July 7, 2010
The Big Short, a Good Yarn

 

This month I took some time out from my self-imposed reading program of classic novels to tackle a very different book — The Big Short: Inside the Doomsday Machine by Michael Lewis. Lewis, who made a name for himself with his book, Liar’s Poker, about Wall Street in the 1980s, asked a simple question:  Did anyone get ahead of the curve and make money from the financial crisis of 2008? The answer is yes. A handful of traders figured out in advance that it was coming and took advantage of that insight to make a fortune.

Lewis, a gifted storyteller, analyzes his cast of characters, one by one: Steve Eisman of Front Point, Dr. Michael Burry of Scion Capital, Greg Lippman of Deutsche Bank, and Charlie Ledley and Jamie Mai of Cornwall Capital. Some of these hedge fund managers and traders started by literally working out of their garages, but they eventually bet billions of dollars that the housing market would collapse and take down the financial industry with it.

My knowledge of Wall Street is limited, but, astoundingly, Lewis discovered that most of the financial professionals who were responsible for the catastrophe knew practically nothing about what they were doing, either. They literally did not know what kind of products they were investing in, and they became the losers on the other side of the bets. But, after all, as one of the managers says: “How do you explain to an innocent citizen of the free world the importance of a credit default swap on a double-A tranche of a subprime-backed collateralized debt obligation?”

What, then, about the humanities take on this entertaining book? First, it’s about qualities of character, that key ingredient of good narrative. Lewis theorizes that, like the heroes of detective novels, those who saw the truth behind the house of cards were independent, iconoclastic, smart, research-oriented, and firmly convinced that they were right and everyone else was wrong. These qualities enabled them to wait patiently for time to prove them correct. As it did.

Second, the story made me think of Edmund Spenser’s poem, The Faerie Queene (and believe me, that doesn’t happen often). Spenser represents the Seven Deadly Sins as allegorical figures, one of the most memorable being “Avarice” or Greed, riding on a camel laden with gold, “and unto hell himself for money sold.” For Avarice, it’s not about right or wrong, Spenser tells us, because they are equal in his mind. So it was with the creators of CDS and CDO financial products; they made so much money on the deal that it didn’t matter to them who would have to pay the piper when the music stopped. Now we know.

Written by Nancy Conner, director of grants at the Indiana Humanities Council.

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