Felix Salmon’s review of the upcoming Michael Lewis book on the financial collapse is a great read:
On January 31, 2007, a broad range of CDO spreads started to widen, dramatically. The long-feared meltdown was upon us all — not that most of us knew it, at the time — and a very small number of investors was about to get paid out on the trade of their lifetimes. Mai, Ledley, and Hockett were part of that select group, whose tale is grippingly told by Michael Lewis in The Big Short.
[….]….a Deutsche Bank mortgage trader named Greg Lippmann ended up making billions of dollars for his employer — not to mention a $50 million bonus for himself — by aggressively going out and finding fund managers to put on the short bets needed to keep the market ticking. (This is the same Lippmann who, when accused of being a “Chicken Little” responded by saying “Fuck you, I’m short your house.”) But Lewis has a soft spot for these misfits….
Good for Greg Lippman. He was right, he made money, and he didn’t go whining on CNBC afterwards. We could use more misfits like that.
Jim Cramer is probably a mistfit and certainly an asshole, but that’s not what’s wrong with him. What’s wrong with him is that he’s a misfit asshole who screamed “Bear Sterns is fine, do not take your money out” in March 2008. If Jim Cramer had spent 2007 and 2008 predicting a massive financial crisis and telling Larry Kudlow that he was short Kudlow’s house, he’d be okay with me.
Rick Santelli’s anti-homeowner screed was dickish, to be sure, but what’s most striking is that it came only a few months after a $600 billion dollar bail-out for the very frat fucks who were cheering him.
The distinguishing feature of our era is the rapidity with which one can turn from a hat-in-hand sob story to a ruthless Randian genius, and back again. From bail-outs to tax cuts, from kill-the-doctors to pity-the-war-planner, from “heads on spikes” to Lindsey Graham’s fee-fees, all without missing a beat.
If this isn’t socially-sanctioned sociopathy, I don’t know what is.
DougJ +4
sbjules
I heard Michael Lewis interviewed about The Big Short on Fresh Air a day or two ago. Really interesting. He’s written quite an assortment of books including The Blind Side.
r€nato
Now, now, DougJ, that sounds like ‘class warfare’ talk, and as we all know, class warfare is supposed to be the one-sided affair that dare not speak its name. It’s right there in the Constitution and the Bible.
+3 Guinness
Michael D.
Michael + more than that.
Nothing to say, except that I filled out my census form. I love how they go up to 12 people in the same house.
We are white and Chinese-Indonesian.
MikeJ
Who was it on TDS that when Stewart said these people sound like assholes responded that the only problem was that there weren’t enough *smart* assholes?
robertdsc
I wish CDSs and CDOs were outlawed.
Michael D.
@robertdsc: Sorry. You need to do some research on these before you say they should be outlawed.
Regulation OF THEM is what we need.
Outlawing necessary things is not what we need,
Elisabeth
I’m sorry but I have to go OT here. The latest tagline is hysterical. I woke up the cat with my guffaw.
Elisabeth
heh. Now you post an open thread.
J. Michael Neal
@robertdsc: The problem isn’t the existence of them. The problem is the amount of leverage that was used to trade so many of them, plus AIG selling far more of them than they could cover. The latter problem isn’t likely to repeat itself anytime soon, but everyone getting into them now is demanding collateral up front.
Figuring out how to regulate leverage is the big thing, and the place that the industry is going to fight the hardest.
MikeBoyScout
Michael Lewis is a fine and interesting author who has been on to the story of investment banksters and the problems of agency for a long time.
Chris Johnson
“Fuck you, I’m short your house” is possibly the most awesome burn ever :)
fucen tarmal
“fuck you, i’m short your house”, is the new “greed is good”
williamc
As someone who went to a big southern school (UGA) overrun with “frat fucks” whose worldviews matched up exactly with Santelli, I’m glad to have some backup that “frat fucks” are indeed what he is defending.
Somebody call me when its time to grab the pitchforks and the torches and take it to these assholes old school. I’m never one for mob justice, but if anyone ever deserved it…
+4
Mark S.
I don’t understand how any of this shit works, but I am glad that the American taxpayers got to pay a shitload of money bailing these guys out so they could participate in legalized gambling.
If all of these guys were killed tomorrow, would it be the end of civilization as we know it? Would Ayn Rand be right in that these were the Atlases who where holding the rest of us lazy fucks up?
I would be willing to find out.
FoxinSocks
OK, I know I’m silly, but what does “I’m short your house” mean?
Texas Dem
An amusing You Tube clip that happens to be on topic. Take it away Joker: http://www.youtube.com/watch?v=R1X6RQLZtoA
geg6
Doug, that is one fine rant. Cole-worthy, in fact. Bravo.
adamchaz
@FoxinSocks:
It basically means I’m going to make money when the value of your house falls. If you short something it means you are going to sell it and hope you can buy it back at a later price. The difference between what you sell and what you buy is your profit.
People were saying the value of the U.S. housing market will never fall.
Jason Bylinowski
@adamchaz: I heard it’s basically when you sell a stock that you don’t own. And it’s easy to see how one can make money that way, with it being common theft and all.
MattR
@MikeJ: That was Michael Lewis.
slag
More than “socially-sanctioned”, I would argue the sociopathy is “structurally-supported”. DougJ’s nemesis, Jon Stewart, illustrated our private sector structural problems beautifully with his brilliant JonCo analogy.
burnspbesq
My copy arrived today, and I have five hours of flying time between now and Friday night. No work will get done during that time.
FoxinSocks
Thanks for the explanation!
mclaren
@ DougJ:
That’s not sociopathy. That’s decompensation.
Decompensation is the psychiatric term that describes how people deal with a collision with reality when they’ve been living in a delusional fantasy world.
If you think about it, the American people have been living in a delusional fantasy world for quite a while now. Ever since Reagan swept into office in a landslide by assuring the American people that “It’s Morning in America!” the American people have steadfastly denied reality and instead burrowed deeper and deeper into a cocoon of unreality.
During the 1980s, Americans eagerly reduced taxes on the rich and jacked up FICA taxes on the middle class and told themselves that this explosion of debt would lead to reduced deficits and increased tax revenues.
When that didn’t happen, the American people blinked and shrugged and drifted further into their cocoon of unreality. In the 90s, when the dot-com bubble hit new levels of craziness, the American people eagerly bought books titled “Dow 36,000” and high-fived each other with delight at how rich they’d all soon be.
When that didn’t happen and the stock market instead crashed and burned, the American people eagerly bought wildly overpriced condos and flipped them and used the proceeds to buy Hummers and giant SUVs, secure in the knowledge that oil prices could never rise and the housing market was just starting to take off.
Then when the world economy crashed and burned, the American people cheered on the 2003 invasion of Iraq and clapped their hands raw as our soldiers hundted for WMDs that turned out never to have existed.
Now, in 2010, amid the wreckage of a blasted world economy and a demented “golden straitjakcet” globalization cheerled by incompetent kooks like Tom Friedman, with $140-a-barrel oil prices heading toward us like a freight train and every high-paying American job getting outsourced, what do the American people do?
Do they wake up and blink and stare around and say, “Wow, we were living in a dreamworld. What the hell we were thinking for the last 30 years?”
No. Of course not.
Instead, the American people continue to applaud endless increases in our unsustainable 1.4-trillion-dollar-a-year military budget, the American people eagerly cheer the passage of a health care “reform” bill that won’t reform anything and only makes the corrupt collusive doctor-hospital-insurer-medical-devicemaker cartels more powerful and feeds them more forced customers for their overpriced insurance that doesn’t actually insure anything and instead forces the customer to pay for most of hi/r own medical bills.
Here we are in 2010, still driving around happily in SUVs with no national fuel economy laws in sight. Here we are, in 2010, with global warming and massive drought roaring toward us and Woodland Hills in Southern California hitting a temperature of 119 degrees F on 23 June 2006, and everyone still acts as though there’s no problem. Southern California and Arizona and Nevada won’t have to depopulate as global warming jacks temperatures up from 119 degrees F to 125 degrees F to 130 degrees F to 140 degrees F to 150 degrees F, no problem at all. As oil prices skyrocket from the current 80 dollars a barrel to 120 dollars a barrel to 140 dollars a barrel to 160 dollars a barrel to 220 dollars a barrel, no problemo. Americans can just keep on driving their SUVs on giant freeways in the middle of parched deserts in Sahara-like heat as global warming roasts the Sierra Nevada snowpack and the water dries up to the entire American southwest, but that’s not a problem at all, because…well…because! That’s why!
America is running a dozen differen unsustainability marathons, from our insane oil consumption to our demented corrupt cartel-controlled health care system, to our crazy system of freeways with no public transit, to our mania for outsourcing every high-paying American job until America becomes nothing but a nation of dog groomers and xerox clerks, to our crazy levels of miliary spending that bankrupt the economy and starve us of needed jobs…
And what do Americans do?
They point the finger. That’s the source of the bizarre switch from praise to blame and black to praise again. Americans have to switch from admiring the alleged Randian genius of incompetent fools like Alan Greenspan to despising him as a grotesque failure, all within the blink of an eye.
Because the alternative would be to admit that Americans have been living in a delusional dream world for the last 30 years. And still are. We’re still sleepwalking through insane dreamscapes, from the fantasy that we can keep militarizing our police and cranking up the War on Drugs without turning the entire country into a giant penal colony, to our bizarre admiration for a U.S. army run by corrupt incompetent fools that’s so impotent it can’t even win a war against a bunch of barefoot 15-year-old kids who use bolt-action rifles in one of the poorest countries in the world, Afghanistan.
And the decompensation continues. We’re still living in a bizarre dreamworld. The spoiled petulant deluded American people persist in living in their cocoon of fantasy, and to prove it, they’re going to elect a massive slate of Republican teabaggers this November because the American people are having a hissy fit about the Democrats’ inability to effect real change. Well, guess what? The American people are going to get one hell of a wake-up call when all those new tea party congresmen and senators start drafting legislations to cut taxes on the rich and deregulate giant corrupt corporations.
At a certain point you lose patience. The American people have been behaving like infantile spoiled three-year-olds for 30 years, frantically clamoring for crazy self-destructive social policies, and then throwing histrionic tantrums when those crazy self-destructive social policies produce the predicted destructive results.
Fuck ’em. Fuck the American people. They’re getting the government they deserve. I hope they choke on it. Let ’em all lose their jobs, become homeless, and sleep under bushes. Serves ’em right.
Xenos
@mclaren: Yes, Mr. Portnoy, now we can begin, no?
Tomlinson
@mclaren:
Wow, mclaren, just wow. That’s one hell of a rant. I think that entire thing should be on the front page of balloon juice, even though I think it’s a bit over the top in places.
I look at it a little bit differently. 30 years ago, the republicans realized they could sell a big con. For 30 years, they’ve been telling the people what they want to hear: taxes are bad, the path to best government is no government, we can expand our military (which is, arguably, one of the largest social welfare programs we have right now) without paying for it, regulation is not only not needed, it’s evil. In short, if it’s hard, not only do we not have to do it, doing it is the worst thing we could do. And never, ever, ever is it our fault if this doesn’t go well. If it doesn’t go well, we didn’t go far enough. We need fewer taxes, less government, fewer regulations, etc.
Unsurprisingly, that bill of goods was an easy sell.
Now we need to see when people will wake up to reality. Or if.
WereBear
It’s not just that people need to wake up to reality.
It’s that reality changed on them while they were dreaming.
The Teabaggers who whine it’s not their country any more are right. But that’s a good thing.
Starfish
Does anyone know what the SEC is investigating Cramer for? This should be fun.
liberal
@J. Michael Neal:
As regards CDS, yes, the problem is the existence of them.
As a commenter of the superb Naked Capitalism put it,
flukebucket
@mclaren:
God damn. Good morning mclaren. Holy Shit. I am gonna have to finish this Red Bull before I read anymore.
Mfasano
I don’t know if Lippman bought his CDOs from AIG, but if so, he should of taken it in the shorts along with the Big investmant firms. when the government let if fail.
Maude
We live in a ‘it’s all about me’ time. This phase began with Raygun and has escalated.
Narcissism has no cure, no getting better.
Look up the definitions.
I, for one, am tired of it.
KevinNYC
Actually, Lippman is not genius. He just stole the idea from a guy who was smarter than him. In the book, Lewis covers the guy who pestered Wall Street into allowing him to short the subprime bonds. After a long while, they realized why he was doing it and started to do it to other firms on Wall Street. This was covered in article in this month’s Vanity Fair.
In Santelli’s defense, though his rant came when the money was for homeowners presumably, his burn started when it was for the Wall Street guys.
KevinNYC
Here’s my idea. When my car gets inspected I pay $35 whether it passes or fails. There’s no incentive either way for the inspector. This is how the Bond Ratings should work. The issuers should pay the money to a third party who then compensate the ratings agencies. To compete for business the ratings agencies would have to show a record of accuracy.
Robin G
@mclaren: Whoa. :slurps coffee: I’m impressed; I don’t have the energy to be that angry that early in the morning.
Realistically, though, I think what we’re seeing is the side effect of Ayn Rand being required reading in high schools, coupled with “Conservativism cannot fail, it can only be failed” turned into a personal philosophy.
None of these people see any difference between the two. They can’t have failed. They’re too special and important to have failed — they are John Galt, after all. Therefore, the “bailout” wasn’t a bailout, it was reparations from the government for interfering with the free-market in the first place. What, that doesn’t make sense? Shut up, yes it does!
The funny thing is, back in high school, you could completely tell who was going to grow up to be one of these dipshits. Shoulda gotten them into recreational drugs and slowed their ascension back when I had the chance.
ET
@Michael D.: but still the Duggers would need more sheets even though one is married and out of the house.
one two seven
I’ve liked Lewis’ books in the past and I’m intrigued by this one, but it turns out Lewis was for the stuff that led to the collapse before he was against it:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aaagOLYMd4yg
liberal
@one two seven:
Wow, EXCELLENT catch.
I liked Liars’ Poker, but I wasn’t that impressed with Lewis’ interview on 60 Minutes.
First, he starts off with this nonsense that the “interesting” thing isn’t mass criminality, but mass delusion at Wall St.
Second, while going on about some fearless few that knew enough to short what Wall St was doing makes for an interesting storyline, it’s not really the main story, which is rather regulatory capture and the purchasing of Congress.
Third, you didn’t have to know anything about the finance side of things to diagnose the housing bubble. Dean Baker saw it coming probably earlier than almost anyone, just based on price/rent ratios.
Fourth, while in retrospect it would have been nice to bet the way those guys who eventually won bet, it’s always important to remember the danger: “the market can remain irrational longer than you can remain solvent.”
I haven’t actually read Lewis’ book, but based on what I’ve seen on 60 Minutes, I think Yves Smith’s ECONned is probably more informative. Her blog is awesome.
Island in Alabama
ECONned is an excellent book. Yves Smith has done a fantastic job!
If you think you couldn’t be any more disgusted about Wall Street, and the “Economists” and Politicians that enable them, wait until you read ECONned..
Tax Analyst
@Jason Bylinowski:
Actually I believe it’s taking out insurance policy on a property or assets that you do not own. I think the biggest problem is that those offering these Credit Default Swaps were allowed to issue policies that they could not cover in the event of large-scale defaults occurring. The issuers had to know full-well they would not be able to cover in such a situation, but were either cock-sure it couldn’t happen or just absolutely didn’t give a fuck because if it did they figured they would shrug and tell the holders “Sorry, but I can’t pay you, I just don’t have enough money to cover your policy. Hey, maybe the government will pick up the slack…they can just tap the taxpayer’s for it, OK? OH…and please don’t call me again, I’ve got to decide what to do with all the bonus money I made selling you this stuff over the last few years.” If a bookie did this to his customers they would break every bone in his freaking body, or worse, but since these guys are all well-dressed, well-regarded, well-educated, well-heeled, well-spoken, well-polished, and well, con-artists of the highest caliber they get to stiff the buyer, hand you the bill and then whine about having to take a reduced bonus for the year of the meltdown and being talked about in harsh terms.
With no regulation or oversight on these “investment products” issuers sold policies that promised to pay almost as much money as exists in the entire world in the event of a large-scale meltdown of American real estate values.
Bottom line: No one should have been allowed to issue policies that they could not forseeably cover. To do so and to do so at such a phenomenal level is really nothing more than a case of massive Securities Fraud. The argument that “nobody could have anticipated this level of a failure” is complete bullshit and could more accurately be described as “nobody WANTED to consider this level of failure”, because it would have been bad for AIG’s business and thus cut into the extravagant bonuses these amoral jerks were pulling down for running what was for all intents and purposes just another con-game variation.
Personally I don’t think type of product serves the world or nation economy in any positive sense. It is a non-productive product that lines the pockets of paper-shufflers. The mortgage meltdown would have been very, very painful and difficult without these instruments, but the effects would have been mostly within a few economic sectors and would not have endangered the world economy or required previously unheard of government funding to ameliorate the damage.
Frankly we have been for the most part ill-served by the proliferation of exotic investment instruments that are little more than advanced gambling vehicles. These are games the average person cannot play and offer far too many opportunities for the insider-types to develop ways to manipulate for the extreme benefit of the few at the expense of the many.
They ought to be shut down, but if that cannot be accomplished they need to have the shit regulated out of them – lots of oversight and substantial financial and criminal sanctions for intentional violations or careless/reckless sale of these derivatives when the issuer lacks sufficient assets to cover legitimite claims against their policy contracts.
Rant over. Now get yer pitchforks and torches out. I want to see heads mounted on top of pikes from one end of Wall Street down to the other.
Panurge
well…because! That’s why!
Well, no.
Because otherwise THE HIPPIES WILL TAKE OVER and that would be THE END OF AMERICA.
Since I have a skewed perspective, I think of this last era as “After the Sixties”, starting around 1975. There are three major cultural trajectories at work here, at least in “white” America. To grossly oversimplify, I’ll call them HIPPIES, REAGAN, and PUNK. Most of it has generally been REAGAN and PUNK beating up on HIPPIES, since at the root of it all they both basically wish 1967 had never happened, though PUNK occasionally side with HIPPIES when PUNK figures it’s Really Important. PUNK’s esthetically reactionary elements means REAGAN will much more easily be OK with it as “the new hip”, or more precisely due to PUNK you can much more easily be hip and square at exactly the same time then before, when HIPPIES had only one major cultural enemy.