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Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

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Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#11

Post by pchristensen »

gizmo wrote: post #6

> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person di…

I don't think that comment is a slam on the idea, just the likelihood of it coming to pass. I expect Wall Street to screw everybody for profit, and I expect most businesses everywhere do it to the best of their ability. Wall Street is just more able.

I read that as the author longing for that fresh optimism to think that Wall Street could be changed.

I agree that if it ever were to change, it would be because (shareholders, the SEC, Congress) changed the incentives. For instance, bonuses and commissions held in escrow and then normalized based on actual vs advertised performance. Rating agencies may only accept payment from sellers or buyers but not both. Etc.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#13

Post by va_coder »

I think it's great that she investigated the issue and wrote a well put together article, but the heart of the problem has been known for a while:

* No money down loans

* No proof of jobs required

* Fannie & Freddie bought this junk

* Repeal of Glass Steagal

All the talk in the world won't change the fact that the solution requires legislators and law enforcers to have a strong backbone and prosecute those who committed fraud.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#14

Post by mattobrien »

va_coder wrote: post #13

I think it's great that she investigated the issue and wrote a well put together article, but the heart of the problem has been known for a while: * No money down loans * No proof of jobs required * Fannie & Freddie bought this junk * Repeal of Glass Steagal All the talk in the world won't change the fact that the solution requires legislators and law enforcers to have a strong backbone and prosecute those who commit…

Fannie and Freddie actually lost market share as the bubble really got going. They were prohibited from getting into most subprime, and tried to get around their regulations.

Wall Street was the driver in buying up these shitty mortgages to put into MBS/CDOs -- and quite a few big banks bought mortage originators so they could get bigger margin on these deals. Unfortunately for them Wall Street couldn't find buyers for all of this toxic crap and/or were too dumb to realize how bad some of this stuff was (ie Citigroup). That's why you had a bank run on Bear Stearns, once people realized the collateral they were using in the repo market was effectively worthless.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#15

Post by va_coder »

mattobrien wrote: post #14
va_coder wrote: post #13

I think it's great that she investigated the issue and wrote a well put together article, but the heart of the problem has been known for a while: * No money down loans * No proof of jobs required * Fannie & Freddie bought this junk * Repeal of Glass Steagal All the talk in the world won't change the fact that the solution requires legislators and law enforcers to have a strong backbone and prosecute those who commit…

Fannie and Freddie actually lost market share as the bubble really got going. They were prohibited from getting into most subprime, and tried to get around their regulations. Wall Street was the driver in buying up these shitty mortgages to put into MBS/CDOs -- and quite a few big banks bought mortage originators so they could get bigger margin on these deals. Unfortunately for them Wall Street couldn't find buyers f…

Fannie and Freddie bought a lot of subprime. I had friends that worked there and told me so and I've read about it. Over the long term Fannie made a lot of people rich. Read Beating the Street by Peter Lynch. He made a fortune off Fannie. Taxpayers will pay, unfortunately.

http://www.washingtonpost.com/wp-dyn/content/article/2008/08...

Without Fannie and Freddie and the backing by the US taxpayer Wall Street would not have taken as much risk.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#16

Post by gizmo »

pchristensen wrote: post #11
gizmo wrote: post #6

> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person di…

I don't think that comment is a slam on the idea, just the likelihood of it coming to pass. I expect Wall Street to screw everybody for profit, and I expect most businesses everywhere do it to the best of their ability. Wall Street is just more able. I read that as the author longing for that fresh optimism to think that Wall Street could be changed. I agree that if it ever were to change, it would be because (shareh…

You may be right, it is plausible the author refers to her decision to work on Wall Street to change it from the inside as the product of the innocence of youth.

I should have given the author the benefit of the doubt.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#19

Post by ctkrohn »

derrickchen wrote: post #5

Just finished Big Short and it's good - like anything by Michael Lewis. It's the only thing I've read that completely tied together the hedge funds, the investment banks and AIG for me.

It's not the most complete book on the financial crisis, but it's not trying to be. It is certainly the most entertaining though.

Re: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead

#20

Post by gruseom »

gizmo wrote: post #6

> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person di…

I hardly disagree about the WSJ in general but I read the end of this article differently. The author's final question is a good one: why on earth did she take a job working for the very people whose irresponsibility her research exposed? Her answer, assuming it's sincere and not quoted out of context, is indeed naive: she's doing it to change the culture of Wall Street. Well, I agree with what I imagine the author's implicit points to be: (1) the odds that Wall Street culture will change because she took an analyst job are infinitesimal, it doesn't matter how brilliant and well-intentioned she is; (2) this is the kind of grandiose fantasy you have at that age.

Sadly, many young people overestimate how resilient they will be to a culture they abhor, which is how they get sucked in and assimilated. The risks to the beast are negligible compared to the risks to her soul (if this were a movie we'd all be yelling Nooooooooo...) and she's not unusual in underestimating this.

On the other hand, it's easy to understand why any "large New York investment bank" would want to hire her: anyone who can figure out what they do that masterfully will be useful in doing more of it.

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