kottke.org posts about Michael Lewis
Michael Lewis, who is seemingly cranking out 10,000 words a day about finance and sports these days, writes in the pages of Vanity Fair about the Icelandic financial collapse. It’s an amazing story.
That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do — just like real American investment bankers!
But it was all essentially make-believe.
A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets — the banks, soccer teams, etc. Since the entire world’s assets were rising — thanks in part to people like these Icelandic lunatics paying crazy prices for them — they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” says a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”
Michael Lewis talks a little about his writing process.
I’ve written in awful enough situations that I know that the quality of the prose doesn’t depend on the circumstance in which it is composed. I don’t believe the muse visits you. I believe that you visit the muse. If you wait for that “perfect moment” you’re not going to be very productive.
Michael Lewis cast his Moneyball lens on basketball in this week’s NY Times Magazine. The Billy Beane of the roundball story, more or less, is Shane Battier, a guard for the Houston Rockets. Battier doesn’t seem like a great basketball player, but he does a lot of little things that helps his team win.
Battier’s game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his teammates get better, often a lot better, and his opponents get worse — often a lot worse. He may not grab huge numbers of rebounds, but he has an uncanny ability to improve his teammates’ rebounding. He doesn’t shoot much, but when he does, he takes only the most efficient shots. He also has a knack for getting the ball to teammates who are in a position to do the same, and he commits few turnovers. On defense, although he routinely guards the N.B.A.’s most prolific scorers, he significantly Âreduces their shooting percentages.
Battier sounds like an intriguing fellow but the most interesting part of the article is about how the players’ incentives differ in basketball from other major American sports.
There is a tension, peculiar to basketball, between the interests of the team and the interests of the individual. The game continually tempts the people who play it to do things that are not in the interest of the group. On the baseball field, it would be hard for a player to sacrifice his team’s interest for his own. Baseball is an individual sport masquerading as a team one: by doing what’s best for himself, the player nearly always also does what is best for his team. “There is no way to selfishly get across home plate,” as Morey puts it. “If instead of there being a lineup, I could muscle my way to the plate and hit every single time and damage the efficiency of the team — that would be the analogy. Manny Ramirez can’t take at-bats away from David Ortiz. We had a point guard in Boston who refused to pass the ball to a certain guy.”
No wonder it’s so hard to build a basketball team with the right balance of skills and personalities. Take five guys, put them on a court, let them do whatever they think they need to do to get a larger contract next year, and maybe you get some pretty good results. Now, consider a situation where the plus/minus statistic is the basis for player salaries and all of sudden, players need to figure out how they can make the other four guys on the floor better. And while everyone is making adjustments to each others’ games, each player is adjusting to everyone else’s game, and the process becomes this fragile and intricate nonlinear dance that results in either beautiful chaos or the 1972-73 Philadelphia 76ers.
PS. The brief author bio at the end of the article continues the recent game of “next book” Whack-A-Mole from Lewis. Since the publication of The Blind Side in 2006, Lewis’ next book has been listed in various outlets as being about New Orleans/Katrina, financial panics (which turned out to be an anthology edited by Lewis), his sequel to Liar’s Poker about the current financial crisis, and now is listed as “Home Game, a memoir about fatherhood”. I give up.
The Atlantic’s new business blog has an interview with Michael Lewis.
A related thing is that there was blind faith in the value of financial innovation. Wall Street dreamed up increasingly complicated things, and they were allowed to do it because it was always assumed that if the market wanted it then it made some positive contribution to society. It’s now quite clear that some of these things they dreamed up were instruments of doom and should never have been allowed in the marketplace.
(thx, djacobs)
In an Op-Ed piece for the NY Times called The End of the Financial World as We Know It, Michael Lewis and David Einhorn explore what checks and balances should have been in place to prevent the US financial markets from running themselves into the ground in search of perpetual short-term gain.
Our financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
Here’s part 2, in which Lewis and Einhorn propose some possible remedies.
A short interview with Michael Lewis about the book he just edited, Panic: The Story of Modern Financial Insanity. In compiling the stories, Lewis was surprised at how little good writing he could find about upcoming financial hard times.
How little there was worth reprinting. I had six interns digging up all kinds of stuff, and I looked at 20 times the amount of material that appeared in the book. I assumed there would be lots of stories predicting each panic before the panics actually struck. But there was very little. Afterwards you’d have a flurry of literary activity, and then everybody was on to the next thing. Still, there was a common thread: You were watching America’s growing financial insanity.
Michael Lewis takes a look at the current financial crisis and traces its roots back to the 1980s and the events chronicled in his book, Liar’s Poker. He begins by introducing us to some analysts and investors that saw the whole thing coming. One of those people is Steve Eisman.
“We have a simple thesis,” Eisman explained. “There is going to be a calamity, and whenever there is a calamity, Merrill is there.” When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman’s logic-the logic of Wall Street’s pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.
It’s a fantastic article, well worth reading to the end…the final dozen paragraphs are the best part of the whole thing. Who knew deviled eggs were so pregnant with metaphor?
As I was reading the article, Matt Bucher dropped a note into my inbox. As hoped for months ago, Lewis is writing a book about this whole mess.
MONEYBALL and THE BLIND SIDE author Michael Lewis’s untitled behind-the-scenes story of a few men and women who foresaw the current economic disaster, tried to prevent it, but were overruled by the financial institutions with whom they worked, sold to Star Lawrence at Norton, by Al Zuckerman at Writers House (NA).
The Portfolio piece will definitely find itself into the book, as will this piece on Meredith Whitney, this one on Goldman Sachs, Lewis’ subprime parable, and other pieces from Bloomberg, Porfolio, and his upcoming gig at Vanity Fair. One question though…what happens to Lewis’ forthcoming book on New Orleans? Did that just disappear?
Michael Lewis rents a mansion in New Orleans and finds in the experience a parable about the thirst of Americans for better housing than they can afford, the subprime mortgage crisis, and the ensuing financial panic.
The real moral is that when a middle-class couple buys a house they can’t afford, defaults on their mortgage, and then sits down to explain it to a reporter from the New York Times, they can be confident that he will overlook the reason for their financial distress: the peculiar willingness of Americans to risk it all for a house above their station. People who buy something they cannot afford usually hear a little voice warning them away or prodding them to feel guilty. But when the item in question is a house, all the signals in American life conspire to drown out the little voice. The tax code tells people like the Garcias that while their interest payments are now gargantuan relative to their income, they’re deductible. Their friends tell them how impressed they are-and they mean it. Their family tells them that while theirs is indeed a big house, they have worked hard, and Americans who work hard deserve to own a dream house. Their kids love them for it.
(thx, kabir)
Ok, Michael Lewis *is* writing a book about the current financial situation. Sort of. It’s called Panic: The Story of Modern Financial Insanity.
When it comes to markets, the first deadly sin is greed. Michael Lewis is our jungle guide through five of the most violent and costly upheavals in recent financial history: the crash of ‘87, the Russian default (and the subsequent collapse of Long-Term Capital Management), the Asian currency crisis of 1999, the Internet bubble, and the current sub-prime mortgage disaster.
It’s out in December so I imagine that it won’t include the current Lehman/AIG/Merrill/bailout kerfuffle, but that’s what “with new material” paperbacks are for. (thx, paul)
Michael Lewis looks on the bright side of the current financial crisis and finds five positive aspects.
Our willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences. It underpins Wall Street’s brokerage operations, for instance, and leads to a lot more people giving out financial advice than should be giving out financial advice. Thanks to the current panic many Americans have learned that the experts who advise them what to do with their savings are, at best, fools.
God I hope he writes a book about all this someday, sort of a Liar’s Poker 2. He can call it Fool’s Roulette or something.
Michael Lewis, author of Moneyball, The Blind Side, etc, has moved back to his native New Orleans to work on a book “that will center on the restoration of New Orleans”. Back in Aug 2007, Lewis wrote an article for the NY Times Magazine about Hurricane Katrina and the economics of catastrophe. (thx, brian)
Yay! Today is sub-prime mortgage day on kottke.org, I guess. The collapse of the sub-prime mortgage market took everyone on Wall Street by surprise…except Goldman Sachs, which earned $11.6 billion in 2007 when everyone else lost money. How’d they do it? Michael Lewis says that Goldman went against the flow in shorting sub-prime mortgages by assuming that the entire rest of the industry, including their own expert and extremely well-paid traders, were, as Lewis puts it, “a bunch of idiots”.
Update: Here’s the WSJ article mentioned by Lewis in the above piece. (thx, andy)
Michael Lewis on the unique role that kickers occupy in professional sports.
There is still some faint resistance to the notion that a kicker could ever really do anything great. Brett Favre can throw 10 more game-ending interceptions and fans will still cherish his moments of glory. Reggie Bush may fumble away a championship and still end up being known for the best things he ever does. Even offensive linemen whose names no one remembers are permitted to end their days basking in the reflected glory of having been on the field. Kickers alone are required to make their own cases.
Maybe soccer goalies can identify with NFL kickers?
Michael Lewis updates us on the Wall Street he wrote about in the excellent Liar’s Poker. It’s not such an alpha male environment anymore:
There is a new deal for the alpha male on Wall Street. He can make his millions, and he can still strut and preen and feel important. What he can’t do is sexualize his financial clout. In the late 1980s it was fairly routine for men on Wall Street trading floors to order up strippers; when a prominent bond salesman was fellated in a conference room just off the trading floor his colleagues were more amused than shocked. Not long ago a pair of Morgan Stanley employees was fired for merely attending a strip club in their off hours.
(via david archer)
Michael Lewis on a new way in which insurance companies are evaluating risk with respect to natural catastrophes.
The logic of catastrophe is very different: either no one is affected or vast numbers of people are. After an earthquake flattens Tokyo, a Japanese earthquake insurer is in deep trouble: millions of customers file claims. If there were a great number of rich cities scattered across the planet that might plausibly be destroyed by an earthquake, the insurer could spread its exposure to the losses by selling earthquake insurance to all of them. The losses it suffered in Tokyo would be offset by the gains it made from the cities not destroyed by an earthquake. But the financial risk from earthquakes — and hurricanes — is highly concentrated in a few places. There were insurance problems that were beyond the insurance industry’s means. Yet insurers continued to cover them, sometimes unenthusiastically, sometimes recklessly.
For the four or five of you that haven’t yet read Moneyball, the entire thing is available online, courtesy of a Russian site presumably out of the reach of the American legal system.
Due to problems off the field, defensive tackle Walter Thomas hasn’t played a lot of college ball. But his stats — 6-foot-5, 370 pounds, XXXXXXL jersey, runs the 40 in 4.9, can do backflips and handsprings, benches 475 pounds — guarantee that he’ll be drafted into the NFL this weekend. Shades of Michael Oher, Michael Lewis’ subject in The Blind Side. Also, this may be the first NY Times article to use the phrase “dadgum Russian gymnast”.
Long audio interview with Michael Lewis by economist Russ Roberts on “the hidden economics of baseball and football”. “Michael Lewis talks about the economics of sports — the financial and decision-making side of baseball and football — using the insights from his bestselling books on baseball and football: Moneyball and The Blind Side. Along the way he discusses the implications of Moneyball for the movie business and other industries, the peculiar ways that Moneyball influenced the strategies of baseball teams, the corruption of college football, and the challenge and tragedy of kids who live on the streets with little education or prospects for success.”
The NY Times Book Review’s 100 notable books of 2006. Making the list are several kottke.org notable books: The Ghost Map, The Omnivore’s Dilemma, Consider the Lobster, and The Blind Side.
Michael Lewis profile of Cowboys coach Bill Parcells. I don’t know if this is a typical situation, but the Cowboys seem like a pretty dysfunctional organization.
In addition to the race and class aspect that interests me about the book, The Blind Side is, oh, by the way, also about the sport of football, specifically the left tackle position. In the 1980s, the quarterback became increasingly important in the offensive scheme and rushing linebackers, specifically Lawrence Taylor, became a bigger part of the defensive scheme. This created a problem for the offensive line: protect the valuable & fragile quarterback from the huge, fast likes of Lawrence Taylor, whose Joe Theismann-leg-snapping exploits you’ve seen replayed on a thousand SportsCenters. The solution to this problem was to hire giant-handed men the size of houses who move like ballerinas to protect the blind side of the quarterback. Thus has the left tackle position become the second-highest paid position in the league behind the quarterbacks themselves.
When I read Lewis’ profile of Michael Oher in the New York Times, I had a crazy thought: why not cut to the chase and make the men fit to play the left tackle position into quarterbacks instead? Lewis covers this briefly near the end of the book in relating the story of Jonathan Ogden, left tackle for the Baltimore Ravens:
Now the highest paid player on the field, Ogden was doing his job so well and so effortlessly that he had time to wonder how hard it would be for him to do some of the other less highly paid jobs. At the end of that 2000 season, en route to their Super Bowl victory, the Ravens played in the AFC Championship game. Ogden watched the Ravens’ tight end, Shannon Sharpe, catch a pass and run 96 yards for a touchdown. Ravens center Jeff Mitchell told The Sporting News that as Sharpe raced into the end zone, Ogden had turned to him and said, “I could have made that play. If they had thrown that ball to me, I would have done the same thing.”
Having sized up the star receivers, Ogden looked around and noticed that the quarterbacks he was protecting were…rather ordinary. Here he was, leaving them all the time in the world to throw the ball, and they still weren’t doing it very well. They kept getting fired! Even after they’d won the Super Bowl, the Ravens got rid of their quarterback, Trent Dilfer, and gone looking for a better one. What was wrong with these people? Ogden didn’t go so far as to suggest that he should play quarterback, but he came as close as any lineman ever had to the heretical thought.
Many of the left tackles that Lewis talks about in the book can run faster than most quarterbacks, they can throw the ball just as far or farther (as a high school sophomore, Michael Oher could stand at the fifty-yard line and toss footballs through the goalposts), possess great athletic touch and finesse, have the intellect to run an offense, move better than most QBs, know the offense and defense as well as the QB, are taller than the average QB (and therefore has better field vision over the line), and presumably, at 320-360 pounds, are harder to tackle and intimidate than a normal QB. Sounds like a good idea to me.
Variety is reporting that the movie rights for Michael Lewis’ The Blind Side have been purchased by Fox. Most of the article is behind a paywall, but here’s the relevant bit:
After interest from multiple buyers, which included New Line and Mandalay, the “Blind Side” deal closed for $200,000 against $1.5 million and also includes $250,000 in deferred compensation. Gil Netter will produce for Fox, which did not confirm the value of the deal.
Norton released the book yesterday, but Hollywood interest was sparked when the New York Times Magazine ran an excerpt in its Sept. 24 issue.
Story, which was titled “The Ballad of Big Mike,” centered on Michael Oher, a poor, undereducated 344-pound African-American teenager in Memphis, whose father was murdered and whose mother was a crack addict. Oher had been shuffled through the public school system, despite his 0.6 grade point average and missing weeks of classes each year. But his tremendous size and quickness attracted the interest of a wealthy white couple who took him in and groomed him both athletically and academically to become one of the top high school football prospects in the country.
I’m hoping against hope that if the movie ever gets made, the interesting class and racial issues the book raises aren’t completely steamrollered out of the story in favor of pure uplifting entertainment. (thx, jen)
Over the weekend, my thoughts kept returning to Michael Lewis’ story about Michael Oher, a former homeless kid who may soon be headed for a sizeable NFL paycheck. Checking around online for reaction reveals a wide range of responses to the story. Uplifting sports story was the most common reaction, while others found it disturbing (my initial reaction), with one or two folks even accusing Lewis and the Times of overt racism. While Lewis left the story intentionally open-ended (that is, he didn’t attempt to present any explicit lessons in the text itself), I believe he meant for us to find the story disturbing (or at least thought-provoking).
Just look at the way Lewis tells Oher’s story. Oher is never directly quoted; it’s unclear if he was even interviewed for this piece (although it’s possible he was for another part of the book). Instead he is spoken about and for by his coaches, teachers, and new family…and as much as the article focuses on him, we don’t get a sense of who Oher really is or what he wants out of life. (An exception is the great “put him on the bus” story near the end.) He’s playing football, was adopted by a rich, white family, graduated from high school, and is attending college, but all that was decided for him and we never learn what Oher wants. Religion is referred to as a driving factor in his adopted family’s efforts to help him. Again, no choice there…not even his family or school had any say in the matter, God told them they *had* to save this kid.
Then there’s the sports angle, the parallels between Oher’s lack of control over his own life and how professional athletes, many from poor economic backgrounds, are treated by their respective teams, leagues, owners, and fans. At one point, Lewis compares Oher’s lack of enthusiasm for football’s aggression to that of Ferdinand the Bull, a veiled reference to the perception of the professional athlete as an animal whose worth is measured in how big, strong, and fast he is.
So what you’ve got is a story about rich white people from the American South using religion to justify taking a potentially valuable black man from his natural environment and deciding the course of his life for him. Sound familiar? Perhaps I’m being a little melodramatic, but this can’t just be an accident on Lewis’ part. As I see it, Oher is Lewis’ “blank slate” in a parable of contemporary America, a one-dimensional character representing black America who is, depending on your perspective, either manipulated, exploited, or saved by white America. Not that it’s bad that Oher has a home, an education, and a family who obviously cares about him, but does the outcome justify the means? And could Oher even have contributed significantly to his direction in life when all this was happening? Who are we to meddle in another person’s life so completely? Conversely, who are we to stand idly by when there are people who need help and we have the means to help them?
I’m not saying Lewis’ story has any of the answers to these questions, but I would suggest that in a country where racial differences still matter and the economic gap between the rich and poor is growing, this is more than just an uplifting sports story.
The Ballad of Big Mike, the most intriguing story of a future NFL left tackle you’re likely to read. The piece is adapted from Michael Lewis’ upcoming book on football, The Blind Side. Lewis previously wrote Moneyball.
Update: Gladwell has read The Blind Side and loved it. “The Blind Side is as insightful and moving a meditation on class inequality in America as I have ever read.”
Rethinking Moneyball. Jeff Passan looks at how the Oakland A’s 2002 draft class, immortalized in Michael Lewis’ Moneyball, has done since then. “It is not so much scouts vs. stats anymore as it is finding the right balance between information gleaned by scouts and statistical analyses. That the Moneyball draft has produced three successful big-league players, a pair of busts and two on the fence only adds to its polarizing nature.” Richard Van Zandt did a more extensive analysis back in April.
Great profile by Michael Lewis of Mike Leach, Texas Tech’s football coach. Leach “believes that both failure and success slow players down, unless they will themselves not to slow down.” ‘When they fail, they become frustrated. When they have success, they want to become the thinking-man’s football team.’” Must-read article if you’re even a casual football fan. Here’s another article on Leach from the SJ Merc.
Update: Steven Levitt and the Freakonomist commenters weigh in on Lewis’ article. (thx, michael)
Jeff Ma, who was a key member of the infamous MIT blackjack team, notes the turn around of the Oakland A’s and the reversal of criticism directed toward GM Billy Beane. Even Steven Levitt, who thinks not too highly of Moneyball, has conceded that maybe Beane and the A’s are onto something.
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