As stories go, the financial crisis has had one major deficiency: no heroes.Sure, cases have been made for Ben Bernanke and Hank Paulson and theirefforts at yanking the world economy back from the precipice. But equallystrong arguments have been made that both men were too complicit in therun-up to the crisis to deserve much credit for putting out the fire withbucketloads of other people’s money.
Most of the hero worship, therefore, has been lavished on those who actually did see the crisis coming. In his excitably named book The Greatest Trade Ever, Wall Street Journal reporter Gregory Zuckerman lauded a scrappy band of hedge-fund managers, anchored by now-billionaire John Paulson, who saw the collapse coming and managed to profit from it.
Michael Lewis, the great narrative-nonfiction master of our time and a heroicizer nonpareil (just ask Jim Clark or Billy Beane), covers much the same territory in his new book, The Big Short, which shares a few characters with Greatest Trade Ever, like Greg Lippman, a flamboyant bond trader at Deutsche Bank, and Michael Burry, a former neurosurgeon with Asperger’s. Lewis treats them as a group of brilliant oddballs who made a mint while the rest of us freaked out. Because of this and their opposition to a Wall Street establishment he considers corrupt, he views them as the conscience of their profession. But should we?
Lewis’s main character is a former research analyst for Oppenheimer namedSteve Eisman, whose own wife describes him as “sincerely rude.” Preciselybecause he was so disinterested in getting along with others, Eisman was ableto detach himself from the industry groupthink and appreciate thespectacular risks of the growing subprime lending market and howsecuritization disguised these risks. It was very hard to bet against thismarket until Eisman then discovered the beauty of credit-default swaps, aform of insurance that institutions such as AIG sold against fixed-incomesecurities. For Eisman, the great thing about CDSs was that you could buythe insurance without owning the securities, and thus rake in the profits ifand when the securities dropped in value. As the years went on, Eismanamassed a huge cache of these swaps, mostly against mortgage-backed bonds.When the credit crisis hit, it was as if he held flood insurance onall of New Orleans right before Hurricane Katrina, without actually owning asingle house that, like, needed to be rebuilt or anything. He made akilling, as did the handful of others whom Lewis champions.
In Lewis’s telling, this merry insurgency fleeced all the hucksters andignoramuses who were trying to fleece them, and there’s a certainDavid-versus-Goliath pleasure in their victory—but all they did was getrich. No concerted effort was made to alert regulators or the broaderpublic. Lewis’s heroes engaged in activities that were fundamentally thesame as the rest of Wall Street’s, which he describes as “getting richshuffling bits of paper around to no obvious social purpose.”
If Lewis had wanted a more authentic hero, he should’ve written the bookabout Madoff whistle-blower Harry Markopolos, who, with not enough help,wrote his own. Markopolos is an extraordinary character with a complex arrayof motives. A hard-nosed military reservist whose dad owned a diner in Erie,Pennsylvania, he first became aware of Bernie Madoff when hisemployer, an options-trading firm based in Boston, asked him to devise afinancial “product” that could match Madoff’s returns. Markopolos couldn’tdo it, and deduced that Madoff must be a crook. Thus began a faileddecadelong campaign to arouse the interest of regulators and journalists.Pride and a sense of fairness, as much as anything, were the drivingfactors.
For all this, Markopolos is not a mass-market figure. He’s too weird andoff-kilter. At one point, after years of frustration, he admits that he “hadworked out my plan to go to New York and kill” Madoff. But unlike thegung-ho pessimists who populate Lewis’s book, he’s no cynic. He’s a closetoptimist, so he closes his book with a list of reforms needed to protect theworld from future Madoffs. It doesn’t make for scintillating reading, but itdisplays an interest in something other than his own net worth, and in thecontext of Wall Street, that is heroic.