The Big Short & Liar's Poker: Thoughts on the books and film

Michael Lewis is an exceptional author. Exceptional in two senses of the word; firstly, because he has unique access to and is able to bring elucidation to the typically opaque world of American finance and, secondly, because so many within the world of finance take exception to him.

His 1989 debut, Liar’s Poker, is a viciously comic examination of wall street during a period of government deregulation and the consequent explosion of wealth (and deceitful behaviour) that remains a stereotype of wall street traders today. The Big Short, his 2011 non-fiction upheaval of the financial crisis of 2007-08, is a very different kind of book. No longer autobiographical, it gathers the stories of individuals who foresaw the real estate bubble and bet on its occurrence. The book stands up as a work of brave financial journalism but also succeeds as something more than just that, an important (dare I say it) work of art. Lewis aims not only to recount the details of that tumultuous year but to do so with a sense of poeticism.

“Does it make you feel bored? Or stupid? Well, it’s supposed to. Wall Street loves to use confusing terms to make you think only they can do what they do. Or even better, for you to leave them the fuck alone.”

The above quote is from Adam McKay’s 2015 film adaptation of The Big Short. It does a good job of summarising a key theme that runs throughout the entirety of both film and book versions, ‘tactical convolution’.

In Liar’s Poker, Lewis details the conception of the mortgage department at the Salomon Brothers investment bank. He identifies this as a key moment in America’s financial history, a moment in which Lewis Ranieri (a 30-year-old utility bond trader) became the spearhead for the hugely profitable, and ultimately catastrophic, mortgage security market. The book then charts the incredible development of the mortgage bond department under Ranieri and, consequently, its emergence as a focal point within the wider stock market.

It details, inscrutably, the lengths traders took to dress American homeowner debts as attractive commodities and it recounts the gluttonous transformation of these men, from honest brokers into slavering crooks.

It follows the decision to build a market for subprime loans as brokers grew ever desperate to satisfy growing customer demands and line their own pockets.

In The Big Short we learn about the tranche system, which is designed to categorise loans into a rated hierarchy so that price is made correlated to risk.

Then we discover the CDO (collateralised debt obligation), which is a newly invented pool of assets comprised of old subprime loans that didn’t sell.

Why bother explaining all this?

The storyline of these books and this film, more or less, follows the trajectory of our housing debts, rather than a particular set of characters. It is the story of the numbers and of how men from every corner of the stock market worked together in order to hide these numbers, convoluting the market further and further until it was entirely indecipherable, and therefore not recognisable as unprofitable to the buyer. The results speak for themselves; a market crash and an eventual bailout.

The beauty of Michael Lewis’s work, though, lies in its attempt to roll back these layers of convolution, piece by piece, until we get to the heart of the issue. There is something truly fascinating about watching someone take a subject that is endlessly complicated and slowly peel away each layer of complication. The fact that someone like me, with absolutely no knowledge of or acumen for finance, can recount (albeit badly) the evolution of the mortgage bond into a CDO, is a testament to the man’s skill for explication. He goes to such pains to explain to us because he knows what lies at the centre of all these numbers; human beings making human decisions. The Big Short eventually takes on a sort-of cerebral quality as we realise, ultimately, the decisions made to scramble an otherwise steady and transparent market lie within a few men’s iron will to grow wealthier. Lewis has lived this life, he is a former member of a brotherhood that enables greed at the expense of others, celebrates it and manipulates the system to facilitate it.

One reason I love the film so much is that Adam McKay saw the same thing I did in the literature, which is a human origin. It's a beautiful piece because it is a reminder that no vocation is so far removed from humanity as to be entirely mechanical. It is a strangely comforting thing, to be assured that despite the formalities, our most esteemed institutions are still informed by a bad year in high school, or the affections of a mother, or the spurning of a childhood sweetheart. Every trillion dollars can be traced to a single emotion-led decision. The poeticism of The Big Short is in its refusal to acknowledge the vast, imperial façade surrounding Wall Street and to see it for what it is: un-convoluted. Humans making human decisions, that affect all of us.