The release of the movie adaption of Michael Lewis’s book The Big Short – which told the tale of a small group of money managers who positioned for the collapse of the US housing market which lead to the Global Financial Crisis – has re-opened questions about the state of global finance in 2015.
Last night Lewis appeared on the ABC’s 7.30 Report. Presenter Hayden Cooper said after reading the book that “it’s hard not to assume that Wall Street is a corrupt place full of crooks and liars.” He asked Lewis if that “Is that partly true?”
But he said that he thought the takeaway from The Big Short is that Wall Street is populated with people who are only in it for themselves and where self-interest reigns.
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“It’s a place filled with people who don’t know what they’re doing exactly, or at least what they’re doing is making money for themselves and whatever else happens, it happens, but they don’t have much to do it,” Lewis said.
Asked if the traders and bankers were “naive” and didn’t see what was around the corner Lewis opted to say market participants were “stupid”.
“People were paid lots of money to make stupid decisions with money, and – people in big banks. And when people are paid to be stupid, they’ll be stupid. It was – then the question was, like: did they know they were being stupid or were they just stupid?” he said.
Key here Lewis says are the incentives – the way bankers, traders, and money managers get paid. Lewis said that “it was just people being incentivised the wrong way.”
That’s the key to why Lewis thinks the global financial system hasn’t changed.
Asked if it could all happen again and if he’d “seen anything to prevent a similar calamity repeating itself,” Lewis said (our emphasis):
You wouldn’t assume that another financial crisis just like the one that happened is going to happen again. But I would say this: that the incentives in the financial system are still rotten. That people are still – they’re still – they’re still paid to do things they shouldn’t be doing. And the reforms that were brought about did not really address the incentives. So I would say we are still – that – I still don’t feel comfortable with the system. It still feels dysfunctional and there are, like, big behavioural issues that have not been addressed. So, God knows what’s going to happen next. I would not have guessed the financial crisis would’ve happened. But I wouldn’t be shocked if, like, there’s just a stream of bad news coming out of Wall Street.