Michael Lewis on Wall Street

By James Kwak

The Big Short is a good story and provides some illuminating lessons about Wall Street. Lewis doesn’t really come out and say what he thinks about Wall Street; he lets his characters do that for him. But in his recent interview with Christopher Lydon, he really lets loose. Here are some direct quotations.

Lewis: “The people who were responsible for orchestrating the crisis, because they’re on top and they’re in the middle of it, they’re the only ones who are sort of fluent in the language of it. I mean, who’s to question Tim Geithner, the secretary of the treasury, about this or that, because he’s the only with the information . . . even though he is clearly culpable in what happened.”

Lydon: “Not to mention Larry Summers and Bob Rubin and all the other architects of the deregulation. They’re still calling the shots in a new administration after a change of party management. It’s unreal.”

Lewis: “It is unreal, because basically all of the people you mentioned all swallowed a general view of Wall Street, which was that it was a useful and worthy master class, that these people basically knew what they were doing and should be left to do whatever they wanted to do. And they were totally wrong about that. Not only did they not know what they were doing, but the consequences of not knowing what they were doing were catastrophic for the rest of us. It was not just not useful; it was destructive. We live in a society where the people who have squandered the most wealth have been paying themselves the most, and failure has been rewarded in the most spectacular ways, and instead of saying we really should just wipe out the system and start fresh in some way, there is a sort of instinct to just tinker with what exists and not fiddle with the structure. And I don’t know if that’s going to work. When you look at what Alan Greenspan did, or what Larry Summers did, or what Bob Rubin did, there are individual mistakes they made, like for example not regulating the credit default swap market, preventing that from happening. But the broader problem is just the air they breathe. The broader problem is just the sense they all seem to have that what’s good for Goldman Sachs is good for America.”

***

Lewis: “The question is how does Washington move away from those institutions and make decisions that are in the public interest without regard for the welfare of these institutions. It’s a hard question because . . . this is the problem. Essentially the public and their representatives have been buffaloed into thinking that this subject — financial regulation, structure of Wall Street — is too complicated for amateurs. That the only people who are qualified to pronounce on this are people who are in it. And there are very very few people who aren’t in it in some way who have the nerve to stand up and fight it. . . .

“The elected representatives look at the financial system, I’m sure, and they think, it’s too complicated for me to understand, I’m going to be quickly exposed as a know-nothing if I take the lead on regulation, and in the bargain I’m going to miss out on all these campaign contributions from the financial industry because I’ll alienate them.”

***

Lewis, on Barack Obama: “He’s been captured by his banker, just like the ordinary American’s  captured by their stockbroker. He’s been buffaloed by the complexity of it all, he doesn’t have time to sort it out for himself, and he has to trust the people who seem to know. The alternative is for him to set off on his own in a quixotic quest to reform the financial system without having any experience of the system. It’s sort of like the presidential version of regulatory capture, that he is at the mercy of the people who really don’t have probably his long-term best interests at heart but who seem to know what they’re talking about.”

23 responses to “Michael Lewis on Wall Street

  1. I just listened to Chris Lydon’s interview of Lewis. I used to listen to R.O.S. quite a bit, I come and go with Chris Lydon’s interviewing style at times.

    He does stop short of saying outright what I think more than the characters in his book recognized. Either way, this was a fun listen. I’d also recommend getting your ears on anything Gretchen Morgensen has done as well

    Thanks

  2. And they still want to Blame Bush. These are all Democrat Machine insiders. Amusing. Any reform for Fannie / Freddie? Fannie/Freddie removed risk which caused market dysfunction. And, now Obama promises to the masses: Follow me and I will Provide Provisions and Remove Risk. The Democrat Party wants a sea of sameness, and promises to create heaven on earth. This fallacy is expensive and dangerous.

    Age of Idiocy.

  3. bungalowbill

    Lewis on Obama: “He’s been buffaloed by the complexity of it all, he doesn’t have time to sort it out for himself, and he has to trust the people who seem to know.”

    Come on, I don’t buy that. He has chosen to trust weasels like Geithner, Rubin or Summers. He could choose to trust Volcker, Yves Smith, Simon Johnson,…. There’s a long enough list of knowledgeable people with some integrity. That he has chosen to be guided by weasels speaks volumes about who he really is.

  4. I don’t believe ‘trust’ is the correct word. It has been a while since any major (U.S.) Federal political leader has demonstrated [selfless] patriotism.

    Sacrifice and doing what is best for the nation is the responsibility of the ‘little people’.

  5. ..instead of saying we really should just wipe out the system and start fresh in some way, there is a sort of instinct to just tinker with what exists and not fiddle with the structure.

    That’s better than the impression he seems to want to give in stuff he’s written, like that Joe Cassano was the bad apple at AIGFP, or that the shorts are heroes (as opposed to just being among the smarter parasites).

    Or like with this drivel:

    Lewis, on Barack Obama: “He’s been captured by his banker, just like the ordinary American’s captured by their stockbroker. He’s been buffaloed by the complexity of it all, he doesn’t have time to sort it out for himself, and he has to trust the people who seem to know. The alternative is for him to set off on his own in a quixotic quest to reform the financial system without having any experience of the system. It’s sort of like the presidential version of regulatory capture, that he is at the mercy of the people who really don’t have probably his long-term best interests at heart but who seem to know what they’re talking about.”

    “If only the czar knew, he’d rescue us from them!”

    Oldest trick in the book of tyrants, and to propagate such a fraud the job of flacks.

    I always love the way hacks will tell you all day how brilliant Their Leader is, until his alleged brilliance isn’t convenient in some context, and then suddenly they’ll implicitly say he’s naive and ignorant.

    Even if he didn’t know more (which is doubtful), Obama definitely knew that Geithner/Summers=the Status Quo, and he chose that path because he consciously, knowingly, willfully, in all guilt intended that path.

    Obama did this because he’s a neoliberal corporatist by ideology, a status quo elitist by personality, and therefore a Wall Street flunkey in practice.

  6. Don’t forget, Lewis was telling everybody to not worry about the bubble just a few years ago. And then there’s his old story in TNR that said Buffett was just lucky guy because of the EMH. If Obama’s dumb about finance he’s only a little behind Lewis.

  7. In the UK, Obama wouldnt have to “set off on his own in a quixotic quest to reform the financial system” – our chief regulators are the only ones “in the tent” advocating radical reform, in fact – http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/04/bank_reform_the_nutters_in_the.html

    Not that it’ll do us much good….

  8. Dude, you don’t seem to get it, do you? This isn’t about partisan politics, it’s about a system that is thoroughly broken and corrupted by the influence of money on everything that happens in D.C.

    Idiocy is trying to color this with a red or blue brush. And isn’t particularly amusing. Rather sad, actually.

  9. gvots are in thrall to financiers since politicians are not willing to stop the juggernaut of spending more than one collects in taxes, ergo debt issuance – a necessary prior condition to “wiping the slate clean wrt wallstreet” is that a govt stop being *SO* egregiously indebted (or reduce the indebtedness by half) and speak straight to the electorate….but this cannot happen absent war or massive population reduction from natural sources…..human history proves that, if not much else -carry on

  10. heard you on the show as well. nice job.

  11. “. . . govt stop being *SO* egregiously indebted (or reduce the indebtedness by half) and speak straight to the electorate….but this cannot happen absent war or massive population reduction from natural sources…..human history proves that, if not much else . . .”

    A “13 Bankers” segment points out that the U.S. national debt was over 100% of GDP shortly after WWII, but 10 years later, the percentage was much smaller (Half of that if I remember right.). The debt wasn’t smaller. The GDP had went up. I guess Congress hadn’t raised spending more than revenue during said time.

  12. number2son nailed it. this is isn’t about Democrat or Republican because BOTH parties are heavily influenced to side with corporate America than with everyday Americans on key issues that impact US more than them.

    In their defense, they kind of have to be. IT takes (on average) over $1.1 million to run a Senate campaign in this country and about 2/3 as much to run for Congress. That’s a pretty stiff fundraising whip if you ask me.

    We gotta remove money from politics altogether. Otherwise, the organizations and corporations with all the money, control all the policy.

    And it is sad. Not amusing at all, Suhr Mesa.

  13. Here, here! I think anyone in Obama’s position, dealing with the ridiculous size and complexity of the issues at hand, lean heavily on those around them. Its about who you surround yourself with and who has the ear of the President.

    Unfortunately, I can’t stand half of the people he’s surrounded himself with — i.e. same old, same old.

  14. “… financial regulation, structure of Wall Street — is too complicated for amateurs. That the only people who are qualified to pronounce on this are people who are in it.”

    I give you Albert Einstein: We can’t solve problems by using the same kind of thinking we used when we created them. (And definitely not the same minds that created them!!!

    And Mr. Lewis was a tad wrong when he said that Larry Summers and Bob Rubin and all the other architects of the deregulation are still calling the shots in a new administration after a change of party management. These men have been around since Clinton’s first administration and Summers pushed for Gramm Bliley Leach which eviscerated Glass-Steagall in 1999 during Clinton’s second admin.

    And one more thing, these men just didn’t fly into the White House uninvited like the Salahis, they were appointed by POTUS. I am sick of hearing, on the one hand, how brilliant is our Harvard-educated constitutional lawyer president, and then, on the other hand, how he’s been “buffaloed by the complexity of it all.” Don’t they teach complex thinking at Harvard? Maybe our next president should come from MIT’s math or engineering department.

  15. Maybe our next president should come from MIT’s math or engineering department.

    Well, that would certainly rule out Palin, Huckabee, Barbour, Jindal, Romney, and any of the other GOP candidates.

  16. Really ill-informed comment. Do you think Romney doesn’t understand the financial system? He ran a PE Fund for many years. Christ help us all.

    You don’t need a degree from MIT to understand the finance system.

    In fact it is a hindrance, because the dumb engineers think that they can solve the market ‘problem’ when in fact it is a game.

  17. Having read The Big Short, it’s nice to see Michael unaffraid to air the lessons learned. As to the fact the our President has been captured, maybe he’s been getting better advice these days, since he said yesterday that he would veto any bill without a strict posture on derivative trading. If he changes his mind, we need to send him a copy of Michael’ book. That’ll convince him.

  18. Dave Henrie - Citizen Sucker

    STEP RIGHT UP

    You and everyone else allegedly seeking positive change in America can sing, dance, march or write books, articles, songs and poems (for profit), broadcast on TV and distribute motion pictures (for profit), maintain websites and wave signs/banners, block traffic, write your Congressman and pray, make threats and even fornicate for a cause.

    But basic and solemn commitments by you and everyone actually seeking positive change in America are absolutely necessary:

    Ordinary Americans, if they have what it takes, must agree to shut-down the Financial Services Industry as it now exists to excise the cancer destroying America.

    State Legislators and U.S. Congressmen, if the have what it takes, must effectively and quickly support ordinary Americans rather than allow the Financial Service Industry to continue to lie and loot.

    How?

    Have What It Takes to remove your remaining money from CiTi, B of A, Wells Fargo, Morgan Stanley, Goldman Sachs, Chase (pipeline for Bernie Madoff’s money laundering) and the other national lenders who relentlessly take foreclosure action against millions and millions of ordinary Americans because of conditions created by the lenders so as to pay their lawyers, pay themselves commissions and bonuses, and pay shareholder dividends – the country and its people be damned.

    I DID.

    Where is your money?

    Let me know if you have what it takes to act now to make the money-lenders, their lawyers, lobbyists and shareholders suffer until their lying, looting and foreclosures stop.

    Have you been foreclosed? Have you lost your job? Are you homeless? Do you have enough to eat?

    Are you TERRIFIED by the prospects of Foreclosure; Unemployment; “Living” on the street; Hunger?

    Do you have any idea what is really going on out here in Terror Town, USA?

    Dave Henrie
    Ashamed I am American
    4607 E. Lewis Avenue
    Phoenix, AZ 85008

    602.317.5808 dhenrie@cox.net April 17, 2010

  19. Agree that Greenspan, Rubin et. al. were wrong in a variety of ways, Greenspan because he didn’t see the bubble or ignored it, Rubin because on his watch Citi went deeper and deeper into subprime, at his urging.

    My problem with the calls for the uber-regulator, is if these guys didn’t get it, who possesses the requisite wisdom for the future. Today, one of the men who did see the subprime fiasco (Paulson) is being pilloried in the press for being right.

  20. sceptical in Texas

    Any citations? Proof? Where was this written?

  21. Mind your language… I’m an Engineer!!!

  22. “We gotta remove money from politics altogether.”

    You are singing my song.
    Spending limits for congressional campaigns is the only way to solve this problem but that will never happen. Congress makes the rules about their own campaign. Kind of like the foxes guarding the hen house, isn’t it.

  23. Brooksley Born got it.
    Elizabeth Warren gets it.
    And there are others as well.
    You seem to imply that regulation should not be promulgated because the people who need to be regulated didn’t come up with regulations that would have kept them from acquiring such extraordinary wealth.