Michael Lewis on the fall of Wall Street
TEXT OF INTERVIEW
Kai Ryssdal: If you wanted to bookend the age of excess on Wall Street that it seems we’ve just seen the end of, you could do worse than look at the writings of Michael Lewis. Twenty-five years ago his first book, “Liar’s Poker,” gave us an inside account of life in a big trading firm. Lewis has been writing about Wall Street, and many other things, ever since. He’s got a new book coming out this fall about the crisis we’re still in the middle of. When we talked, I asked him whether Wall Street understands, even now, what it’s done.
Michael Lewis: They all realized that for the first time in their careers, their firms were accused not just of being greedy but of being stupid. But it was so clearly in your interest, even if you saw that it was a disaster in the making, to just go with the flow. Because so long as the market continued to rise, the firms made huge sums of money, you got paid huge sums of money, and even if you had tried, as an individual, to stand up and say I think we shouldn’t be doing this, the minute you were proved right, your firm was doomed and you wouldn’t get paid. There was no incentive to behave well.
Ryssdal: If we want to point fingers, which a lot of people still really do, because part of this is it was you, you did this, where do you go?
LEWIS: There are people you could lynch and feel good about it. But the problem isn’t the bad people, the problem are the rules of the game. I think, if you want to trace it back to ground zero, there are a series of attitudes at the bottom of the crisis. A belief that whatever markets did was basically useful and good, and if you gummed them up, you were going to destroy this wealth-creating machine. Now people don’t swallow the argument that Wall Street knows what it’s doing. People are, if anything, more skeptical than they should be about Wall Street. So that’s why I think it’s come to an end. That belief, the faith in Wall Street has collapsed.
Ryssdal: When you sit down and think about it, and we try to reflect on the past two years of craziness that we’ve had in this economy, what don’t we know yet about what happened on Wall Street?
LEWIS: We don’t know the extent of the losses inside the institutions. There have been phony stress tests, where Citigroup could call up the Treasury and tell them exactly what their assets were worth. There’s been no independent evaluation of them. Although, we do know, the IMF has been very good about publishing what they suspect are the losses, and they don’t square with what the Treasury claims are the losses.
Ryssdal: This is the International Monetary Fund telling the U.S. Treasury…
LEWIS: Yes, and there’s a gap of trillion dollars or something. So we don’t know how bad things are actually inside the financial institutions. We don’t know, just generally, we don’t know why the people made the decisions they made at the time; we don’t know exactly what they were thinking. What was the person at AIG thinking when he essentially underwrote the entire subprime mortgage market in 2004 and 2005.
Ryssdal: With all those credit-default swaps…
LEWIS: Right, they essentially took all the risk for a year and a half. So, there’s been a, to me, a shocking lack of curiosity in institutional America about what actually happened. And I know this because when I go out to interview people, say at AIGFP, people who actually know what happened, I’m the first person they’ve talked to. Nobody from the Treasury had showed up, nobody from the New York state insurance regulator had showed. They had not been properly debriefed. And that’s just amazing.
Ryssdal: So are you scared for what might yet happen?
LEWIS: I think that we’re in for a greater reckoning down the road. I think this crisis is not over. I do think that the stimulative policies that the government has adopted in response to the crisis will mute some of the worse effects. But I do think that there are some shocks to specific Wall Street firms that still have to happen. That doesn’t really frighten, I think those are opportunities. I think there needs to be another moment of fear to generate the kind of reform that would be lasting and useful.
Ryssdal: Michael Lewis, you know him from “Liar’s Poker,” earliest on, and then a bunch of magazine articles and books. He’s got a new one out, too. It’s called “Home Game,” about fatherhood. Michael, thanks a lot for coming in.
LEWIS: Thanks for having me.
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