The credit crunch with jokes

Unlike most financial writers, who are too serious for their own good, Michael Lewis has a sense of humour and he deploys it deftly. In Liar’s Poker, his semi-autobiographical account of the Salomon Brothers bond desk published 20 years ago, the traders always explain a market move they do not understand by blaming it on ‘the Arabs’. At once, we realise that the Masters of the Universe do not always know what they were talking about.

In The Big Short, Lewis examines the credit crunch through the eyes of a handful of ‘short-sellers’, who not only saw it all coming, but put their money where their mouths were by placing bets that the boom would go bust. Lewis also makes this tale digestible with little vignettes. In 2007, for instance, he tells us that the big players in the mortgage industry held a conference in the sober-suited setting of Las Vegas. Instead of the usual 500 attendees for this sort of event, there were 7000. If ever there was a top-of-the-market indicator, this near-orgy was it. Bear Stearns, now defunct, took its banker clients into the desert to blaze away with Uzi submachine guns at Saddam and bin Laden targets. One of Lewis’s heroes had his suspicions confirmed that Wall Street had constructed a doomsday machine, when he met a stripper who owned five investment properties.

On this stripper’s volatile earnings, which could potentially rise and fall as fast as her underwear, Lewis builds an analogy for the whole rickety edifice which came tumbling down. For at the heart of the credit crisis were sub-prime mortgages, doled out with abandon to poor or unskilled Americans (and Brits for that matter). These loans, sometimes only secured on mobile homes, had ‘teaser rates’ which shot up after the first few years and the short sellers reasoned that the borrowers would then never be able to repay.