Tag Archives: fraud

Inside Job

The Big Short: Inside the Doomsday Machine by Michael Lewis (Norton, $15.95, 291 pages)

“The problem wasn’t that Lehman Brothers had been allowed to fail.   The problem was that Lehman Brothers had been allowed to succeed.”

If you read The Blind Side by Michael Lewis, and think this is going to be another warm and fuzzy story, think again.   This is a former insider’s telling of the reasons the American economy was virtually destroyed by greed in the early 2000’s and it will get you angry – or at least it should.   Here’s one example pointed out in the book…

It’s late 2006 and U.S. home values have just suffered their greatest decline in 35 years.   And, so, Goldman Sachs selected this time to give a bonus to each and every one of its employees – a little bonus of $542,000 (not salary, but some extra spending cash for the holidays)…   How does this make you feel?

If you’re a normal human being without any ties – familial or otherwise – to Wall Street, you should be infuriated by the knowledge of these practices; and there are dozens of examples provided by Lewis.   Yes, this is a tale of incredible hubris.  Lewis, who had once worked at Solomon Brothers, notes that Wall Street traders saw themselves as geniuses who were above reproach:  “(They had) the ability to see themselves in their successes and their management in their failures.”   In fact, however, Lewis well makes the case that these same self-proclaimed geniuses simply didn’t grasp the details of the game that they were playing.   And we all paid the price for their failures.

In just a few years, “One trillion dollars in (subprime-related) losses had been created by American financiers…”   Lewis is honest enough to say that if he’d remained on the Street, he might have been part of the problem:  “If only I’d struck around, this is the sort of catastrophe I might have created.”

“This woman (Meredith Whitney) wasn’t saying that Wall Street bankers were corrupt.   She was saying that they were stupid.”

This is also the story of one Dr. Michael Burry, a man who figured out that big money could be made off of the Street’s losses and ignorance – he decided to bet, big-time, against subprime mortgage tranches and won big-time.   Burry was a man who figured out early on (in 2007) that Wall Street’s rating firms were engaging in massive cheating – rating as solid risks mortgage packages that were pure losers.   One single pool of “crappy mortgages” (falsely rated) – based on home loans made between April and July of 2005 – was allegedly worth three-quarters of a trillion dollars, but the entire pool was basically worthless.

The problem with Lewis’ account, which he states began as a policy paper on the roots of the modern-day American fiscal crisis, is that it reads like a dry white paper.   There’s no sense of outrage, no moral center.   Even while Lewis complains that the U.S. government (and, specifically, the White House) transformed Wall Street firms into public corporations, which were then deemed to be “too big to fail,” there’s no sense of anger.   Thus, we’re left with a sense of amorality, instead of immorality, in this presentation.

This is an interesting and easily read account, but it’s quite frustrating and not recommended.   If you want to enjoy something written by Michael Lewis, try The Blind Side.

Joseph Arellano

This book was purchased by the reviewer.  

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Spinning Wheel

Rough Justice: The Rise and Fall of Elliot Spitzer by Peter Elkind (Portfolio)

“(Elliot was) a muscular populist who wasn’t afraid to confront business institutions by punching them in the nose.   The MO was to keep things under wraps, announce them in a big way, then work with the press.   You lay out all the appalling facts, and they’re dead, because they’re in the market.  …When he really had the facts on somebody, it was like something out of Wild Kingdom.”

This is the story of the brisk rise and brutal fall of the Sheriff of Wall Street; the man who might have been the first Jewish President of the United States.   It is also a true morality play and what Spitzer himself called a Greek Tragedy.   In the end, it is a story about human strengths and weaknesses.

Elkind’s account (he was the co-author of The Smartest Guys in the Room) starts off promisingly, but he attempts to set up an odd comparison between Spitzer and John Kennedy.   It seems that Spitzer grew up under a demanding wealthy father who made his sons discuss major issues around the dinner table.   The elder Spitzer is made to sound like the second coming of Joe Kennedy.   But there are no signs that Spitzer was an intellectual like JFK (Spitzer made the law review at Harvard through a writing competition rather than on his grades).   If Elkind had called it correctly – and he never does in this account – he would have seen that Spitzer was the 2.0 version of Robert Kennedy.

RFK was the original liberal populist sheriff out to smash organized crime and tough in a manner that remains unusual for Democrat politicians.   Bobby Kennedy was always convinced of the moral rightness of his causes, something that appeared to be true also for Spitzer:  “We did not investigate Wall Street because we were troubled by large institutions making a lot of money.   We took action to stop a blatant fraud that was ripping off small investors.”

But one cannot write a quasi-biography of a subject’s life without giving the reader a sense of the subject’s flesh and blood.   Except for his sexual proclivities, Elkind fails to deliver here in presenting a portrait of Spitzer the man – for better or worse.   Instead, we have a newspaper reporter’s-style telling of Spitzer’s youth, education, unlikely political rise and early exit from the world of politics.   It is a shame and a major missed opportunity, as Elkind was perhaps the first person to get Spitzer to sit down for an interview after his short period of enforced exile.   But Spitzer made it clear that he is not a contemplative person, and saw little use in attempting to explain his actions to the author.

At the conclusion of Rough Justice, the reader is left with the same question posed by Lloyd Constantine, an aide and friend who had been with Spitzer from the start of his professional life, “I kept on feeling: what is wrong with this guy?   Who is he?”   Asked but not answered.

Take Away:   Elliot Spitzer comes off as a cardboard figure in this flawed account of a flawed man.

A review copy was received from the publisher.

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