sign in sign up
<<
Home , Michael Lewis, The Big Short

THE DEBT COLLECTOR Michael Lewis is a financial-disaster tourist who wanders the ruins of the global economic crisis. He says the Greeks are morally bankrupt, the Germans are naive, the Irish are blissfully bonkers, Icelanders are megalomaniacs and the Americans are to blame for it all. By John Arlidge

PORTRAITS: STEVE SCHOFIELD

ho are the winners in the financial by speculating against the pound on Black Wednesday. crisis, the people who benefited while The other winners are an unlikely mob. Journalists the rest of the world went to hell? and writers are usually the last people to profit from One lot is easy to spot. The financial anything, but the crisis has made some pretty big whizzes who realised that the careers. City and hacks now find W American housing market had themselves writing screenplays. BBC pointy heads are become a vast bubble before anyone else and, at household names. None has done as well as Michael just the right moment, began to place huge bets that Lewis, who has created a new genre of journalism and it would burst spectacularly, have got richer than made his name and a pretty penny along the way. any investors in history. His first book about the financial crisis, The Big Take the American hedge-fund manager John , told the stories of the small band of savvy Paulson. He personally made $4billion during the renegades who became billionaires by “shorting” — credit crunch — the best trade ever. His nearest betting against — the American housing market. competitor, , pocketed a “mere” $1billion It became a bestseller. His second book on thea MICHAEL LEWIS

FRONTROW SEAT subject, Boomerang, released in The Bonfire of the Vanities. Lewis Michael Lewis (below) paperback this month with a new imagined Liar’s Poker would outside his officein California. He toured the preface, has also topped the non-fiction serve as a message in a bottle, a ghost estates of Ireland charts. In it, Lewis describes how cautionary tale from a corrupt era (top left), andGreece what started as a crisis for banks has of financial recklessness that (belowleft), where become a crisis for entire countries, would soon disappear. Except, of he found holy men mostly in Europe. course, it didn’t. It carried on and doingunholy deeds “The financial crisis of 2008 was got a billion — no, a trillion — suspended only because investors times worse. So when the entire believed that governments could financial system tottered, he borrow whatever they needed to was the man to write the story. rescue their banks,” says Lewis. “I thought, ‘Hell, this is “What happens when the governments incredible. It’s virgin material. themselves are no longer credible Nobody has explained to me what and cannot borrow?” just happened. How on Earth could supposedly smart people n chapter after chapter Lewis in big banks end up doing such wanders the economic ruins of stupid things? What happened in Ireland, Greece, Iceland and places like Greece and Ireland? Germany. “I’m a financial-disaster What were ordinary people tourist,” he says, half-relishing, half- thinking?’ I decided to do what Iloathing the description. He reports I do, wander around being me how and why countries ran up such vast and try to find out.” debts in the easy-money boom years, and He started out angry. He knew what happened when they suddenly from his experience at Salomon found they could not repay them. Bros that bankers had created a Greece cheated its way into the euro, system that encouraged them to lined its pockets with wads of the new cheat to get rich on bad debt and currency that it had not earned, and is then consciously ignore the now suffering “total moral, social and inevitable losses. “The real economic collapse”. Icelanders became ASINGLEARTICLE scandal is that the people who got it wrong in megalomaniacs. Even though they had little or the boom years were rewarded for getting it no formal financial training, fishermen decided BYLEWISFOR wrong. There are plenty of ordinary people laughs. “I don’t think, ‘Oh, I can make the world He also had the right kind of experience people what to do with their money, but it to become investment bankers overnight. who got it wrong, and they paid a price. They a better place by writing this piece.’ Ithink to understand and explain the crisis. At was bullshit. Wall Street floats on bullshit. They ran up the biggest bank debts in history VANITYFAIRCOSTSA lost their homes. But not the bankers. They instead, ‘There’s going to be a really good story. Salomon Bros he learnt how markets work — At the bottom of it is the belief that someone — 850% of GDP, or $330,000 for every made so much money along the way that when It’s going to be fun to do.’ It’s mostly selfish and, more importantly, how they can get things can tell you what’s going up and what’s going Icelandic man, woman and child. They refused STAGGERING$125,000 it all finally went wrong the costs they paid literary opportunism.” Nor has his experience wildly wrong. When he started advising down. They can’t. to pay many of their debts and the country is were trivial in relation to what they had made him a big west-coast leftie. “I think markets multibillion-dollar global institutions and “I knew what I was saying was without now on the road to recovery. good everyone else may as well pack up”. How already made.” are useful but, boy, they can really get things hedge funds on how to invest in financial value. And yet they were throwing money The Irish decided to stop being Irish — that did he get there? “I had a head start,” he says as The more he wandered, the more he wrong.” Better regulation of Wall Street and the instruments, known back then as futures and at me to say it. It was mad. I began to think, GES, LEFT: GETTY/COLLIN THOMAS.

is, conservative, broke and miserable. They lost he sips a latte in his office, a rough-and-ready uncovered and the angrier he got. Researching PA City of is essential, he says. options and today as derivatives, he thought ‘If the market can misvalue me this way, their inhibitions, discovered optimism, and wood cabin in the hills above Berkeley, Boomerang, he found that the American markets “broadly got value and prices right”, what else can it misvalue?’ A lot of what has went on the biggest credit binge the world has California. “I had been there, done that.” investment bank had helped attling through the new edition of he recalls. As a student at the London School interested me in stories since then grows out of

ever seen. Their debts reached 25 times annual In the 1980s, when he was in his twenties, the Greek government cook the nation’s books STM Boomerang, it’s easy to think that writing of (LSE) in the 1980s, where the that understanding of the idiocy of markets.” R ZINE. PREVIOUS tax revenues. The government said it would Lewis worked for the now-defunct US to meet the conditions necessary to join the FO this kind of stuff is easy. Of course, it’s outgoing Bank of England governor, Sir Mervyn His eye for idiocy and his background as GA repay all public and private debts, plunging investmentbank Salomon Bros, largely in euro. “If a Wall Street firm helped a corporation R anything but. Finance is an arcane, King, was his tutor, he had learnt efficient- a journalist — he used to write for the now- the country into penury. The Germans became London. He livednext door to Judi Dench in disguise its books the way that Goldman private world. Many bankers and economists markets theory — the idea that markets self- defunct Sunday Correspondent — helps him even more German — more cautious and less Hampstead. But he didn’t much care for helped the Greek government disguise its TIMES MA are reluctant to talk to writers or anyone outside correct to avoid boom and bust. But soon he to root out the absurd, humorous and the AY exuberant, if that’s possible. They eschewed banking, finding it “pretty dull”. So, after a books, people would go to jail for that. It should their narrow circle. Those who do speak, speak began to see how markets misvalued things, shocking. That’s why his books, which tell cheap credit, but ended up buying vast couple of years he left the goldmine before be a worse offence to do it with a country.” jargon, not English. Their idea of chit-chat is especially himself, and were “every bit as tragic stories of financial calamity, are

amounts of toxic debt anyway, because their collecting the gold, to pursue his passion to In Ireland he uncovered evidence that R THE SUND discussing “the importance of a credit default capable of idiocy as the labour markets”. surprisingly easy, and even fun, to read. bankers were financially naive. become a writer. Lynch knowingly advised Dublin to FO swap on a double-A tranche of a sub-prime- Salomon Bros paid Lewis a starting salary In , he reveals how, at the And America, Lewis’s home? It was the His first book, Liar’s Poker, was based on pursue a debt-reduction strategy that benefited backed collateralised debt obligation”. of around $100,000 a year when he was height of the sub-prime housing boom, a Death Star, the place where the global weapons his time at Salomon Bros. His tale of venal the bank, which held tens of millions of dollars How does Lewis pull it off? He has a name, a 24 — around $200,000 in today’s money. Mexican strawberry-picker in California, who of mass financial destruction were invented. bankers who fleece an undiscerning public is of Irish debt, but actually harmed the Irish reputation that opens doors. “I’m lucky. Because By the end of his second year he was making did not speak any English and whose annual EVE SCHOFIELD

The world’s largest economy “owes the rest of considered one of the texts that defined Wall economy. But he insists he is not motivated by ST of Liar’s Poker, it’s easier for me to go see who more than $200,000 — almost half a million take-home pay was $14,000, was given a BY

the world an apology”, he says. Street during the 1980s, along with Bryan score-settling. He’s no campaigner. “I’m not a GES, LEFT: EYEVINE; CORBIS. RIGHT:STEVE SCHFIELD I want to see. If I go to a country I’ve never been dollars today. That was more than his father, $724,000 mortgage that he had not asked for

On the front of Boomerang is a quote from Burrough and John Helyar’s Barbarians at the bomb-thrower. I live in Berkeley! [the PA to before and I ask to interview the finance a successful lawyer. Theonly and did not want. In Boomerang he finds Greek the Evening Standard. Lewis, it says, “is so Gate: The Fall of RJR Nabisco, and ’s Californian city is notoriously crunchy],” he minister, chances are he or she will agree.” problem was, he hadn’t earnt it. “I was telling monks pulling property scams. He meets a THESE PORTRAITS

42 The Sunday Times Magazine 7.10.2012 The Sunday Times Magazine 7.10.2012 43 MICHAEL LEWIS bouncingsoundbitesoffbarack The cosy six-month interview with the president that ended in a row over ‘quote approval’ Over six months, Michael Lewis few hours, Obama goes “from Lewis has been criticised for spent a day “here” and a day celebrating the Super Bowl agreeing to the widespread but “there”, one on one with Barack champions to running meetings on rarely disclosed practice of Obama for a recent Vanity Fair how to fix the financial system, to allowing Obama to “approve” his story. They played basketball, he watching people on TVmake up quotes. hung out in the private residence stuff about him, to listening to announced shortly afterwards it at the White House and flew in members of Congress explain why was banning quote approval. Air Force One. All of Obama’s they can’t support a reasonable I interviewed Lewis on the aides opposed granting Lewis idea, simply because he, the day he checked the quotes with such close access, but the president, is for it; to sitting down the president, before the row blew president overruled them. with the parents of a young soldier up. He was relieved, he said, Lewis described the huge recently killed in action. How does because Obama had asked him to demands of being president. In a anyone become used to this?” remove almost nothing JA

plastic surgeons who make millions every year, keeps the maths to a minimum, only producing I feel like Brian when people keep saying, but only declare a taxable income of €12,000 — statistics when they are searingly revealing. ‘He’s the Messiah!’ I’m not the Messiah. and get away with it. He has coffee with a Greek He reports, for instance, that total worldwide There are way smarter people than me who tax inspector who tells him the job of a Greek tax debt — public and private — more than can explain what’s going on.” inspector is not to collect any tax. If somehow doubled between 2002 and 2008 from $84 He points out that his stewardship of his he does manage to collect tax, he is fired. trillion to $195 trillion. It’s the same with own money was so poor, he managed to buy During Ireland’s credit binge, he reports dialogue. He cherry-picks the most salient several thousand dollars’ worth of Lehman that the rise in prices of homes implied that in lines. He reports how one banker told a hapless Bros stock — in 2007.“Look. I’m a writer, a just over two decades the country would become dilettante. I just skim the surface. If you are three times richer than America, the largest asking me for help, that’s a really bad sign.” economy on Earth — and people believed it. ‘ifeellikebrian, Perhaps, but since I’m sitting in his study, his Everywhere in Ireland people “thought each wife, Tabitha, and their three children not due day would be sunnier than the last”. whenpeoplekeep to return for hours, here goes. saying,“he’sthe Why did the financial crisis happen? ll the examples above are about people, That’s one he will answer. Its roots, he says, not markets. That’s trademark Lewis. messiah!”i’mnot’ lie in the failure of western economies to grow He never forgets that booms and busts and create ever greater prosperity. “European a are made by silly and greedy people. He investor drowning in mortgage debt: “Youhave and American society is premised on belief in uses his journalistic nous to track down these no way out of this swimming pool but through social mobility, that you’re going to be doing people and then his charm, humour and me, and when you ask for the towel I’m going better than your parents. That’s no longer true. mastery of motive, to get them to confess their to rip your eyeballs out.” The prospects for my children do not look as sins. Along the way, he has the knack of Lewis has not done it all on his own, of good as they were for me. It’s probably the explaining what went wrong in global finance course. He has some very powerful and same for your children. in ways main street, not just Wall Street, can wealthy supporters. Boomerang is based on a “What the banks and individuals did in understand. He uses a simple domestic collection of articles he wrote for Vanity Fair. the years before the crisis was a response to analogy to explain credit default swaps. In an age when most newspapers and essentially middle-class despair. People found Those are the instruments short-sellers used magazines are cutting back investment in — or at least thought they had found — new to bet against the mortgage debts held by editorial, the Vanity Fair editor, Graydon ways to take money, say, out of their home. American banks, that the banks thought would Carter, has thrown Wall Street-style money People were borrowing money instead of be repaid but the short-sellers knew were toxic. at the greatest financial story in history. making money because they couldn’t make it “It’s like buying cheap fire insurance on a Taking everything into account — flights, in the same way as they had before and their house engulfed in flames.” hotels, subsistence, research, photography, parents had before them. It worked really well He points out simple truths simply. On the editing, fact-checking and fees — Lewis says for a while. But then the lie was exposed.” collapse of Lehman Bros he writes: “The one of his articles for Vanity Fair costs Who, or what, does he blame for the world’s problem wasn’t that Lehman had been allowed $125,000. That’s more than the annual editorial seemingly never-ending financial woes? to fail. The problem was that Lehman had been budgets of entire magazines, for a single piece. “A merica’s fingerprints are all over the crisis. allowed to succeed.” He reduces the 15-year “It’s a huge sum of money,” he acknowledges. Every one of the countries I go to, there is some boom and bust of the Celtic tiger economy to Lewis’s success has seen him feted as a story of the pernicious behaviour of American a single sentence: “The Irish decided what they financial guru. He has been invited to testify firms. Wall Street incentivised a lot of really really wanted to do was buy Ireland — from before Congress, and bankers all over the world bad behaviour. They could have been a brake each other.” That’s the simplest and best have written to him to tell him that they had no on the system. They could have slowed things explanation of a property bubble you will find. idea about some of the things that he uncovered. down; instead they sped things up.”

geTTY There are numbers, of course, but Lewis It’s a role he hates. “I’m a Monty Python fan. He singles out the way Wall Street firms a

The Sunday Times Magazine 7.10.2012 45 michael lewis bigpitcher plays the managerofthe and London, too. Nobody wants to be seen as team a friend of Big Money these days.” in Like the Woodward and Bernstein of economics, Lewis follows the money. He has even applied his market theory to sport. In Moneyball, which became a film starring Brad Pitt, he reveals how baseball values and misvalues players. But he is interested in politics too. As governments and ordinary people scramble to come up with ways to stave off a double-dip recession, he believes western countries and voters have yet to come to terms with what the financial crisis means politically. “The really big question is why there has been so little political change alongside such big economic change. People aren’t really throwing rocks. It’s amazing how tranquil it has been.” The peace is partly a result of central bankers’ decision to print money to keep the cogs of the economy turning — so-called quantitative easing. “Central bankers have knowingly disguised bundles of dud gotten much, much better at numbing the pain mortgages as triple-A investments and sold ‘theeurowas from financial crisis. Ben Bernanke [chairman them to German banks. “Wall Street firms put of the US Federal Reserve] is a great hero. It’s of lot of energy into selling crap to Germany aMistake.greeCe, amazing what he’s done. America should be that they knew Germany should never have living with twenty-something per cent bought. The Germans got raped every which italyandspain unemployment. Instead, it’s 8%.” way by American investment bankers.” But the anaesthetic will eventually wear off Then there’s Goldman’s Greek chicanery shouldnotbeinit’ and then things will get really interesting. “We and Merrill Lynch’s dealings in Ireland. He What you have left is this block of northern are at the beginning of change. Out there are the could go on but, instead, concludes: “A merica countries and Ireland. It will be interesting to seeds of a big political movement. You see these owes the world an apology.” see if the Irish decide they want to be part of it. spasms, the Tea Party, the Occupy movement. I think they will. They seem inclined to put up Political movements are youth movements and an I tempt him into a few predictions? with anything. They almost enjoy the pain. young people have more reason than ever to be What, say, will happen to the euro? If you go to an Irish party, the person who angry and they’re going to be increasingly idle, “Greece is beyond salvation. It either holds the floor is the one who has suffered too. We’re going to be living through quite some C walks or it gets thrown out,” he frowns. the most lately.” period of social transformation.” I don’t know whether he got food poisoning in What of bank reform? Will it really happen? There is, of course, one question that Lewis Athens, or Olympic Air lost his luggage leaving It already is, says Lewis. Big Wall Street is in is asked more than any other. When is the him stranded on an island in the height of decline and its biggest institutions will be broken crisis going to end? “I’m sorry, but I see it summer with a single pair of Y-fronts, but up in the next decade. “Society will decide that it lasting another decade. This is going to be a Lewis has no time for the Greeks. “In our can’t tolerate having the capitalists back-stopped long one. My next assignment is in southern societies there still is some sense of a common by the government. And the only way to avoid Europe and I’m going to wait until next year. good. But this just doesn’t exist there. Nobody that is for them to be small enough that they can I have no doubt that the story will be just as trusts each other. Nobody trusts the government. fail. ‘Too big to fail’ has to be done away with.” strong then, if not stronger.” So, there’s nothing really to build on. They How? “The way I would do it, I would say That’s bad news for the rest of us, but good shouldn’t have come in to the Eurozone and you can either make bets with your own news for Lewis. It doesn’t just mean more they’re gonna go out, and they’ll have a money, like a hedge fund does, or you can books and $125,000 Vanity Fair articles. It drachma or something that’s a much cheaper advise customers. So you can be Charles means more films. He has just finished writing currency. They’ll be able to export more, which Schwab, or you can be a hedge fund. But there’s the screenplay for Liar’s Poker for Warner is good. But the standard of living will fall a lot.” no such thing as Goldman Sachs any more, Bros. The studio’s first choice of actor to play Once Greece leaves, will the contagion where you can both advise clients and trade.” the young Lewis? Zac Efron. Journalists never spread and the entire currency implode, as Finance is already changing, he adds. get played by heart-throbs. They get the goofy many fear? “The euro was a mistake from the You can feel it. “Just see how desirable it is for Briddish actors, like the chap who played the beginning and it’s hard to see how it hangs a kid coming out of Harvard, Princeton, Yale, Guardian reporter in The Bourne Ultimatum. together. I don’t imagine it all falls apart at Oxford, Cambridge or the LSE to go and work Like I said, Lewis is a winner. Damn him n once. I imagine it goes in pieces. Maybe at Goldman Sachs. It’s still desirable, but not Boomerang (Penguin, £8.99) is available from Greece goes and then maybe Spain and Italy, nearly as desirable as it was five years ago. the Sunday Times Bookshop on 0845 271 2135, which shouldn’t be in there either, really. And look at the policy-makers in Washington at the reduced price of £8.54 including p&p ndmark media la

46 The Sunday Times Magazine 7.10.2012