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The Big Short: Inside the Doomsday Machine

posted on 07 Jun 2017

The Big Short: Inside the Doomsday Machine by Michael Lewis

In some ways the 2008 crisis of capitalism that came so perilously close to destroying the World financial system seems to be oddly old news these days. As we approach another general election in the UK there is very little mention of the banking crisis by any of the political parties. Despite the fact that the best part of a decade has now elapsed since these events, we are still living with the backwash of the tsunami that rolled over the financial markets. But it seems we have just become accustomed to the fall-out and we live with it rather in the same way that we live with the background radiation that evidences the Universe’s Big Bang.

Needless to say, when the crash came the rich and powerful were quick to protect themselves and their interests, rebranding the crisis of capitalism as a crisis of state welfare. Never ones to let a good disaster go unexploited, they refocussed the spotlight from themselves and onto us by claiming that it was the demands of ordinary people for decent levels of public service, fairness and equity in work and a civilised health and welfare infrastructure that had brought the system to its knees. With the help of a self-interested politicians and a craven news media, the history of the  financial crash is busily being rewritten as a  consequence of the public’s unreasonable demands to be featherbedded rather than what it really was -  the untrammelled greed of the capitalist markets. But as a result of this rewritten narrative we all now have to wear the collective hair shirt of austerity economics.

I’m still fascinated however by the real story and just occasionally we get the chance to have a look at just what was really going on in the big business world before the 2008 meltdown. I’ve been aware of Michael Lewis’s  The Big Short for a while ( not least because of the film option that was taken up on it) but I’ve tended to shy away from reading it because I wasn’t confident an examination of the bond market was something I’d really make any sense of. However, having finally gotten around to picking it up, taking a big breath and plunging in, I have to say that my fears were only partly misplaced. But, despite this being largely alien territory for me, it’s a book full of fascinating and extraordinary material.

What the book focuses on are those dealers in the marketplace who, bucking conventional wisdom, saw the crash in the American sub-prime housing market coming and bet heavily on the disaster happening. These are, in effect, the people who made a killing out of everyone else’s misery. Lewis paints these individuals as eccentric or erratic outsiders and whilst it’s not fair to say he presents them as heroes, it feels to me that he has an underlying admiration for the way they worked.

I still can’t claim to be on top of the language and financial theories that run through the book – although Lewis does his best to explain them for lay idiots like me. Despite this I defy any sane person not to be at least a little mystified by the concept of 'short' buying and and selling which as far as I can make out means buying assets on the basis that they might lose value and that as a result you stand to make a profit from the loss. Doh!!!

In the end there is a genuinely eye-popping parade of financial geeks, wide-boys and, yes, crooks that keep the book ticking along. The excess and indulgence on parade here is as compelling as watching a car crash – the pit these people descended into seems to me to have no bottom. Flash clothes, trips to gun ranges to fire Uzis and massive unearned bonuses seemed to become the norm for a whole industry that was also busy making its financial instruments so difficult to understand and so obscure that no-one could untangle or regulate them; even if they’d wanted to: and they didn’t.

I think Lewis paints a picture of people who let their own systems get the better of them. By the end, even those trading in these obscure instruments didn’t understand how they worked. It’s a portrait of hubris and stupidity but, he suggests, not one of immorality. And this is where I really take leave with Lewis. I don’t think the author and I would ever agree on the politics of financial markets but when it comes to the greed and blind cupidity of the years leading up to 2008 I see not just stupidity but the complete and wilful abandonment of any kind of moral compass. These people aren’t ‘players’, they’re not  ‘rogue traders’, they’re not ‘bandits’ – these people are criminals. And in my opinion they should all be spending time behind bars. I’ll be happy to give the court a victim statement………

 

Terry Potter

June 2017