Thursday, October 21, 2010

What Street Do I Live On? -- THE BIG SHORT, Michael Lewis

THE BIG SHORT -- Michael Lewis

Everyone is looking for a villain to blame for the recent financial crisis.  The banks, who held the mortgages and traded them as fictitious assets, are a good target.  We, the innocent mortgage holders, can then assume the role of David to the fat cat bankers' Goliath.  

I won't deny that many people were taken advantage of.  But, my very handsome husband works for one of those supposedly greedy banks so it's hard for me to consider him to be Goliath.  Though he works in Commercial Finance, not mortgages or bonds trading, I can say with certainty that Husband works hard and ensures fair deals that will help both his company and the company receiving the loan.  

Thus, I've found myself torn these past few years; I feel almost as if I live at the intersection of "Main Street" and "Wall Street."  I wanted to learn more about the financial systems and what the heck happened  so I turned to Michael Lewis' The Big Short.   Who better to parse out the details of the banking industry than the man who took us behind the scenes of Major League Baseball in Moneyball

I was curious about the people who foresaw the collapse.  What did they know and how did they know it?  More importantly, I couldn't figure out why they didn't warn the authorities, even though I couldn't say with certainty who those authorities were.  The financial world, one that affects every person on this earth, is very closed and confusing.  I was counting on Lewis to break it down for me.

In the book, Lewis profiled several investors who realized early on that the rising housing prices were bound to level off.  These men realized that the system was broken and that there was a major loophole to be exploited.  What I found most interesting was the reaction they received from friends and colleagues.  One investor, who is now a multi-millionaire as a result of his foresight, lost the majority of his clients long before the market turned.  I'd say he's laughing all the way to the bank, but I'd really not be surprised if he keeps his money in the mattress!

What was most astonishing to me, though, wasn't the small number of people who predicted the bursting housing bubble, but rather the lack of attention they received when they tried to alert others. They were laughed at and belittled for mistrusting the system which was, in the end, proven to be broken.  That said, I'd like to believe that the majority of those involved in the banking crisis did not maliciously look to exploit the so-called "residents of Main Street."  (Ugh, how I hate that phrase!)  Rather, I believe they were simply so caught up in the pressure to move the financial markets forward that they didn't take the time to review all the facts.

Even after reading the book, there's still a lot I don't understand.  The whole Lehmann Brothers issue, the AIG stuff, and the intricacies of the financial system still confuse me.  But, what The Big Short did succeed in teaching me is that Goliath and David aren't at war in this crisis.  Rather, myriad mistakes were made by the various stakeholders involved.  Globally, we are all forced to put our faith in the financial systems because the very nature of our survival is tied into the success of the banking industry.  But, we also need to rely on ourselves.  We need to understand the systems in which we are involved.  We, as the consumer, need the Gordon Gekkos of the world to stay greedy.  But, we also have a responsibility to keep Gordon ethical. 

So, after all that, do I still live on the corner of two streets?  Honestly, I've come to believe there isn't a corner at all.  Rather, I see it more as one of those horribly confusing rotaries; the two worlds are much too interrelated.  We need to just find a way to peacefully merge together.

No comments:

Post a Comment