The journalists book The Big Short tracked down the players who made millions from the 2008 crash now it is being turned into a film
Late last year, the American journalist Michael Lewis wrote a long story for Vanity Fair about his first and abiding literary hero, Tom Wolfe. In the story Lewis recalled how his admiration began when he pulled down a copy of Wolfes book Radical Chic & Mau-Mauing the Flak Catchers from his fathers bookshelves at home in New Orleans in 1972. Lewis was 12 years old, and of the words in that books title, he understood only the. When he opened the book and started reading, however, he was entranced by Wolfes scathing and hilarious observation of New Yorks leftwing elites. Lewis was an avid reader but this was the first time hed had the sense of a real living writer finding and telling the intimate stories behind all those words on the page. A question arose in him: how the hell did Tom Wolfe do it?
The occasion for him relating that story 43 years later was the fact that Wolfes literary archive, sold to the New York Library for $2.15m, had been opened to the public. In it was every notebook and bill and manuscript and letter and doodle the man in the white suit had ever collected. Lewis went foraging in the archive in search of clues. Among them he found the original invitation that led Wolfe to the infamous party thrown by Leonard Bernstein, then director of the New York Philharmonic, in honour of the Black Panther party, an event that led to him coining the term radical chic and skewering a generation of delusional uptown revolutionaries. Wolfe had, it turned out, found the invite on a colleagues desk and been unable to resist.
Every writer is in thrall to the techniques and strategies of other writers. The curiosity that Michael Lewis felt about Wolfe is now one that fans of Lewiss own books cannot help but share. Lewis has taken over the mantle as the pre-eminent inside storyteller of our times (Wolfe himself acknowledges the fact, calling Lewis, in a recent blurb, probably the best current writer in America.) Reading any of Lewiss books, you are taken immediately into worlds otherwise closed off. In Moneyball, he sat for a season in the inner sanctum of a major league baseball team and exposed a whole new scientific way of winning. In The New New Thing, he spent a year getting inside the head of Jim Clark, of Netscape, and revealed exactly how that contemporary creation, the tech billionaire, looks at the world. That sense of uncanny access is nowhere more insistent than in Lewiss masterpiece, The Big Short, which is nothing less than the full shocking story of the most opaque and scandalous event of recent American history, the financial crash of 2008. In making that catastrophe not only accessible but also unputdownable Lewis achieved something that armies of financial journalists, teams of regulators and scores of political insiders had failed to achieve. The story is now transformed to film, in an inspired adaptation by Adam McKay.
If you havent read The Big Short, it tells the true story of the individuals on Wall Street who saw the sub-prime crash coming and profited hugely from it. The received critical wisdom when you watch McKays film version, this week nominated rightly for five Academy Awards including best film and best director, is that it is a heroic attempt to finally have us understand all those arcane concepts and financial instruments that threatened our lives credit default swaps, collaterised debt obligations and the rest and not only that but to find devastating comedy in them. Perhaps more importantly, it conveys the fact that far from being some abstract cataclysm of faceless institutions too big to fail, this was very much a manmade disaster. All of those short sellers who saw it coming are brought to compulsive life on the screen, played at full throttle by Steve Carell, Ryan Gosling, Christian Bale, Brad Pitt but the reason they are so believable is that they were brought to such vivid reality in the pages of Michael Lewiss book.
As someone who from time to time has made modest efforts to write the kind of journalism that Lewis has mastered, and who has often learned at first hand just how hard it is to find a single person to tell a story half as complex as this one, that fact still seems startling to me. So when I meet Lewis at his hotel in London, the first question I want to ask is the one he asked of Tom Wolfe: how the hell did he do it?
Lewis is, by his own confession, a bit frazzled. He flew in from New York the previous afternoon and was up before dawn to be on the Today programme, where his slot was pared down to a couple of questions by the news of the death of David Bowie; his wife, mother of his three children, is asleep in their room upstairs. Even so, his face comes alive when he recalls the genesis of hisbook.
I am not an essayist, he says. I need characters. If I dont have a character, I cant find my way into a story. Finding the right characters was not a simple process. When I figured out how the crash had happened, he says, and I figured out it was really an enormous bet with a lot of other people on the other side of it, I then went and found everyone who had been on that side in a really big way. My rule was this: you had to have put your career on the line for it to be of interest to me. I wanted people who were all in. I canvassed Wall Street and asked anyone who might know those people. I got maybe 15 names.
Lewis then set about meeting all the people on the list. Only one of them didnt return his calls a guy in Minnesota who ran a firm called Whitebox. Some were less useful for his purposes than others. He spoke to John Paulson, the American hedge fund manager who reportedly made $20bn by correctly calling the collapse of the US housing market and the banks that depended on it, but Lewis found him closed, guarded, a man who seemed like more of the problem than the solution. Lewis was looking for the people who might, instead, want to teach the world about what happened. It was a casting search, and then a process of editing. An awful lot, he says, was left on the cutting roomfloor.
The half-dozen people he was left with, all of whom made many millions of dollars by foretelling collapse, the stars of the movie, have one thing in common: they were infected equally with a kind of moral shock about what they saw occurring. It is this sense of outrage that gives the book and the film their ambiguous energy: these people seem like heroes, until you remember they were millionaires betting on the end of the world.
None of them were originally traders in the bonds that caused the problem. There were two young guys Charlie Ledley and Jamie Mai, who had already grown $100,000 into a $30m fund working from their garage by betting on long shots in any market. Then there was Michael Burry (played by Christian Bale in the film) and Steve Eisman (played by Steve Carell) who were stock market investors, not bond dealers. They themselves had come across the rigged market almost by accident and quickly became Chicken Lickens, absolutely convinced that the sky of the worlds economy was about to cave in.
Each of these players had different responses to this cataclysmic knowledge, Lewis says. Jamie and Charlie probably had the response most like you or I would have, he suggests. They thought this was a major societal scandal: they first went to the Securities and Exchange Commission, then to the FBI, then to the Wall Street Journal to tell them what was happening. When nobody listened, they made the bet.
Steve Eisman (called Mark Baum in the film), by contrast, was a money manager with a particular hostility to Wall Street bankers: He thought they were scumbags and phoneys. He used his self-righteous anger and conviction of doom to prove the point (and make a billion dollars).
Perhaps the most fascinating character of all was Michael Burry. Burry had been a medical doctor, self-diagnosed with Aspergers, before he proved so obsessively inspired at stock picking that he had been entrusted with a billion dollar hedge fund. It was his libertarian belief that the crash was a necessary evil. Michael thought we are living in an age where there has been a collapse in personal responsibility, all these people should not be borrowing this money. Yes, the banks were disguising it and not making the checks, but the main cause of his moral disapproval was the ordinary man, says Lewis. Burry still thinks it would have done us good to have a full-on depression to realise the importance of taking full personal responsibility for everything we do.
Lewis himself didnt agree with that appraisal, but the thing that made Burry especially valuable to the story was a character trait that led him to avoid face-to-face contact with any of his investors. As a result, Lewis says, he just handed me three or four years of emails, unedited here they are. It was a great resource because peoples memories of complex events are tricky. And here I had a day-to-day account from perhaps the only person following the situation with this degree of interest of exactly what was happening in those markets. It was, in effect, his invitation to Leonard Bernsteins Black Panther soiree.
It still doesnt quite answer the question, though, of why these men wanted to open up to him in the way that they did. Part of the answer to that question lies in the reputation Lewis made for himself with his first book, Liars Poker, his story of his two years working in a graduate job as a bond trader at Salomon Brothers in the late 80s, the first book really to expose the deregulated excesses of the city. Lewis was, like his subjects, both an insider and an outsider; he knew how the world of Wall Street worked, and he felt the need to find a more honest way to profit from it. In his case he did not bet against it, however he wrote books.
I reread Liars Poker ahead of our meeting. Though it seemed a tale of decadence and criminality at the time, subsequent events have almost made it look like an age of innocence in the financial world.
Its true, Lewis says. I have friends who were the same age as me or a little older, and who stayed in the city, and they are appalled and outraged by what happened.
What made him want to leave at thetime?
The motives were of course not noble, he says. They were purely of literary ambition. I wanted to be a writer, and I found myself inside what seemed to me to be a great story. I stumbled into the job at Salomon by accident. Before then, if you had asked me I would have said I wanted to write about art history that was the subject I studied at Princeton. For the first 18 months I had done that job I found it fascinating to see how that world worked, but after that point there seemed to be severely diminishing returns. I was just expected to do the same dull thing over and over every day. The minute I started to write stories about it and then get phone calls from editors saying you ought to do a book I was out in my head. I lasted another six months maybe.
He puts his sense of being an outsider in that world, and immune to its financial temptation, down to the luck of his birth. Something he shared with Tom Wolfe, a southern sensibility.
I think one of the keys of my attitude to all of this was that I grew up in a place that was very different to the rest of the country, he says. When I first got to Princeton, I was struck by how there were a lot of people from very conventionally successful east coast families, boarding school kids, and many of them seemed very unhappy. They already had ambitions even then to do something on Wall Street. I wondered why you would do that with your life.
Lewis can honestly say he didnt really know what Wall Street was aged 18, or certainly what you might want to do there. I think what kept me in a state of some detachment toward it all was the fact that the world I grew up in, in New Orleans, nobody was particularly measured by what they did for a living. You were defined more by family, by how you got along. It was quite a rich and happy environment. So I had these examples of happy unsuccessful and unhappy and financially successful and that kind of intrigued me. In his own family that was also the case. My mothers side had some money but they were really miserable. My fathers side were military people, charming career naval officers. They had not much money but they could not have seemed more happy with their lives. So I always felt there was this disconnect between what people thought they wanted and what they actually wanted. When you hit Wall Street you saw this in the most extreme way.
Though he has made his own small fortune through his writing, Lewis has held on to that view. He admired and respected his father, a well-read man who wore his learning lightly. There were only a couple of times, he recalls, when his old man told him not to do something. He told me not to turn down Princeton and stay home to marry my high school girlfriend, and get her pregnant, which I had announced I was going to do at the age of 17. He said: Look, you know I said I would support you in doing whatever you want but just listen to me go to Princeton for six months, see how it goes. And I took that advice reluctantly, even though I thought it violated some of my finer feelings. And though to some extent I have never stopped resenting that advice, he was probably right.
The other occasion was when Lewis told his father he was going to leave the bank to become a writer.
He had just been awarded a $200,000 bonus by Salomon Brothers, along with wild promises of more to come, and was leaving in order to take up a $40,000 book contract. When I said I was quitting I had been called in by the head of the London office, who said: We think you are someone who could run this firm some day, he recalls. My thought was, You are out of your fucking mind. Anyway, I told all this to my dad and he said: Stay 10 years and then write your book.
Lewis was 27 at the time. He looked around at colleagues at the bank who were 37, the men who might 10 years ago have said the same thing. He saw nothing left in them that suggested they could leave. They had been so transformed by the rates of pay and the needs it had created in them, they couldnt escape from it. I can remember when I look back on my writing life, one of the best things that ever happened to me, perhaps the best thing, Lewis says, was when Liars Poker came out. My sister called and said: Daddys walking around town with your book, bragging about you. I thought: it all worked out.
Back then, Lewis thought he was writing about a momentary crazy aberration in the financial world: I had no business telling people what to do with their money and I could have made a fortune doing it. The idea that the madness was going to get worse did not occur to him. In fact, it got worse and worse to the point where people were paid unbelievable fortunes just to do stupid things with money. Even the movie cant really get this across. The movie gets across that there was a bet and these smart guys were on the right side of the bet. And those smart guys made hundreds of millions of dollars. That inevitably leaves you thinking that the people on the other side of the bet lost. Of course, the banks went down. But the real story is the actual people on the other side of the bet also got very rich despite the banks collapsing. If no matter what side of the bet you are on things are still going to work out for you, the world is upside down.
After the crash, Lewis wrote extensively in newspapers about some of the reforms to the system that might prevent a further collapse, mostly to do with removing the massive incentives to gamble and fail, and to hold people to account for their actions. When none of it happened, he thought he was done with Wall Street. Then, he says, a man named Brad Katsuyama walks in the door.
Katsuyama became the subject of the third book in what now looks like a kind of trilogy, The Decline and Fall of the American Empire. By 2013, Lewis had heard a little about a new obsession on the trading floor, high-frequency trading, which used tiny differences in the speed at which signals were sent to dealing rooms to effectively rig the quoted prices on the American stock market (and make more billions for the high-frequency traders). No one, not even the big banks, seem to know exactly how this worked. But Katsuyama, then a trader at the Royal Bank of Canada, had made it his business to find out. Not only that, he was determined to establish a new stock exchange that used tiny delays to prevent the advantages gained by so-called high-frequency traders. The book, which told that story, called Flash Boys, represented Lewiss effort to draw attention to a market-led idea to fix some of the excesses of the system.
Katsuyamas idea is currently before the Securities and Exchange Commission. It is being opposed by not only the banks with high-frequency trading operations but also all of the existing exchanges in which the practice is allowed without being acknowledged.
It is amazing to me that this is not front page news, Lewis says. It has to be the most important story in the financial sector. Some of the most important institutional investors in the American market are saying the markets are rigged and this is the only way to fix them. Its like how can the regulators not let this happen? They already blew it twice by not regulating the market and then not reforming it, and here is the market itself trying to do the work for them. Dont get in the way. I think it is going to create such a shitstorm if they dont do it
But will there really be? One of the lessons of the post-crash years, it seems to me, is that not only individuals but also governments appear powerless in the face of Wall Street. Why does he think there has been so little action?
Well, he says, if you are a politician in America, on whatever side, the easiest thing in the world is to try to ignore the problem. Nobody is going to give you money to reform Wall Street. You are always acting against your own narrow interests if you take on the financial system as an issue.
It still feels, after everything, as though you are attacking America if you are attacking Wall Street?
A little. Although it is also one of the issues on which you find advocates on both right and left. Bernie Sanders [the Democratic candidate] said of The Big Short movie: everyone must go and see it. And Bill OReilly [the rightwing commentator] on Fox News said the same thing
So what will make the change?
Lewis mentions a talk, a commencement speech he gave at his old alma mater, Princeton, two years ago. I thought what I wanted to do was to suggest the idea of a kind of noblesse oblige, a sense of responsibility, among these young people. Its that thought that these people in Wall Street need to ask themselves: how much do you need? Couldnt you make less?
It seemed to Lewis that the best way to put that across to an Ivy League student was to talk about the responsibility of a lucky person to an unlucky person. How did they respond?
They responded extremely well to the talk, he says. But then when you get individual Wall Street people in a room, they undoubtedly feel all these things but they will say the system is so screwed up, what can they do?
Anyway, the talk was a way of addressing some of this. But in a way I also realised that this was the thing that had been on my mind from the beginning. Its like I cant believe that the people at the top of society, people making a billion dollars a year, still feel the need to game the system so they can make $2bn. Buying politicians and all that. And thinking that is what they are supposed to be doing. Thinking that makes them smart. Every system is riggable, but it doesnt make you smart to rig it. It has become this idea that you are a fool if you dont try to game the system
Later in the evening after a screening of the film, I watch Lewis on stage being asked a question by Jon Snow in a Q and A: Having brought all this horror and criminality out in the open, what do you suggest we do about it? What will you do?
Not surprisingly Lewis flounders a little; he mentions Katsuyamas idea, talks of the possibility of the market reforming the market, and looks slightly concerned that having brought these stories out in the open, it seems now down to him to redeem them. He has, of course, no more means to do so than the rest of us, beyond exposing them to our gaze.
Anyway, he is already on to his next book, not about finance; he plans perhaps, in the future, to write something about Barack Obama, who recently granted him some time. He never lacks for stories, he says.
What makes him choose one over another, I ask
Disruptors always make great stories, he says. But that is not how I live my life. Im a go along, get along person. The difference between the writer and the subject is a bit like the respective involvement of a chicken and a pig in a ham and eggs breakfast. I would never do myself what Brad Katsuyama has done, for example. Troublemakers, I am drawn to, though I am not one myself by nature; I do like the idea of them.
The Big Short opens in UK cinemas on 22 January. The book is published by Penguin, 9.99. Click here to order a copy for 7.99