naked capitalism Fri 2010-07-16 16:31 EDT

Debunking Michael Lewis' Subprime Short Hagiography

Lewis' tale is neat, plausible to a mass market audience fed a steady diet of subprime markets stupidity and greed, and incomplete in critical ways that render his account fundamentally misleading...The Big Short focuses on four clusters of subprime short sellers, all early to figure out this ``greatest trade ever'' and thus supposedly deserving of star treatment...The anchor is Steve Eisman...Lewis completely ignores the most vital player, the one who was on the other side of the subprime short bets...Who really was on the other side of the shorts' trades is the important question... ...these are the international equivalent of widows and orphans...Eisman is no noble outsider. He is a willing, knowing co-conspirator. Even worse, he and the other shorts Lewis lionizes didn't simply set off the global debt conflagration, they made the severity of the crisis vastly worse. So it wasn't just that these speculators were harmful, and Lewis gave them a free pass. He failed to clue in his readers that the actions of his chosen heroes drove the demand for the worst sort of mortgages and turned what would otherwise have been a ``contained'' problem into a systemic crisis. The subprime market would have died a much earlier, much less costly death absent the actions of the men Lewis celebrates. They didn't simply keep the market going well past its sell-by date, they were the moving force behind otherwise inexplicable, superheated demand for the very worst sort of mortgages...

Debunking Michael Lewis; naked capitalism; Subprime Short Hagiography.

The Guardian World News Wed 2009-11-25 10:31 EST

What was really behind the crash?

John Cassidy

In an exclusive extract from his new book, John Cassidy explains why the huge salaries of Wall Street bosses created a culture that helped trigger the financial crisis...In the wake of last year's crash, even some top bankers have conceded that Wall Street remuneration schemes lead to excessive risk-taking...But without direct government involvement, the effort to reform Wall Street compensation won't survive the next market upturn. For although the financial sector as a whole has an interest in controlling rampant short-termism and irresponsible risk-taking, individual firms have an incentive to hire away star traders from any rivals that have introduced pay limits. Compensation reforms, therefore, are bound to break down. In this case, as in many others, the only way to reach a socially desirable outcome is to enforce compliance. And the only body that can do that is the government.

Crash; Guardian World News; really.