credit default swaps attracts the following comment: “It’s as if people had used the invention of seat belts as an opportunity to take up drunk driving.” In ignoring the tell tale signs of the risk of Madoff’s promises, officials failed to recognise “a critically important category of funny smells.”
The book is at its best when it is personal. Mr. Lanchester’s father was a banker with the then Hong Kong and Shanghai Banking Corporation. The recollection of his father and his childhood fear of ATM sometimes creates vivid imagery for the abstract world of money. Mr. Lanchester’s writing about the obligatory fieldwork visiting Baltimore, where thousands of borrowers have had their homes repossessed, is, at times, moving.
Like Lewis, the book is skimpy on details and is superficial in its understanding of the financial horror stories that underlie the current problems. Mr. Lanchester finds the mystical belief in Alan Greenspan, the former Federal Reserve chairman, and the self-regulating power of the markets fascinating. Unfortunately, the Greenspan legacy and Rand-ian belief system is more nuanced than “Whoops” describes and has been more effectively covered elsewhere.
“Whoops” reaches the conclusion that the current problems are “climatic” where a confluence of weather systems (free market capitalism, regulatory failures, belief in mathematical finance and global imbalances) are the primary culprits. Mr. Lanchester finds the world of finance and financiers odd: “One of the peculiar things about the world of finance is that it freely offers the sensation of being proved right to its participants … One of our culture’s deepest beliefs is expressed in the question ‘If you’re so smart, why ain’t you rich?’ But people in finance are rich – so it logically follows that everything they choose to do must be smart.”
In “End of Wall Street“, Roger Lowenstein, author of “When Genius Failed“, the history of the collapse of uber hedge fund LTCM, undertakes a more conventional narrative about the financial crisis. The “human touch” in “End of Wall Street” comes from behind the scenes episodes – Jim Cramer, Ben Bernanke’s meanderings and, predictably, Alan Greenspan.
Lowenstein draws a chronological arc focusing on the excesses of the mortgage market (built around discussion of the rapid growth of Fannie Mae and banks), the Bear Stearns problems, the Lehman collapse and the government’s rescue actions. In its historical analysis, “End of Wall Street” follows and is similar to other preceding books that record the same history.
Lowenstein writes well and his access to the luminaries who play key parts illuminates the tale. As in “When Genuis Failed“, Lowenstein attempts to draw significant deep conclusions from the immediate events.
In his book about LTCM, it was about the failure of models and quantitative models and, to a lesser degree, of hedge funds. But hedge funds and quantitative finance grew and prospered post LTCM. Even John Meriwether went on to form JWM Partners that duly had problems in 2008. In “End of Wall Street“, Lowenstein tries to extrapolate from current events to predict the changes in investment banking and financial business models.
Events over the last twelve months perhaps detract somewhat from that thesis as the “Street” has rediscovered old ways. As Andy Serwer, Managing Editor of Fortune put it: “The party is over until it comes back again…I’ve been around long enough to see that we have these cycles. These guys get their cigars and champagne. They have a great time. The whole thing blows up. But then they re-emerge years later. This one is a really bad one. But I don’t think Wall Street is dead.” [Abbie Bordeau, David Fitzpatrick and Scott Zamost “Wall Street: Fall of the Fat Cats” (17 October 2008) cnn.com]
Perhaps, the only truism about bankers and traders is that along with cockroaches and rates they would be the survivors of a nuclear explosion.
In “The Devil’s Casino“, Vicky Ward, a contributor to Vanity Fair magazine (a noted publication with ordinary people as its target), explores the human side of Lehman Brothers and its culture over the last quarter of a century. The conclusions are unsurprising and the picture of a macho, self delusional culture is consistent with that at any investment bank. Ward does not uncover any secrets, details of illegality or new information about the principal players in her book.
Ward paints a picture a tight cabal of “lifers” whose views shape and determine the business and strategy of Lehman brothers. Ms. Ward’s sometimes entertaining account is at its best in the chapter titled appropriately “Lehman’s Desperate Housewives”. The portrait of a rigid, highly controlled and manipulative culture of “Stepford Wives” is engaging. But the portrait would be the same for any spouses of any large corporate organisation.
As a first person narrative based on the author’s own experiences, “No Open Would Listen” is different from the other books. It also benefits from its focus on a single subject – Bernard Madoff’s Ponzi inspired ‘hedge fund’ and Harry Markopoulos’ quest to expose the fraud.
Shown the exemplary returns of a fund run by Bernard Madoff, Mr, Markapoulos, an analyst at a small Boston firm, detected what John Lanchester would term a telltale “funny smell”. Attempting to unravel the secrets of Madoff’s money machine, Mr. Markopooulos found the world’s largest Ponzi scheme.
The most interesting part of “No Open Would Listen” is his attempt to bring the fraud to the attention of the Securities and Exchange Commission (“SEC”). Despite no less than five separate efforts, the SEC failed to follow up and take any enforcement action. Mr. Markapoulos sees the failure as driven by ignorance, incompetence, arrogance and lack of willingness to take on a former chairman of NASDAQ and an industry grandee. Given Madoff’s scheme took in more than $40 billion between Mr. Markapoulos’ first letters to the SEC and Madoff’s eventual arrest in December 2008, this would have to be one of the greatest regulatory failure in history by a considerable margin.
Despite a writing style that owes more to Gestalt sessions or accounting (his profession) than Shakespeare, Mr. Markopoulos’ tale provides considerable insights to the factors that created the conditions for the global financial crisis.
The burgeoning literature about the global financial crisis targeted at the mass-market audiences is increasingly focused on tales of excess, greed, brilliance and stupidity. They are based on narratives about good and evil and success against the odds. They are also simplistic, frequently factually incorrect and can be misleading. Readability combined with a celebrity, “brand name” author (and the critical media access it provides) is now the accepted formula for fitting a narrative to important events.
The vast majority of people of limited financial literacy, it seems, prefer to be entertained by well-told familiar stories from well-known authors rather than strain their synapses for the truth. As growing public apathy to the financial and environmental problems of the world shows, the public is content with an anodyne and airbrushed version of reality. The literature of the age accepts rather than challenges this view.
As Frederick Neitzche wrote: “To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown — the first instinct is to eliminate these distressing states. First principle: any explanation is better than none…”
It is perhaps not the end of Wall Street but it surely getting close to the end of the road for books about the financial crisis.