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Dermot's Review of The Big Short: A True Story

Page history last edited by Jonathan Chambers 7 years, 10 months ago

The Big Short: A True Story*

By Michael Lewis

 

Who believes the rave comments on the back of a cheap paperback?

 

  • A triumph… riveting… The Big Short reads like a thriller.’ (The Times)
  • Probably the single best piece of financial journalism ever written.’ (Reuters)

 

But, read Big Short and then say these comments are exaggerated.

 

Lewis’s heroes were whistle-blowers who loudly proclaimed the US sub-prime mortgage bond market of the early 2000’s to be a giant, fraudulent, inflationary bubble. But, they were also speculators themselves who needed to attract the attention of other investors to ‘short’ the sub-prime market (bet that prices would fall) in order to trigger the collapse and make the profit. They talk quite openly to Lewis about exactly what they were up to.

 

The whole unfolding drama of the US sub-prime mortgage crisis of 2007 is told through the words of a dozen or so individuals at the heart of the fiasco. Eg, Steve Eisman:

I now realised there was an entire industry, called consumer finance, that basically existed to rip people off.’ And:

 

These guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a shit what it sold.’

 

One problem for many people is disbelief of the enormity of what is going on in the world of high finance. Surely, investment bankers must do more than just gamble with large sums of mostly other people’s money? But, that’s exactly what they do. The phrase ‘casino capitalism’ is no mere metaphor. The practice of ‘naked’ trading is literally the same as putting money on a roulette wheel or a horse. And speculation certainly doesn’t allocate resources efficiently; rather, it diverts capital from useful long-term investment.

 

In 1988, Michael Lewis left his Wall Street job in disgust:

 

Unless some insider got all of this down on paper, I figured, no future human would believe that it had happened.’

 

Big Short touches on politics in places. Charlie Ledley:

 

I think there is something fundamentally scary about our democracy. Because I think people have a sense that the system is rigged, and it’s hard to argue that it isn’t.’

 

Lewis:

 

[Eisman’s] experience with Household Finance had disabused him of any hope that the government would intercede to prevent rich corporations from doing bad things to poor people.’

 

Sadly, these political leads are not followed up.

 

So what does this book have to offer those working towards ending all capitalist exploitation, not just the recent excesses of greedy bankers? Well, it will surely generate anger. And ‘investment banking’ hasn’t changed much since 2007. Proposed regulation is extremely weak. The Bank of International Settlements’ ‘Basel III’ limits on leverage ratios don’t come into effect until 2019, and are likely to be quite ineffective. The UK Vickers Report (2011) was a damp squib. Governments, central banks and regulators remain in a state of disarray over the Greek debt crisis and in general.

 

A second problem for activists is differentiating ourselves from the more outspoken commentators of the mainstream media. We could start with the slogans:

End fractional reserve banking.

 

  • Democratic control of the creation of money.
  • We are the 99%.
  • Then add something like:
  • Speculation and gambling are not work’
  • Close them down, Tahrir Square style’
  • This will need larger numbers to come into activity. Otherwise the machinations of the financial sector will continue siphoning off capital from the real economy for the foreseeable future.

 

Dermot Smyth

5 September 2011

 

* Penguin, 2011 (2010) 270 p

 

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