Economic Crash Through the Works of Wessel, Lewis and Sorkin
Michael Lewis gives an excellent first impression of Wall Street in the 80s with an outsider’s introduction to the inside world of stocks, bonds, and debt reshuffling. Lewis’ The Big Short is a follow-up to his Liar’s Poker, which chronicled his three years with Salomon Brothers as a naive, , inexperienced financial advisor who made a “preposterous” amount of money for telling others how to place their bets: “Wall Street’s essential function was to allocate capital: to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue. I’d never taken an accounting course, never run a business, never even had savings of my own to manage” (Lewis xiii). Yet what happened that decade and continued to happen for the next two was every bit as “preposterous” as the salary Lewis was paid to do a job he had no idea how to perform. Lewis, in short, provides the context for the world of financial banking and Andrew Sorkin and David Wessel set the stage for readers to be able to see the failure of the people in charge to regulate the machine that would ultimately crash in 2008. Using Sorkin’s Too Big to Fail, Wessel’s In Fed We Trust, and Lewis’ The Big Short, this paper will analyze the government indifference that allowed the economic crash to happen.
Lewis begins his Big story by telling a small story about Meredith Whitney, whose expose on Citigroup in 2007 began a series of Wall Street unraveling. Lewis contacted her to find out what kind of person it was who had fired the shot so succinctly: she was no one special — a graduate of Brown University, who earned a degree without having really learned anything. She credited whatever success she had now to one man, her mentor at Oppenheimer and Co., Steve Eisman — another nobody (by political standards) — but a man, who, “helped her to establish not merely a career but a worldview” (xvii). That latter part is significant — for it is what is most lacking in the world today. A man’s worldview will define his actions and who he is. The worldview of Wall Street and the government that has been in its back pocket for the past thirty years has begun and ended right there: with Wall Street. Witness the evolution of self-interest. Such a worldview cannot sustain anything — and it finally let its philosophical adherents crash in ’08 — only to be bailed out, magically, by sheer whimsy and will. We will see where that gets us soon enough. As David Wessel says, “In Fed we trust,” — and that is the problem.
According to Wessel, however, it is part of the solution: “The United States found itself at the edge of the abyss and was pulled back in large measure through the efforts of the Federal Reserve” (vii). It is a claim that sounds jarringly unoriginal and fairly incongruous with other statements from journalists like Matt Taibbi and politicians like Ron Paul, who blast the Fed for an being an out-and-out criminal enterprise. Maybe it is the result of political orientation — but Wessel references economic historian Brad DeLong, who offers up this sage analysis: “It is either our curse or our blessing that we live in the Republic of the Central Banker” (4). So, apparently, it is either/or. For Wessel, the Fed is an amalgam of good and bad decisions (note the Greenspan era, when “the smart people of the Federal Reserve allowed the housing bubble to inflate” (4) — though, according to Taibbi, Greenspan was no genius — just a weasel); Ben Bernanke, current Fed head, is, according to Wessel, doing his legitimate best to ease America back into a stable economy. The problem is that Wessel thinks the Fed is necessary. People like Paul see the Fed as part of the problem (note his followers whose mantra is, “End the Fed!”). The fact is this country is in more of a shake-up than people like Wessel care to realize. His massive treatise on the past two years of recovery is revealing, but it glosses over the larger issue: Wessel is not seeing the forest for the trees.
Lewis, however, is. His Big Short picks up with the story of Eisman, the man Whitney so much admired, and the man whose worldview leaves many quaking in anger: he does not beat around the bush or spare feelings — he sees the truth for what it is and delivers it. For people who do not like to see the writing on the wall (for whatever reason), Eisman is an unlikable fellow. For people who admire truth, Eisman is a master. The fact that a person like Eisman could exist at all, on Wall Street, Lewis tells us, says something about the nature of the financial behemoth: it is somewhat akin to the story of Macbeth, the Scottish warrior who made one bad decision after the next before finally losing his own head. Eisman is like the little reminder that pops up along the way to let Macbeth know that he is not on the right track: it is called a conscience — and Macbeth finally squashes it out of himself. Eisman, Lewis shows, has been the voice of conscience on Wall Street for some time, admitting to the unconscionable — whether the head of “a large U.S. brokerage firm” or “the president of a large Japanese real estate firm” — that their own dealings fail to make any sense. In the world, there are two types of people, those who say yes and everything else you want to hear — and those who say the truth. (Some are a mix of both — as Wessel says the Fed is). Eisman, however, is the latter type.
Vinny Daniel is another. Hired by Arthur Andersen, his job as an accountant was to account — audit the big Wall Street firms, in other words. In theory, that is what his job was supposed to be. In reality, his job was to rubber stamp and approve all that such firms set before him. There is regulation in Wall Street. It is just easily gotten around. People like Vinny Daniel are the ones who clog up the works:
He concluded that there was effectively no way for an accountant assigned to audit a giant Wall Street firm to figure out whether it was making money or losing money. They were giant black boxes, whose hidden gears were in constant motion. Several months into the audit, Vinny’s manager grew tired of his questions. ‘He couldn’t explain it to me. He said, ‘Vinny, it’s not your job. I hired you to do XYZ, do XYZ and shut your mouth.’ I walked out of his office and said, ‘I gotta get out of here.’ (Lewis 11)
Enter Steve Eisman. Vinny’s tip to Eisman was all the proof Eisman needed to point out what he had been wanting to point out for some time — that Wall Street was laying an egg with its subprime mortgages: the game was, essentially, no different from Charles Ponzi’s back in the 1920s. Only now it was massively bigger — and global.
Eisman had at first thought the subprime mortgage bundles were good things for the economy — they looked good after all. Plus, he was making Oppenheimer and Co. look good by knocking other firms while leaving Oppenheimer relatively unscathed. Eisman’s opinion mattered for something, even if some did not want to hear it. But now, the facts were getting too big to ignore: “Eisman wanted to write a report that more or less damned the entire industry, but he needed to be more careful than usual. ‘You can be positive and wrong on the sell side,’ says Vinny. ‘But if you’re negative and wrong you get fired’” (Lewis 13).
With the help of Vinny’s analysis, Eisman’s report was negative and right. However, the way it was reported is what caused most of the trouble. Without giving any of the companies Eisman’s report would attack prior notice, the analyst emptied his guns in public: “Here is the difference,’ he said, ‘between the view of the world they are presenting to you and the actual numbers’” (15). It was, again, a clash of worldviews: one was based in reality, the other was not. “He held a picture of the financial world in his head that was radically different from, and less flattering than, the financial world’s self-portrait” (Lewis 16).
Andrew Sorkin calls such people Cassandras in Too Big to Fail — prophets whose heeding is doomed to go ignored. Not that there was much Eisman’s indictment could do: before the year was out, banks and businesses from around the world were defaulting and the global economy was suddenly collapsing — because that is what Ponzi schemes do: they collapse. It was the 1920s all over again.
Sorkin’s book does a good job of giving the details on what happened among Lehman Brothers, Barclays, JP Morgan, Goldman Sachs, the Fed, and Big Gov following the collapse. Essentially, everyone had egg on his face — but some of the bigger powers had the muscle to save face — and sink competitors at the same time: which is exactly what Goldman Sachs did to Lehman. Goldman had been placing its cronies in the White House for years — and it would now go through the White House to see who got bailed out and who did not. AIG got one — because it owed a large chunk to Goldman (who had figured out the game ahead of time and started betting against itself by buying insurance through AIG). Sorkin’s work is a work full of the kind of details that other writer’s like Taibbi and Lewis do not take the time to give their readers. Taibbi is more about taking the knife to the jugular. Lewis finds that human element — that human interest story, such as belongs to Vinny and Eisman. Wessel tries to find it in Bernanke, Geithner, and Paulson — but there is not much to find there. Their humanitarian efforts were akin to helping everyone sort out his chips at the end of the game in the most orderly fashion. That was all.
Nonetheless, Wessel attempts to put these men in heroic roles in the same way Arthur Miller tries to make a salesman a dramatic hero — it does not work. What really happened is clear enough, as even Wessel cannot hide: the poker game ended, the crestfallen sat with hanging heads, the ones who still had cigars left lit up; the mood was quiet and deferential — everyone had to show his cards. Wall Street, the Fed, and the White House all made grim faces at one another, made speeches to the public, and if they were on the winning side, lined their pockets with gold. If you were Lehman, you just went home empty-handed: “On Sunday, September 14, after it became clear that Lehman would not be salvaged, the other big Wall Street firms were told to open their books to one another at the New York Fed” (Wessel 188) (a laughable idea — Vinny had spent six months trying to understand those same books: the fact was that no one could understand them — they had been cooked six different ways from Sunday).
However, such actions are typically performed to show the public with what transparency everyone in big places is conducting his affairs. Such nonsense is somewhat propagated by Wessel — it is not by Lewis. Wessel states the facts blandly in casino terminology and quickly moves on to the political maneuvers that really interest him: “Firms that had bet one way with Lehman could settle up with firms that had bet the other way, reducing the eventual burden on the bankruptcy court. Some did, but not many” (Wessel 188).
Here is the difference between reporting styles: Lewis gives the story behind the story — illustrating what caused the crash, who was on top of it, who got caught under it, who watched, who prophesied, who ignored. Wessel reports from the other side of the field: his work is information with judgments set aside, even the most basic. While journalists like Taibbi find it hard to control their rage and reflect in their writing the fact that they are beside themselves with anger, Wessel is strangely subdued in his analysis, allowing himself to describe such scenes as the hypocrisy that allowed the meltdown to occur with remove and slight indifference. After all, it would be difficult to cast Bernanke, Geithner, and Paulson in the heroic role were he to take a more critical approach to the narrative — as it is, he has his work cut out for him already, attempting to convince the world that “in Fed we [can still] trust.” How he goes about doing so is seen in descriptions like this:
The havoc in the financial markets didn’t leave Bernanke, Geithner, or Paulson much time for contemplation. All three men could see another big plane — AIG — about to crash. Worse, the engines on the two remaining independent investment banks, Morgan Stanley and Paulson’s former employer, Goldman Sachs, were now sputtering.
It became apparent to Bernanke that the government was now in the business of forcing instant mergers to save and restructure the American financial system. Bernanke wondered: What is going to solve this? What is going to stop this? As the deal to save Lehman Brothers fell apart, he had an epiphany: ‘That weekend really hit home to me that this was a fiscal issue.’ (Wessel 189)
It was not. It was an accountability issue. To have his hero say such an idiotic thing and count it as an epiphany shows the lack of depth in Wessel’s journalism. Lewis is able to pump more epiphanies into his first two pages than Wessel is able to give in two hundred — and that is because Wessel is all surface, much like Sorkin. To say that the collapse was a fiscal issue and chalk this up as an epiphany is outrageous. To have such a thing be said by the head of the Fed and chalk it up to an epiphany is untenable. It is unaccountability plain and simple — and that is the reason, as Lewis makes clear early on, that everything happened the way it did. Ponzi was unaccountable back in the 20s. Wall Street, the Fed, and the White House were unaccountable from the 80s on. And they will continue to be so — because there is no power on earth big enough to demand accountability from them. The people? Far from it — such patriotism does not get you far these day. Accountability will have to come from God Himself.
In conclusion, the three books by Sorkin, Wessel, and Lewis offer three different looks inside the economic crash of 2008 — and each gives its own accounting. Lewis offers the best vision of what true accounting looks like: it looks like Eisman, a man who has his head on squarely. Wessel gives the best vision of what people who do not like Eisman want that accounting to look like: they want it to look like Bernanke, Geithner, and Paulson know what they are doing and doing it the best way they know how — for the good of America. The fact is they do what they do for the good of themselves, because that is their world vision — self-centric. Sorkin’s vision is not too much different — it is lost in the forest, unable to see it for all the trees. Such details as Sorkin and Wessel offer are helpful for knowing the history with greater depth, but it is the right-thinking perspective of Lewis that helps supply what is missing — a worldview that works.
Lewis, Michael M. The Big Short: Inside the Doomsday Machine. New York, NY: W.
W. Norton & Company, 2010. Print.
Sorkin, Andrew. Too Big to Fail: the inside story of how Wall Street and Washington
fought save the financial system — and themselves. New York, NY: Penguin, 2010. Print.
Wessel, David. In Fed We Trust: Ben Bernanke’s War on the Great Panic. New York,
NY: Three Rivers Press, 2010. Print.