Economics

"We have a simple thesis. There is going to be a calamity, and whenever there is a calamity, Merrill is there."

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Been meaning to link to this one for a while: Michael Lewis, author of the entertaining Wall Street memoir Liar's Poker, finds a good vantage point from which to view the crash—through the eyes of the investors who were smart enough to short virtually everything.

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  1. Things Michael Lewis is famous for:

    1. Moneyball
    2. Nailing Tabitha Soren
    3. Liar’s Poker

    Not sure why you would skip down to #3. 🙂

  2. Dude, I hope you’re not implying that #2 is anything to be proud of.

  3. Epi,

    No, it just stuck in my head when I was reading the dedication in Moneyball.

    It was one of those, “I never even wondered what happened to her, but now I know” moments.

  4. Thank God somebody said it.
    If I’d nailed Tabitha Soren I might list it as a minor accomplishment but then I’m a poor nobody Joe Sixpack.It certainly wouldn’t make the top 20 of my proud achievements, much less the top 3.

  5. From her wikipedia page, she has dropped the Soren stage name (she was born Sorenberger) and goes by Tabitha Lee Lewis now. How very traditional of her.

  6. Sornberger, not Sorenberger. I cant type.

  7. Michael Lewis should ask Kurt Loder and Adam Curry if they were dumb enough to bang her too.

    Mac: OK, so as my blood brother, I need to confide a secret to you.

    Dennis: You’ve been banging the waitress.

    Mac: How’d you know that?

    Dennis: You’re my blood brother, man. I know more about you than you know about yourself.

  8. Damn it, now I have to look her up….

    Oh, her.

    Why would anyone use the word “nail” when speaking of her?

  9. ed,

    “nail” was funnier than “marry”?

    I considered going with “knocked up”.

    I just find it odd that Lewis and Soren ever met, much less hit it off. Whatever.

    BTW, on topic, the article is interesting, I read it a while back. I dont buy his whole “end of wall street” thing though.

  10. I think my problem with his “end of wall street” thing has to do with whats seems a cliched liberal misunderstanding of markets. Incompetence and failure are a very natural part of the market.

    Also, there is a very pretty Cardinal on my deck railing right now.

  11. Robc, exactly what I was thinking. From what I could tell, despite having tons of employees who had no fucking idea what they were doing, wall street was generally still making tons of money so it didn’t care. When the incompetence got too large without them noticing, it sunk the ship. Such is the nature of the free market, such that those companies that did not, or will not, tolerate incompetence, at least as much, will be the ones who thrive in the future. Is investment banking inherently stupid? Of course not. They just mishandled things for too long and now they (or we?) pay the price.

  12. I just find it odd that Lewis and Soren ever met, much less hit it off. Whatever.

    Hey, you at least generated some discussion on this shitty Friday where I am bored out of my skull at work.

  13. So, are we all, at the very least, in agreement that Moneyball is a far more important work than Liar’s Poker?

    No one had a thing to say about me listing it #1.

  14. I just find it odd that Lewis and Soren ever met, much less hit it off.

    They met while they were covering the 1996 election, Lewis for The New Republic and Soren for MTV.

    whats seems a cliched liberal misunderstanding of markets.

    I thought the article included a rather wise line about markets:

    “He thought the cause of the financial crisis was ‘simple. Greed on both sides–greed of investors and the greed of the bankers.’ I thought it was more complicated. Greed on Wall Street was a given–almost an obligation. The problem was the system of incentives that channeled the greed.”

    Which is not to say Lewis has a purely libertarian diagnosis of what those distorting incentives were, but he’s miles ahead of the blame-greed crowd.

  15. On a very loosely related note – if you dont have good bottom rates on your mortgage, now is the time to refi – rates plummeted earlier this week.

    Just got off the phone with my bank, getting a refi was my work for today. Im lowering 7/8ths of a percentage point (it went up 1/8 from Wed).

    Interesting question, with extra liqiudity from the bailout, that means “supply” of money is higher. However, rates are dropping, which must mean “demand” is lower.

    Hmmmm…..

  16. I failed to ask a question after writing “interesting question”. I still dont have one.

    I guess it wasnt interesting after all.

  17. Read the article a while ago, and recommended/e-mailed it to several people.

    He mentions something which has been bugging me for quite a while, which I see as being a significant root cause of the problem: the shift from partnership to corporation. I think partners would have been more likely to keep a tighter rein on risk and leverage.

    I still find it hard to believe the housing bubble, or its subsequent collapse, could have been a surprise to anyone. Bailing these dumbasses out is not likely to make them *less* complacent, down the road.

  18. Who says America and Americans are shallow?
    It’s a little after 10 P.M. Eastern time on a Friday night. Bad things are happening in the world. I turned on my TV to catch some news. Here’s what’s on:

    CNN: The Hero Awards. Celebrities have filled a hall. There are speeches, and tears. Much talk of sacrifice. Someone, evidently a hero, will win $100,000 at the end of it all.

    CNN Headline News: Nancy Grace, and more Caylee. The tot is still missing.

    MSNBC: A special about teen violence. Yes, the teens are rowdy. There are videos to prove it.

    CNBC: Deal Or No Deal. Large-breasted models holding suitcases. I have no idea how this works, or why it’s important.

    FOX: Greta Van Susteren loses what’s left of her self respect in a widely discredited interview with a Dutch fellow who may or may not have killed an American blond three years ago.

  19. I saw this a couple weeks ago, linked on DailyKos. Great piece, eh?

    robc,

    Also, there is a very pretty Cardinal on my deck railing right now. Male or female? I find that, if you can get a good close-up view, the subtle reds of the females, blending into the dappled brown, is really lovely.

    On a very loosely related note – if you dont have good bottom rates on your mortgage, now is the time to refi – rates plummeted earlier this week. Assuming your equity hasn’t dropped so much that you’d be adding PMI to your payment.

    PBrooks,

    I still find it hard to believe the housing bubble, or its subsequent collapse, could have been a surprise to anyone. I don’t think the housing bubble/collapse was a surprise to too many people, but the MBS collapse was. It’s important to keep in mind that those are two different things. Absent the proliferation of MBSs, all that would have happened was a decline in home prices, maybe a minor recession like after the stock bubble collapsed in 2000.

  20. joe,

    Male. Reddest cardinal I have ever seen.

    I bought last year after the mini-price drop (we didnt have much of a bubble here in flyover country). Im sitting at about 50% equity, so not a problem.

  21. I have read most of his books. While I think Lewis’ predictive abilities are suspect, his ability to look at a situation and explain it is pretty damn impressive.

    And Tabitha Soren was pretty cute back in the day.

  22. I think my problem with his “end of wall street” thing has to do with whats seems a cliched liberal misunderstanding of markets.

    How is this a “cliched liberal misunderstanding of markets”? I am sincerely interested in something more tangible if you can offer it.

    Libertarians often assert a superior knowledge of markets because they see the world in terms of moral imperatives of freedom. They assume all markets operate in this context. And anytime a someone describes the markets in any other terms, they get the coded criticism asserting that they ‘lack understanding of markets.’

    It’s easy to forget that a large part of the recent problems are that Wall Street itself did not operate as a free market. Regulations and rules failed to protect individuals from fraud and allowed banks to operate in a non-rational way. Even the bailout is hardly a free-market or a rational response.

    So the “end of wall street” is not that far fetched, and to assert this does not mean one has a “cliched liberal misunderstanding of markets.”

    Purely reading the tea leaves here, there’s a lot that still has yet to happen in all this. And in the end, the biggest factors will be increased regulation OR increased cronyism or both. Either way, it’s entirely possible that Wall Street – as we currently know and understand it – is destined to change a lot.

    Incompetence and failure are a very natural part of the market.

    Indeed they are. I think Lewis’s point is not that Wall Street is dead because of incompetence. It’s dead because of the staggering amount of pure vapor (in the form of C.D.o.s) on which the fortunes – and eventual losses – were based.

    In previous crashes, the value of assets could at least be determined in a market context. Even if they weren’t worth anything, one could say – for certain – “THIS is not worth anything because THAT is not worth anything”

    You could even hold some things because you knew they were undervalued and the market would, in time, bounce back to reflect that.

    C.D.O.s have thrown that into a meat grinder. Determining value is almost impossible because the connection between the objects of value (mortgages and houses) and the financial instruments which leveraged that value (C.D.O.’s) are now virtually impossible to parse.

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