The Big Short by Michael Lewis; The Devil’s Casino by Vicky Ward


Michael Lewis has written some of the best books I’ve read about money. Liar’s Poker was about his experiences on Wall Street in the 1980s. He traded bonds. He watched as the market for debt became a global casino. He told us about the “big swinging dicks” – the aggressive, risk-hungry traders he worked with. And he explained how investment banks had begun to unlock vast amounts of money by tinkering with mortgages.

That was 20 years ago. Since then, Lewis has written about the inner workings of technology companies and sports teams, and, recently, about his struggles as a parent. Meanwhile, the investment banks were still tinkering with mortgages, and still making massive amounts of money. They had created a huge, churning machine. At one end of the machine were people buying houses. At the other end was a river of money.

As we know, the machine broke down, causing a global financial crisis. In his latest book, The Big Short, Lewis takes us inside the machine and shows us how it worked. As you would expect, he does this superbly. We see how it created money out of the debts of millions of people who couldn’t afford to pay them. The machine is what we now call the sub-prime mortgage boom.

Essentially, the machine’s designers, the bankers, did some creative rewiring, which magically changed everybody’s incentives. Lenders didn’t have to worry about their borrowers defaulting, because the loans were passed on to investors. Investors didn’t have to worry, because they were insured. Insurance companies didn’t have to worry, because house prices were going up. For a long time, everybody was happy and optimistic.

Actually, not everybody was optimistic. As the machine got bigger and more unwieldy, certain figures in the world of finance began to think it would blow up. These people were outsiders – in some ways, the opposite of the aggressive traders manning the machine. There was an investor called Michael Burry, a shy introvert with a glass eye. There was a fund manager called Steve Eisman, who, as a result of the tragic loss of a child, had become one of life’s pessimists. There were two guys called Jamie and Charlie who had an office in a garage in California.

So this isn’t just an account of how the Wall Street money machine worked. It’s the story of the people who could see that it couldn’t work for ever, and bet against it. Instead of making “long” trades – buying something and hoping it will gain in value – these people decided to make “short” trades. In other words, they looked for clever ways of betting against the market. If something is about to blow up, and you’re the only person who understands this, you buy insurance on that thing, because it must be underpriced. These people did that – and made tons of money.

One of the best things about The Big Short is the way Lewis captures an exact moment in financial history – the point when the market was set to crash, but nobody wanted to believe it. House prices were dropping. Homeowners were defaulting. The machine was sputtering. Banks, exposed to billions of dollars of risk, were about to collapse. Lewis, as always, takes us into the twisted emotions of everybody concerned. And as always, it’s brilliant.

And what about the bankers whose giant institutions stood on the brink of collapse? How were they, the deniers of reality, feeling? In another terrific book, The Devil’s Casino, Vicky Ward takes us into the heart of the denial machine. Hers is the story of Lehman Brothers, then Wall Street’s fourth largest investment bank, soon to be its biggest casualty. If Burry and Eisman were making “short” trades, the people at Lehman were long – they were the guys holding the toxic debts when they went bad.

Ward takes us into the world of these bankers, and shows us the lives they were leading in the years before the crash. At first, they saw themselves as “good guys” – bankers who would not become blinded by greed. But then they began to see how much money could be made and their lifestyles changed. They did not seem to be their old selves any more.

This is what Ward does so well: she shows us the world of private jets and helicopters, the women with personal shoppers and shelves full of unworn shoes. She shows us how it is that people, even though they are multi-millionaires, can still have an addict’s desperation for money. And then, of course, everything came crashing down. As you’d expect, nobody at Lehman was happy. But nor, oddly, was the now mega-rich Michael Burry. “This business,” he says in Lewis’s book, “kills a part of life that is pretty essential… it is something vital that is dead inside of me. I can feel it.”