"Any business where you can sell a product and make money without having to worry how the product performs is going to attract sleazy people. That was the seamy underbelly of the good idea..."
This quote explains the fundamental problem with much of the business on Wall Street; because people on Wall Street can make money from their business regardless of how well their business actually does, they can afford not to worry too much about outcomes. According to Sy Jacobs, a Wall Street analyst who went through the same program at Salomon Brothers as Michael Lewis did and then went on to a small investment bank, this system necessarily attracted "sleazy people." Jacobs is referring specifically to the subprime lending industry, in which lenders could sell investors the loans they made in the form of mortgage bonds. According to him, the industry was flawed because it allowed people to make money without monitoring their product carefully. This disconnect between production, moneymaking, and consequences would also contribute to the eventual market crash in 2008; without accountability, people on Wall Street went too far in exploiting their investors for the sake of making more money for themselves.
"That's when I decided the system was really, 'Fuck the poor'."
This quote exemplifies Steve Eisman's attitude toward Wall Street. Although he started out as a Republican in his youth, he gradually became more politically liberal as he spent time on Wall Street. Eisman observed first hand that the system on Wall Street was meant to benefit those who worked on Wall Street, and those who already had a certain amount of accumulated wealth. Because Wall Street was so isolated from the general public, and looked out for the benefits of those who already worked on Wall Street, it tended not to act in the best interest of the poor and the middle class. In Steve Eisman's characteristically crude terminology, Wall Street's attitude seemed to be: "fuck the poor." Eisman decided that the system is built to be against the poor around the same time that he decided to bet against subprime mortgage bonds; he learned exactly how bad subprime mortgage bonds were for ordinary Americans, and how unlikely they were to pay off for people on Wall Street, as well. His bet against subprime mortgage bonds is thus at least partly a bet motivated by his disgust for Wall Street and its treatment of the general public.
The goal of the innovation, in short, was to make the financial markets more efficient. Now, somehow, the same innovative spirit was being put to the opposite purpose: to hide the risk by complicating it.
Throughout this text, Lewis explains the intricacies of Wall Street, and the many ways in which Wall Street went wrong in the years leading up to the financial crisis of 2008. He gives Wall Street credit for innovations that were first meant to make financial markets more efficient, and improve upon previous models. But he also clearly points to ways in which this goal of efficiency over time shifted toward maximizing profits for people on Wall Street, often at the expense of efficiency and the interests of the general public. In this quote, he explains that the goal of the subprime mortgage market had originally been to make financial markets more efficient overall. But, soon after they were first invented, subprime mortgage bonds became a way of complicating risks by tying them up with a more obscure set of rules and loans. By complicating risks, traders were able to more easily hide them, and trick investors.
To him [Burry] as to Steve Eisman, a credit default swap wasn't insurance at all but an outright speculative bet against the market—and this was the second way to think about it.
Burry and Eisman are often compared throughout this text. Both of them are very much outsiders; Eisman has a fiery personality that often gets him into trouble, and Burry is withdrawn in ways that often put other people off. They are also united in their collective disdain for Wall Street, and their assurance that betting against subprime mortgage bonds is not even a bet in the first place, but rather an assured payoff. For both Eisman and Burry, credit default swaps do not represent simple insurance, as they are meant to. Instead, these two think of them as a bet against the market as a whole. They are both so disillusioned about the market's supposed efficiency and the ability of people on Wall Street to fully understand their business that they are both willing to bet against the market itself.
Here was a strange but true fact: The closer you were to the market, the harder it was to perceive its folly.
This "strange but true fact" guides many of Greg Lippmann's actions throughout the text. Lippmann recognises that those who are closest to the market are the worst at recognizing just how many problems it has. For this reason, he gives up on approaching people who are very deep inside Wall Street with his offer of selling them credit default swaps. Instead, he starts to approach people like Steve Eisman, who operate more on its outskirts and have a more cynical, outsider's view of the market. This "strange but true fact" is also important to keep in mind when considering how so many people failed to realize that a crash was imminent; many people were so enmeshed in the market and so much in the middle of its seedy business that they could not step back and see what it looked like from the outside. For this reason, outsiders became particularly important for spotting the flaws in the market and predicting disaster early on.
Looking for bad bonds inside a CDO was like fishing for crap in a Port-O-Let: The question wasn't whether you'd catch some but how quickly you'd be satisfied you'd caught enough.
The narrator often makes use of crude similes to illustrate the dire state of the mortgage bond market. Here, in a particularly harsh and graphic simile, Lewis compares the experience of searching for a bad bond within a CDO to "fishing for crap in a Port-O-Let." By this, he means to say that it was extraordinarily easy to find bad bonds within CDOs. In fact, it was as though CDOs were made for bad bonds—that was how guaranteed it was that you would find them there. Thus, the issue was not whether or not you could find a bad bond, but how fast you could find enough to be satisfied that the CDO was, in the end, just a receptacle for garbage.
In Vegas the question lingering at the back of their minds ceased to be, Do these bond market people know something we do not? It was replaced by, Do they deserve merely to be fired, or should they be put in jail? Are they delusional, or do they know what they're doing?
This quote speaks to an important turning point in the text. After visiting a conference in Vegas, Eisman and his colleagues gain firsthand knowledge of just how inefficient the bond market is. Before this, they had suspected that subprime mortgage bonds were a bad idea. But they hadn't actually interacted with the people responsible for creating and distributing them. They feared that maybe the people behind subprime mortgage bonds simply knew more than they did, and perhaps these bonds were not actually such a bad idea. After the conference in Vegas, however, Eisman decides that these people do not know anything special. In fact, they seem to be crooks and liars and ignorant of the intricacies of their own jobs. He wonders whether they are perpetrating these crimes out of greed on purpose, or out of simple ignorance. Either way, he comes to despise the entire market.
"I said to my mother, 'I think we might be facing something like the end of democratic capitalism,'" said Charlie. She just said, 'Oh, Charlie,' and seriously suggested I go on lithium."
Lewis often emphasizes just how unbelievable the crash of 2008 seemed to everyone even just a year before it happened. He describes the disbelief and mockery that his main characters faced when they predicted the disaster so much in advance. In this quote, Charlie Ledley's interaction with his mother illustrates this dynamic. He makes the admittedly dramatic statement that he believes the US is facing "something like the end of democratic capitalism." In response, his mother simply says "Oh Charlie" and suggests that he may need to go on medication for treating bipolar depression. Of course, Ledley's statement turned out to be a bit too dramatic; although the financial crash of 2008 was devastating, it doesn't seem to have brought about the end of democratic capitalism. But his mother's assumption that anyone who thinks this must be clinically bipolar also shows how severely everyone else reacted to the suggestion that Wall Street could be in trouble.
Yet not only had he failed to grasp what his traders were up to, back when they were still up to it; he couldn't even fully explain what they had done after they had lost $9 billion.
One of the main themes of the text is just how obscure and hard to understand Wall Street and its manipulative schemes can be. Toward the end of the book, Lewis describes a conference in which the CEO of Morgan Stanley attempted to explain to his investors how the company had lost so much money through its involvement in subprime mortgage bonds. Remarkably, he wasn't even able to fully explain what had happened, so much after the fact. Lewis uses this example to make the point that the situation was so obscure, not only was it not understood at the time, but it wasn't fully understood after it had happened, either. Plus, someone like a CEO of a major company like Morgan Stanley, which was very much involved in the subprime mortgage market, should have been expected to know the situation inside out. But, as shown here, he had no idea how to explain the loss he had suffered.
That was the problem with money: What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other.
This quote encapsulates one of the book's main points: people on Wall Street did not consider the consequences their actions would eventually have on the general public. What Lewis suggests here is that this is not just a problem with Wall Street, specifically, but rather with money in general. People rarely consider that their use of money comes with consequences, because these consequences feel "so remote from the original action" of spending the money. Overall, this quote suggests that the root of the problem with Wall Street runs very deep—and is perhaps a problem connected to money itself.
