Michael Lewis is working on a new Wall Street book about the financial crisis. If Lewis’s recent article in Portfolio on the end of Wall Street is any indication, it will be a masterpiece.
In the meantime, Lewis has edited an anthology of “Panic” writing–chronicles of the various crises of the past 20 years that have culminated in to the current debacle. The big difference between those and now is that they all ended relatively harmlessly: lots of people lost their shirts, but the economy and markets immediately recovered and roared off to new highs. This latest mess will likely be different.
Excerpts from a WSJ Q&A:
WSJ: [D]oesn’t the current crisis spoil your original thesis that there were no serious consequences to those earlier collapses?
Mr. Lewis: Yes. I was wrong. I’d become inured to these panics and originally thought we were simply undergoing another one. What I didn’t know was how big the problem was. That’s the difference. The sums squandered are so outsized compared to anything that’s happened before…
WSJ: Somebody once said they enjoyed reading the sports pages because they chronicled the day’s achievements. Any concerns that this book is basically an extended obituary?
Mr. Lewis: Well, there are some great journalistic triumphs here, some amazing writing. Look at Roger Lowenstein’s piece about ratings agencies. And some of the real-time Q&As are priceless. Jim Cramer on page 238 tells a Fortune reporter after the Internet bust that he’d decided to give up material things forever…
WSJ: Early on, you note that Main Street is just as culpable for the current economic crisis as Wall Street. Did you look for a piece that discussed all the borrowers who asked for loans they knew they would never be able to repay?
Mr. Lewis: A compelling one never landed on my desk. This event required the complicity of the entire society, and then, when it was over, everybody blamed Wall Street. The housing bubble was similar. There was a total collapse of personal financial responsibility by the typical home buyer. He then had to be indulged by the system at large. But Main Street was an accomplice.
WSJ: What happened to the Wall Street conceit that financial risk could be reduced by spreading it out among many?
Mr. Lewis: It got turned on its head. By spreading it out, it infected everybody. Also, nobody believed that anyone would be so insane as to buy so much that, if it all went bad, they’d go down, too. But they did. It shocked me to find out the extent to which people exposed themselves to so much risk.
WSJ: One thing this book makes clear is that investors never seem to lose hope. When does the market bounce back, and what will be the next quick-buck scheme that we have to watch for?
Mr. Lewis: We have entered a period of risk aversion unlike anything we’ve seen in our lifetime. Investors will be too wary for a while. You’ll read stories about people who got rich betting against subprime mortgages and then about people who combed through the wreckage and found bargains. The next rich wave will be those who figure out where the value is. As for the average American investor, he’ll be a deer in the headlights for years. It will be a while until greed gets comfortable again.
Read whole interview >
See Also: The End Of Wall Street
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