I recently read the book “Liar’s Poker” by Michael Lewis, about Wall Street in the 1980s. I’m not sure what prompted me to pick it up from the library: I’d heard of it several times before, and maybe the current financial mess made it apparent that revisiting some of the excess that got the ball rolling was in order. Surprisingly, I did find a significant connection between that time period and today, enough so that it wouldn’t be inaccurate to argue that the recent financial collapse was the direct consequence of actions set into motion 30 years ago.
The book itself was a pretty quick read. It wasn’t exactly the best narrative I’ve come across, but it worked well enough. The story does a pretty good job of explaining Wall Street culture, and though my own personal experience with those who work on Wall Street is very limited, it did back up my gut feeling about the general atmosphere. These traders and investment bankers truly are different from the rest of the world: I’d compare them to teenage frat boys who suddenly come into boatloads of money, with all that entails (it’s not being sexist to call them boys: least back in the 80s, it did consist mainly of males, and what few women traders existed had to fit in or be crushed). Frankly, given the recent tone-deaf comments from AIG workers who think they still deserve bonuses, it’s pretty clear that they still believe they are made of a different stuff. Are they truly deserving of the accolades they shower upon themselves, these people who claim that they make the machinery of the free market work? Lewis makes a pretty convincing argument that, in fact, they are not the brightest of the bright, the personification of the “invisible hand” that makes our economy run.
It was also very interesting to read all about the invention of Collateralized Debt Obligations (CDOs), the very same instruments that were at the root of the recent meltdown. The way that CDOs were used and abused in the 80s by Savings and Loans was, when you get right to the heart of it, much the same way that they were used and abused in the aughts. It was eery to read about the damage caused by CDOs back then, although that’s probably because a feeling of “We knew all this and didn’t do anything to stop it?!” would have been too depressing to acknowledge.
“Liar’s Poker” shows that investment banking can, at times, be exactly what opponents think it is: nothing more than a middleman that makes money by screwing over people who are unsophisticated. The book posits no solutions, however. For that, we have to look elsewhere