< Risk and Return

Transcript

Friday, November 21, 2008

BOB GARFIELD:
From WNYC in New York, this is NPR’s On the Media. I'm Bob Garfield.
BROOKE GLADSTONE:
And I'm Brooke Gladstone. What an awful week this was for our economy — again. On Thursday, the Dow Jones Industrial Average set another new low for the year, the S&P index dropped to its lowest point since 1997, new claims for unemployment soared, consumer prices sagged, and reporters labored to keep track of it all – awful, and yet familiar to longtime financial reporter Michael Lewis. He’s the editor of a new book called Panic: The Story of Modern Financial Insanity, out on December 1st.

It looks back on five financial panics over the past 20 or so years as well as the reporting done before, during and after each meltdown. Compiling a book like this, Lewis says, is a lesson in pattern recognition.
MICHAEL LEWIS:
The pattern tends to mirror the moods of the markets. So when the market is going up, regardless of however insane the reason for it going up, the patter in the press is very boosterish, optimistic, going along for the ride.

Things go bad — the first thing that happens is there are recriminations in the press, but then the press turns to these pieces written with Olympian detachment after everything’s come to grief. We always knew this was rotten. And you can't go back before the event and find anybody saying — very seldom, anyway — that it was rotten.

There’s a lack of perspective to the first kind of coverage and a lack of really deep honesty to the second kind of coverage. In addition, people, when they're describing money, there’s so much mystique around it and so much complexity has been added to the world of money, and everybody’s afraid of not seeming to understand it. Everybody’s afraid of asking the simple question — like, why does that make sense, or could you explain that in English?
BROOKE GLADSTONE:
Is this level of complexity new?
MICHAEL LEWIS:
Yes. It’s gotten more and more and more complex over the last 30 years. It’s harder and harder to really unpack it for a reader —and I've tried, you know, so I know [LAUGHS].

And I think the journalism for the last six or eight months of this crisis has been pretty magnificent, but there is this — nobody wants to be stupid. You know, once you’re in the room with the Treasury Secretary or the CEO of a Wall Street firm or even just some hot shot Wall Street trader, you don't want to seem like the idiot journalist who doesn't know what this is or why this works, because the natural response from the authorities is to ridicule you.

But the obvious questions are usually really the best questions. So, like, the obvious question now? Alright, Hank Paulson, Treasury Secretary, you just gave 200 billion dollars to banks to make loans, banks that have proven they were bad at making loans because they would be bankrupt without you giving them money. Why give them the money?

And you get back gobbledygook to preserve the financial order, restore stability. How does that restore stability? All it does is encourage the same bad behavior.
BROOKE GLADSTONE:
Are enough reporters asking that question now?
MICHAEL LEWIS:
The problem is in order to get on the other side of a desk from the Treasury Secretary to ask him that question, you have to have proven your unwillingness to ask that question. You know, I. F. Stone was great on this subject. He said, you know, I don't want to talk to the President of the United States because to get to that position where I'm allowed to talk to the President of the United States, I have to compromise myself to such an extent I won't function.
BROOKE GLADSTONE:
If the behavior on Wall Street seems incapable of real improvement, do you think that the coverage of Wall Street is?
MICHAEL LEWIS:
I think that when there’s massive interest in Wall Street and people can do real well for themselves as journalists writing about Wall Street, the coverage gets better — after the bad things have happened. When the really good things are happening, the journalists tend to become bankers. I mean, that’s literally true.

And some of the great bashers of Wall Street of the past have — you know, Lou Dobbs, great populist — Lou Dobbs was swept up in the dot com boom. He created Space.com, started a front for Merrill Lynch. Journalists are as susceptible to the financial rewards as everybody else.
BROOKE GLADSTONE:
And then again, you occasionally find the bond trader who runs in the opposite direction, into journalism.
MICHAEL LEWIS:
When he knows he’s a really bad bond trader.
BROOKE GLADSTONE:
[LAUGHS] Were you really?
MICHAEL LEWIS:
I was perceived as a success, but they were mistaken. [BROOKE LAUGHS] And you can see they have a capacity for doing that.
BROOKE GLADSTONE:
You wrote your first book, Liar’s Poker, after you departed from Wall Street, where you were a bond trader in the '80s, and you wrote in this months Portfolio that you intended that book to be a cautionary tale. So how did that work out for you?
MICHAEL LEWIS:
Not very well. [BROOKE LAUGHS] I mean, it was my first lesson that readers — you write one book and readers read whatever they want to read.

I kind of hope that the young people who are thinking about going to work on Wall Street who pick up this book to see what it’s really like, they read it and they say, well, I'll go do something more meaningful with my life.

And instead, when the book came out, I mean, I was literally inundated with letters that said, Dear Mr. Lewis, I am a senior at Ohio State University and I read your book, How to Get Ahead on Wall Street, and I just hoped that you had some more tips for me because I'm now really excited about going to work on Wall Street. [BROOKE LAUGHS]

Over the years, more people than you want to know tell me that the reason they went to work on Wall Street was they read Liar’s Poker. So it had exactly the opposite effect. I probably should have known better.
BROOKE GLADSTONE:
Is the moral, then, that human nature is a force that always overwhelms unwelcome information?
[LAUGHTER]
MICHAEL LEWIS:
Yes.
BROOKE GLADSTONE:
[LAUGHS] Does your research lead you to believe that we can never learn from our mistakes because of greed?

MICHAEL LEWIS:
Yes. I think it’s fair to say that in a way the financial markets have set out to demonstrate in the last 30 years that no matter how colossal a blunder you make, you’re capable of making an even more colossal one just next year.
BROOKE GLADSTONE:
And all of these brilliant stories that have been written in the wake of the current disaster, all the cautionary tales contained therein, are they going to make a ripple?
MICHAEL LEWIS:
Even people as hardboiled as the typical Wall Street trader is, gets his understanding of the world from some place. And a really well written piece of journalism about Wall Street ends up being parroted back to you by lots of people on Wall Street who think they're being original. They read it, and that became their understanding of the world. So reporting does shape the thing’s view of itself.
BROOKE GLADSTONE:
Even though in Panic, you show how it didn't have a lasting effect over the five
MICHAEL LEWIS:
Yes.
BROOKE GLADSTONE:
previous disasters
MICHAEL LEWIS:
Even though — and I'll tell you what — even —the difference is, before, these were financial events that left everybody else largely untouched. In this case, it’s a financial event that is going to touch everybody in America.
BROOKE GLADSTONE:
All right. Thank you very much.

MICHAEL LEWIS:
Sure.
BROOKE GLADSTONE:
Michael Lewis is the editor of Panic: The Story of Modern Financial Insanity, to be published on December 1st, and the author of Liar’s Poker.