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Antonia Senior

Not just flash but stupid too. Financial traders created a system too complex to control — but a few foresaw catastrophe

On October 31, 2007, a hitherto obscure analyst called Meredith Whitney caused panic on the financial markets. Citigroup, one of Wall Street’s giant banks, would have to slash its dividend or it could slide into bankruptcy, she warned. In the ensuing panic $380 billion was wiped off the value of US shares as an already jittery market realised that the sub-prime mortgage crisis could be evolving into a catastrophe.

It is with Whitney’s explosive report that Michael Lewis begins his eagerly anticipated take on the greatest financial crisis since the Great Depression. The author of Liar’s Poker, the chronicle of the excesses of 1980s Wall Street, has entered the fray of writers seeking to explain the extraordinary meltdown in the world’s financial system. The result is a triumph.

Of all the places to start his tale, Lewis picks Whitney because she was saying something new: that the titans of Wall Street were not simply the corrupt, flash bankers he chronicled in Liar’s Poker, but something far, far worse. They were stupid. They had unwittingly created a monster that they did not understand and could not control. All the platitudes trotted out by bankers and politicians since the first inklings of something going awry — the collapse of Bear Stearns’ two sub-prime hedge funds in July 2007 — were fatuous. The horror had only just begun.

As events unfolded, various commentators crawled on to the media insisting that they had foreseen the disaster. But Lewis, spurred on by a conversation with Whitney, went looking for the money men who really had seen it coming, the short-sellers on the other side of the sub-prime bet. He found a handful of colourful pessimists and visionaries who had one thing in common: the strength of personality to insist that the Emperor was not only naked, but bankrupt too.

In The Big Short, we meet Michael Burry, the one-eyed doctor with Asperger’s syndrome and a talent for finding value in markets. Then there’s Steve Eisman, the equities guy with a missing tact gene who is apoplectic about the fraud he believes is being perpetrated against poor Americans and the stupidity of the perpetrators. Greg Lippmann is a Deutsche Bank trader who would make a rotten used-car salesman, but who calls the market better than his employers. We follow the adventures of a trio of recent graduates, running millions of dollars out of a garage, who find it difficult to trust the evidence piling up in their research. How can we newbies be right, they agonise, if that means that everyone else in the entire world is wrong?

Read More …  http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/books/non-fiction/article7074601.ece



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