Combining his acute observational powers, a penchant for dogged reporting, and an acerbic wit, Michael Lewis shed light on junk bonds (Liar’s Poker) and the economics of baseball (Moneyball) in his earlier endeavors. The current financial crisis brought on by the egregious myopia and selfishness of bankers, governmental agencies, the real estate industry, and a host of others is an obvious target for Lewis. He has put together a collection of 55 pieces drawn from myriad sources ranging from The New York Times to the Brady Commission Report that offer both a broad-picture narrative as well as a ground-zero take on what the author terms the “story of modern financial insanity.”
The anthology covers five financial panics: the stock market crash of 1987, the Russian default, the Asian currency crisis of 1999, the dot-com bust, and the ongoing subprime mortgage crisis. By carefully selecting pieces that cover the sentiment just prior to a full-blown crisis and its aftermath, the articles present a searing indictment of unfounded optimism and the subsequent panic that accompanied each of these crises.
A builder targets low-income people in New York City and attracts them with the possibility of owning an independent home in the lush, verdant area of the Pocono Mountains in Pennsylvania. As a kicker, he offers to pay the rent for a year (while the house is built) for those who take up his offer. What the victims did not know at that time was that their new home price was heavily overvalued, so that when they tried to refinance their home after interest rates fell, they found that their home price was significantly below the level of their mortgage. John Hechinger paints this poignant tale in his “Shaky Foundation: Rising Home Prices Cast Appraisers in a Harsh Light,” a Wall Street Journal article from 2002.
Dave Barry offers a bitingly funny yet not completely exaggerated rationale for not buying a house. Roger Lowenstein uncovers the world of mortgage rating by firms such as Moody’s that obviously gave an uncalled-for aura of security to questionable subprime loans in a 2008 New York Times article. All of these articles fall under the “People’s Panic” section of the book that covers the current mortgage crisis.
This collection is a cautionary tale of a financial system gone wild due to unfettered greed and single-minded pursuit of self-interest by countless organizations and people. The anthology’s strength lies in its portrayal of how these financial crises affect ordinary people as well as in showing how oftentimes toothless the regulators are. Lewis sets up each section (and crisis) by offering a piquant account of the zeitgeist and, in his customary lapidary prose, an explanation that unravels the recondite workings of the financial system.