Tag Archives: Michael Lewis

What luck looks like: a primer in three parts

Miscellaneous, Politics, , , , ,

Part I:

Nick Hanauer’s taxable income is, he tells me, “tens of millions. In a bad year it can be $10 million.”

His parents made good money in the pillow trade, and after college he set up a few okay businesses. But then one day he met a girl who was dating a guy. She said, “You two are going to be friends.”

The guy had a business idea. Nick loved the sound of it. He invested all the money he had on hand—$45,000 cash. The guy was Jeff Bezos, and the business was Amazon.com.

Part II:

The “Moneyball” story has practical implications. If you use better data, you can find better values; there are always market inefficiencies to exploit, and so on. But it has a broader and less practical message: don’t be deceived by life’s outcomes. Life’s outcomes, while not entirely random, have a huge amount of luck baked into them. Above all, recognize that if you have had success, you have also had luck — and with  luck comes obligation. You owe a debt, and not just to your Gods. You owe a debt to the unlucky…

Your appointment may not be entirely arbitrary. But you must sense its arbitrary aspect: you are the lucky few. Lucky in your parents, lucky in your country, lucky that a place like Princeton exists that can take in lucky people, introduce them to other lucky people, and increase their chances of becoming even luckier. Lucky that you live in the richest society the world has ever seen, in a time when no one actually expects you to sacrifice your interests to anything.

All of you have been faced with the extra cookie. All of you will be faced with many more of them. In time you will find it easy to assume that you deserve the extra cookie. For all I know, you may. But you’ll be happier, and the world will be better off, if you at least pretend that you don’t.

Part III:

“You built a factory out there? Good for you,” she says. “But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.”

She continues: “Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

The 2012 presidential election will be, in part, about how much we as a country ascribe to the importance of luck in our everyday lives. Universal healthcare is, in many ways, a hedge against bad luck. To an extent, all entitlement programs are about mitigating the volatile luck of the draw.

Americans have never really been believers in luck, and that’s part of the reason we became who we are: no excuses, best foot forward, all that jazz. But it’s also given us a massive blind spot, and it’s in times like this that the problem becomes glaringly obvious.

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The midpoint recap

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Twenty-five books down, twenty-five to go. (This excludes the two bonuses: xkcd and The Bro Code.) Right now I’m a little ahead of schedule but my pace is slowing, so the second half of the year will be interesting. I’m having nightmares about hunkering down in a dank basement, reading some horribly written novel, while the rest of the world celebrates New Year’s Eve. I’m determined not to let this happen. Finished by Christmas would be nice.

Anyway, since halfway point summaries (or retrospectives, or recaps) seem to work so well for sports seasons (e.g. the All-Star break report cards that always have baseball journalists salivating), I suppose it’s worth a try on a book blog, too. So without further ado, here are my thoughts on the first half of book-worming, 2010-style.

But first, some stats (in keeping with my love of baseball, of course). Leading off, my gender ratio was a bit lopsided: nineteen books written by men, and only six by women. The writers’ nationalities tell a similar story: eighteen Americans and seven of everyone else (only one nation, Great Britain, had multiple authors, with two). Fifteen books fell into the non-fiction category, with ten in fiction. All but four books were published in 2007 or later. Three books were under 200 pages, fifteen were between 200 and 300, five were between 300 and 400, and two were over 400 pages. In summary, the average book was a non-fiction work spanning 274 pages, published in 2008, and authored by an American male. (My girlfriend has ever so gently reminded me to include more women and authors of color in the second half; luckily for me, her English literature degree is, contrary to her lamentations, quite relevant when it comes time for book recommendations.)

And now, onto the 50BF2010 awards:

Best Non-Fiction Book: The Big Short, by Michael Lewis

When I reviewed The Big Short on April 18, I described it as a “very, very entertaining book.” Relative to the seven books I’ve read since then, this has only become even truer. This is not due to any shortcomings of those books as much as it is a further ringing endorsement of The Big Short. Michael Lewis takes an incredibly complex and arcane set of circumstances and transforms it into a suspenseful narrative with an uncomfortably ambiguous approach to morality. (Were his characters the good guys, or villains? I think it’s a bit of both.) His insider story of the outsiders who prophesied the coming Great Recession is almost beyond belief; but then, never more so than the financial collapse itself, which Lewis captures vividly with intimate portraits of the people who, after watching in shock as it unfolded, proceeded to cash in on the subsequent implosion. Most of the time I feel ambivalent about the term “must-read;” but if ever the expression had an appropriate usage, The Big Short undoubtedly qualifies.

Honorable mention: SuperFreakonomics, by Steven Levitt and Stephen Dubner; and Freefall, by Joseph Stiglitz

Best Fiction Book: The Dream Life of Sukhanov, by Olga Grushin

This story, of a Soviet art critic whose fragile political stature is threatened by the dawn of glasnost, is a delicately woven tale of the zeitgeist of the U.S.S.R. in the 1980s, and a brilliant depiction of one man’s struggle with self-identity in the face of previously unimaginable national transformation. Anatoly Pavlovich Sukhanov’s sojourns through his past and present gradually coalesce into one time-blurred journey, with surrealism as both its guide and genre, realism as its omnipresent companion, and metamorphosis as the destination. That Olga Grushin managed to pen this novel in a non-native tongue is a testament to the boundless nature of her literary imagination, and an apt metaphor for Sukhanov’s own disorientation in a world not his own.

Honorable mention: The Disappeared, by Kim Echlin; and The Informers, by Juan Gabriel Vásquez

Worst Non-Fiction Book: Reality Hunger, by David Shields

It’s officially filed under “Literary Criticism,” according to its ISBN categorization. But I remain unconvinced that Reality Hunger is actually anything of the sort, and even less so that it amounts to much more than self-aggrandizement. David Shields opens his book with epigraphs by Picasso, Walter Benjamin, and Graham Greene, and then proceeds, for the next 205 pages, to steal and plunder from authors, thinkers, and entertainers both near and far, past and present. The intention, he implies, is to revolutionize the commonly held platitudes that have defined and separated the worlds of fiction and non-fiction and, in the meantime, to decimate international standards of intellectual property rights. Why this is so urgent is never made entirely clear. To be fair, it is difficult to concoct a cogent argument out of 618 literary scraps from authors who, strangely enough, write their own material. But this is no deterrent to the inexorable Shields, whose campaign to throw open the doors to appropriation of others’ creativity fails to appreciate the very real line between ideas and their expression. His literary remix, unsurprisingly, dissolves into cognitive dissonance.

Dishonorable mention: The Flight of the Intellectuals, by Paul Berman; and The Orchid Thief, by Susan Orlean

Worst Fiction Book: The Ask, by Sam Lipsyte

Q: What do you get when you start with a disenchanted development officer, add in a newly rediscovered friendship with an old college buddy, and, for good measure, throw in a subplot involving his wife’s potential infidelity?

A: A terrible novel. One online reviewer noted, with a beautiful sense of irony, a bit of dialogue late in the book in which Milo, the book’s utterly forgettable antihero, asks a colleague, “…If I were the protagonist of a book or a movie, it would be hard to like me, to identify with me, right?” Her reply: “I would never read a book like that, Milo. I can’t think of anyone who would.” Well said. It seemed as if author Sam Lipsyte neglected to decide whether he was writing comedy or tragedy until, at the end, he eventually gave up and decided, rather arbitrarily, to stop writing. Fortunately, it was as good a point as any to stop reading.

Dishonorable mention: Family Album, by Penelope Lively

Onward march to the next twenty-five!

#18: The Big Short

50 Books for 2010, , , , , , , , , , , , ,

In describing the behavior of Wall Street bankers prior to the financial crisis, many adjectives have been bandied about. Greedy, say some; arrogant, claim others. What is only now beginning to gain ground on these populist declarations of discontent is a third, and far more horrifying, descriptor: stupid. This trait may at first seem less offensive to those of us who flaunt our self-prescribed moral superiority over these perceived miscreants. The reality, however, is anything but comforting. In The Big Short: Inside the Doomsday Machine, Michael Lewis, author of Moneyball and Liar’s Poker, dabbles in the thriller genre, often to hilarious effect, as he details the inner workings of a financial world that was truly ill-prepared for its inevitable Waterloo.

I’ll admit it: The Big Short is a very, very entertaining book. Mine is an admission whose sheepishness can only be understood once one has finished reading the book. It reads like a John Grisham novel, yet John Maynard Keynes is a far likelier neighbor on a library shelf. Lewis is profligate in his use of such terms as “big Wall Street firms” (32 occurrences, according to Google Books) and he is wont to transcribe entire conversations whose accuracy is often questionable but whose content leaves the reader in stitches.

Ultimately, it is funny, isn’t it? Here were our best and brightest, as David Halberstam might say, assuring us that our money was safe, that real estate prices would continue to rise, that subprime loans were the healthy product of a heightened ability to reduce risk, not a house of cards upon which much of the global economy now rested precariously. And they were wrong, not because they intentionally lied (though some did), but because they failed to recognize the bright red flags everywhere on (and sometimes off) their own balance sheets.

The Securities and Exchange Commission’s civil lawsuit against Goldman Sachs this week has resulted in even more vitriolic rhetoric against investment bankers and their ilk, a demographic Lewis takes no pains to please in The Big Short. He opens his book with this: “The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day.” And he ends it on an account of his lunch with an investment banker, his old boss at Salomon Brothers, recounted with equal parts nostalgia and regret. In between, he rips apart much of the industry, railing against “the madness of the machine” and buttressing his anecdotes with footnotes that occasionally take up half the page.

It’s hard to say whom Lewis ridicules more, the bankers or the ratings agencies: while The Big Short is premised on the fact that high-powered bankers failed to research or even understand their own investments, Lewis makes it painfully clear that the foundation upon which all risk analysis rested was the highly coveted — and, it turns out, highly manipulable — ratings from industry leaders such as Moody’s and Standard and Poor’s. According to Lewis, employees of these firms, instead of conducting far-reaching investigations into the nature of subprime collateralized debt obligations (CDOs), simply took at face value much of what the banks told them. And since there were large fees to be had for each rating bestowed on these shadowy financial instruments, Moody’s and S&P had significant incentive to perpetuate the subprime industry.

In one particularly enlightening passage, Steve Eisman, one of the book’s central characters whose disgust for Wall Street types figured prominently into his investing strategy, explained the lack of incentives for analysts at ratings agencies, a misalignment that helped to create and foster the crisis. “‘They’re underpaid,’ said Eisman. ‘The smartest ones leave for Wall Street firms so they can help manipulate the companies they used to work for. There should be no greater thing you can do as an analyst than to be the Moody’s analyst…So why does the guy at Moody’s want to work at Goldman Sachs? The guy who is the bank analyst at Goldman Sachs should want to go to Moody’s. It should be that elite.'”

The Big Short is filled with quotes such as this. And although not all of them are as penetrating or as keenly observant of the recession’s underlying fault lines, each is helpful in piecing together a panorama of the landscape that existed in and around these “big Wall Street firms.” Michael Lewis has not compiled a tell-all here; if he has revealed any industry secret, it is simply the astonishing truth that, in the subprime lending business, there were none. When the dust had settled around our financial ground zero, it soon became apparent that even Wall Street had failed to understand Wall Street. In this, if nothing else, it shares the same fate as Main Street.